2015 (12) TMI 891 - AT - Income Tax

Penalty u/s 271(1)(c) - cessation of liability u/s 41(1) in respect of two trade creditors and in respect of one trade debtor - Held that - It clearly emerges that the amounts in question were carried over trade credits from earlier year, corresponding purchases were included in trading a/c thus legally speaking if trade credits are added as cessation of liability, the relevant entries exist in books and if they are held as bogus then they belong to earlier years. These pleas can be taken by assesse in penalty proceedings and in that case penalty can be imposed not on the sole basis of alleged surrender but after consideration of merits of the explanation. AO has held that the surrender is not acceptable and chose to add it u/s 41(1) of the Act. Thus technically even the surrender is not accepted. The details about trading liabilities and transactions were reflected in the accounting statements which were part of the return of income. Hon ble Supreme Court in Reliance Petro Products case (2010 (3) TMI 80 - SUPREME COURT ) has held that if the relevant information is filed with the return of income in that case any variation in the claims of the assesse will not entail penalty. This judgment also supports the case of the assesse, in view thereof also the penalty in this case can not be imposed by merely referring to the alleged surrender and without considering the explanation. Thus, in consideration of entirety of facts, circumstances and case laws as relied on by assesse, we delete the penalty. - Decided in favour of assessee.

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Alleged cessation of liability under Section 41(1) in respect of trade creditors and a trade debtor.
3. Voluntary surrender of income by the assessee and its implications on penalty proceedings.
4. Distinction between penalty proceedings and assessment proceedings.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The case revolves around the imposition of a penalty amounting to Rs. 5,56,790/- under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was levied due to the alleged concealment of income and furnishing of inaccurate particulars by the assessee. The assessee contested the penalty, arguing that the amounts in question were carried over as trade credits from earlier years and were duly reflected in the books of accounts.

2. Alleged Cessation of Liability under Section 41(1) in Respect of Trade Creditors and a Trade Debtor:
The penalty pertains to the cessation of liability under Section 41(1) concerning two trade creditors (M/s. Pushpa Marble Industries and M/s. Mukund Marble Factory) and one trade debtor (M/s. Yogi Marbles). The Assessing Officer (AO) found discrepancies in the inter se accounts and held that the liabilities were bogus. The assessee argued that the liabilities were genuine and related to previous years' transactions, which had been accepted by the department in earlier assessments.

3. Voluntary Surrender of Income by the Assessee and Its Implications on Penalty Proceedings:
The assessee voluntarily surrendered the disputed amounts to avoid litigation, claiming that it was based on the advice to maintain peace with the department. The AO, however, did not accept the surrender as voluntary and treated the amounts as cessation of liability under Section 41(1). The assessee contended that the surrender was made in good faith and that no inaccurate particulars were furnished, nor was any income concealed.

4. Distinction Between Penalty Proceedings and Assessment Proceedings:
The assessee emphasized that penalty proceedings are distinct from assessment proceedings. The mere fact that income was surrendered does not automatically warrant the imposition of a penalty. The explanation and circumstances surrounding the surrender should be considered objectively. The CIT(A) confirmed the penalty, stating that the surrender was not voluntary and that the assessee had furnished inaccurate particulars of income.

Judgment:
The tribunal examined the facts and found that the amounts in question were carried over from earlier years and were part of the trading account. It was noted that the AO had not made independent efforts to verify the corroborative details from the concerned parties. The tribunal referred to the Supreme Court judgments in Reliance Petro Products and Price Water House Cooper, which support the view that penalty cannot be imposed merely because income is surrendered. The tribunal held that the penalty was imposed without properly appreciating the issues and the explanation provided by the assessee.

Conclusion:
The tribunal concluded that the penalty under Section 271(1)(c) was not justified as the amounts were carried over from earlier years and were part of the trading account. The explanation provided by the assessee was found to be bona fide, and the penalty was deleted. The appeal of the assessee was allowed, and the order was pronounced in the open court on 17-10-2014.

← Previous Next →