2019 (1) TMI 525 - AT - Income Tax

Penalty u/s 271(1)(c) - sufficient losses to absorb the assessment of cessation of liabilities u/s 41(1) - Held that - Cessation of liabilities u/s 41(1) will come into picture only when the assessee claimed certain amounts as expenses in the earlier years and the same was also allowed by the revenue. The claims of the assessee were considered as genuine in the earlier years and in such a case no concealment or furnishing of inaccurate particulars can be presumed. In the instant case, it was the inability to reconcile the liabilities and prove the same. Also, as the assessee has closed down its business and there were sufficient losses to absorb the assessment of cessation of liabilities under section 41(1) the assessee has not taken pains to reconcile the differences in the credit balances with M/s. India Cements Ltd and accepted the addition proposed/made by the AO. Such admissions or surrender of claims etc. will not automatically lead to concealment of income or furnishing of inaccurate particulars for the purpose of levying penalty under section 271(1)(c). As observed that if the claims made by the assessee are not genuine or suppressed/inflated or fabricated or malafide etc., the additions/ disallowances or withdrawal of claims etc. will amount to concealment of income or furnishing of inaccurate particulars for the purpose of section 271(1)(c). Similarly, if the transactions shown by the assessee in its return of income is genuine and all the particulars of it are available in the return, mere withdrawal of the claim or not appealing against the assessment by the assessee, will not amount to concealment of income or furnishing of inaccurate particulars. CIT(A) has rightly deleted the penalty levied under section 271(1)(c) - decided against revenue.

Summary

Issues involved:
Assessment under section 271(1)(c) of the Income Tax Act, 1961 - Deletion of penalty by CIT(A) - Concealment of income - Furnishing of inaccurate particulars - Liability under section 41(1) of the Act - Reconciliation of liabilities - Cessation of liabilities - Genuine claims by the assessee - Surrender of claims - Addition proposed by Assessing Officer - Adjudication of penalty - Tribunal's decision on penalty appeal.

Detailed Analysis:

Assessment under section 271(1)(c) of the Income Tax Act:
The appeal filed by the Revenue challenges the order of the Commissioner of Income Tax (Appeals) II, Chennai concerning the assessment year 2007-08 under section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer assessed the income of the assessee at a different amount than declared, leading to the imposition of a penalty under section 271(1)(c) based on alleged concealment and furnishing of inaccurate particulars of income.

Deletion of penalty by CIT(A):
Upon appeal, the CIT(A) deleted the penalty levied under section 271(1)(c) after considering the submissions and facts of the case. The Revenue appealed to the Tribunal against this deletion.

Liability under section 41(1) of the Act - Reconciliation of liabilities:
The case involved a liability claimed by the assessee under the head 'sundry creditors for supplies', which the Assessing Officer treated as ceased to exist and brought to tax under section 41(1) of the Act. The discrepancy arose when the creditor showed the outstanding amount as 'Nil', contrary to the assessee's claim.

Cessation of liabilities - Genuine claims by the assessee:
The assessee argued that the liability was from previous business transactions with a creditor and due to business closure and losses, reconciliation was challenging. The CIT(A) noted that the liability pertained to transactions from earlier years and should not be considered concealment or furnishing of inaccurate particulars in the current year.

Surrender of claims - Addition proposed by Assessing Officer:
The assessee accepted the addition proposed by the Assessing Officer due to the inability to reconcile the liability with the creditor. The Tribunal observed that such acceptance does not automatically imply concealment of income or furnishing of inaccurate particulars for penalty purposes.

Adjudication of penalty - Tribunal's decision on penalty appeal:
The Tribunal upheld the CIT(A)'s decision to delete the penalty under section 271(1)(c) based on the genuineness of the transactions, inability to reconcile, and the context of business closure and losses. The Tribunal dismissed the Revenue's appeal, affirming the deletion of the penalty.

This detailed analysis covers the issues involved in the legal judgment comprehensively, outlining the assessment process, reconciliation challenges, and the Tribunal's decision on the penalty appeal.