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TMI Blog2019 (10) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had contended that the parties had written off the amounts in earlier years. And on the basis of this admission of the assessee the Revenue derived that the liabilities ceased to exist, but there is no finding, when. The entire case of the Ld.CIT(A) for treating the same as income u/s 41(1) of the Act, rests on the fact that the amounts represent liabilities and the facts demonstrate that they cease to exist. But this is not sufficient to treat the amount as profits and gains of business for the year as required by section 41(1), as pointed out above by us. There was no legally sustainable basis with the Revenue for making the addition u/s 41(1) of the Act. As a corollary therefore it cannot be said that the assessee had furnished inaccurate particulars of income or concealed particulars of income in relation to the addition made, so as to attract levy of penalty u/s 271(1)(C) of the Act. The penalty so levied is therefore directed to be deleted. - Decided in favour of assessee. - ITA No.200/Chd/2019 - - - Dated:- 27-9-2019 - Smt. Diva Singh, Judicial Member And Smt. Annapurna Gupta, Accountant Member For the Assessee : Shri Tej Mohan Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this backdrop and considering the submissions made by the assessee during penalty proceedings the AO had, after rejecting the contention of the assessee finding the plea to be unacceptable, levied the penalty on the impugned additions @ 100% of the tax sought to be evaded on the same, amounting to ₹ 9,62,276/-. It was pointed out that the same was confirmed by the CIT(A) also. 5. Beginning with the arguments, the Ld.Counsel for the assessee stated that though the addition made had not been challenged in appeal, the addition in any case was not sustainable in law and, therefore, there was no case for levy of penalty u/s 271(1)(c) of the Act on account of the assessee having furnished any inaccurate particulars of income or having concealed any particulars of income. It was stated that the addition had been wrongly made under the provisions of section 41(1) of the Act and the penalty proceedings being distinct and separate from assessment proceedings, the assessee was well within its rights to challenge the addition so made in the proceedings. The Ld.Counsel for the assessee stated that section 41(1) of the Act brings to tax any amount earlier claimed as allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany which was shown as payable to them by the appellant. The respective parties had squared off the amount due to them much earlier in the respective books. The same does not tantamount to furnishing of inaccurate particulars by any stretch of imagination. 6. Further the Ld.Counsel for the assessee contended that on eof the creditors The Indian Steel Wire Products Limited., ISWPL, had become sick and had gone to BIFR and thereafter squared off the amounts much earlier in its books of account. That the other, M/s Air Agro Pvt. Ltd. had been taken over by M/s Blue Coast Infrastructure Development Ltd. in 2008 and subsequently its name had been changed to Joy Hotel Resorts Pvt. Ltd. It was contended by the Ld.Counsel for the assessee that when the AO had made enquiry with the said company u/s 133(6) of the Act, it had been stated that the present entity had no dealing with the assessee company, which meant that they were not undertaking any business transaction with the assessee company which was a fact on record. Ld.Counsel for the assessee contended that the same had been incorrectly interpreted by the Revenue as meaning denial of existence of any amount outs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into operation. The AO during the course of Assessment Proceedings sought information u/s 133(6) of the Act regarding outstanding balance by M/s Air Agro Private Limited and the Indian Steel Wire Products Limited. M/s Air Agro Private Limited confirmed having no business dealing with the appellant. M/s Indian Steel Wire Products Limited was in BIFR. AR concluded in his arguments that the amount in question was not trading liabilities. The respective companies had incurred certain expenses on behalf of the appellant company which were shown as payable to them by the appellant. These two respective parties had squared off the amount due to them much earlier in the respective books. The same does not tantamount to furnishing of inaccurate particulars by any stretch of imagination. On perusal of penalty order, and the submissions of the AR, it is clear that these transactions were reflecting in the books of accounts. This is also an undisputed fact that M/s Indian Steel Wire Products Limited was in BIFR. The other company i.e. M/s Air Agro Private Limited now M/s Joy Hotel Resorts Pvt. Ltd. confirmed having no business dealing with the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee with the Ld.Counsel for the assessee that the penalty proceedings are distinct and separate from assessment proceedings and the assessee can justifiably challenge the legality of the addition made in penalty proceedings. 9. The contention of the Ld.Counsel for the assessee before us is that no penalty is leviable since the addition is not sustainable in law, as the provisions of section 41(1) of the Act do not apply to the facts of the present case. The Revenue, on the other hand, has opposed this contention of the Ld.Counsel for the assessee. 10. We find merit in the contention of the Ld.Counsel for the assessee. We find that the assessee has made out a justifiable case against the sustainability of the addition itself. We have gone through the provisions of section 41(1) of the Act, under which addition was made in the present case and penalty levied thereon. The said section is reproduced hereunder: Profits chargeable to tax. 41. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven as per the Ld.CIT(A) the liabilities did not represent any expense, allowance or loss claimed earlier by the assessee. Further we find that that there is nothing on record to show that the liabilities ceased to exist in the impugned year. In fact we find the assessee had contended that the parties had written off the amounts in earlier years. And on the basis of this admission of the assessee the Revenue derived that the liabilities ceased to exist, but there is no finding, when. The entire case of the Ld.CIT(A) for treating the same as income u/s 41(1) of the Act, rests on the fact that the amounts represent liabilities and the facts demonstrate that they cease to exist. But this is not sufficient to treat the amount as profits and gains of business for the year as required by section 41(1), as pointed out above by us. 13. Therefore, we hold, that the there was no legally sustainable basis with the Revenue for making the addition u/s 41(1) of the Act. As a corollary therefore it cannot be said that the assessee had furnished inaccurate particulars of income or concealed particulars of income in relation to the addition made, so as to attract l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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