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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 ..... was squared off by the respective parties in their books of account. The same does not tantamount to furnishing of any inaccurate particulars of income on the part of the appellant. In view of the above stated facts and circumstances, it is prayed that the penalty order may kindly be quashed." 3. During the course of hearing before us the Ld.Counsel for the assessee took us through the facts of the case as find mention at para 4 of the order of the Ld.CIT(A) in terms of reproduction of the penalty order passed by the Assessing Officer. Referring to the same, Ld.Counsel for the assessee pointed out that penalty in the present case had been imposed on addition made during the assessment proceedings u/s 41(1) of the Act, of outstanding credit balance in the accounts of two parties, holding that the same had ceased to exist. It was pointed out that the two parties whose outstanding credit balance had been so treated as income of the assessee were the following: 1) Air Agro Pvt. Ltd. = Rs. 11,64,889/- 2) Indian Steel Wire Product Limited = Rs. 19,49,263/- 4. It was pointed out that the assessment order so passed had not been challenged by the assessee and in this backdrop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re never came into business and did not have any trading transactions, as there was no operational income or expenditure. The company is operationally inactive since its inception and now lying dormant with no commercial activities. Certain expenses were incurred by M/s Air Agro Private Limited and The Indian Steel & Wire Products Limited erstwhile sister concerns, at the time of setting of business in behalf of the Company. Hence the amount lying to their credit were shown as liability towards them and these liabilities are in no way trading liability as the company never came into operation. The Assessing Officer during the course of Assessment Proceedings sought information u/s 133(6) of the Income Tax Act, 1961 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. It is submitted that the amount in question was not trading liabilities. The respective companies had incurred certain expenses on behalf of the appellant company which was shown as payable to them by the appellant. The respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early concealed/furnished inaccurate particulars of income. The Ld. DR relied upon the findings of the Ld.CIT(A) at paras 4.5 of the order as under: 4.5 In the present case, the assessee Company M/s Brahma Steyer Tractors Ltd. was established in the year 1993 to set up a Plant for manufacturing of tractors, but that plant could not be set up and resultantly the company's business never came into being. There were no trading transactions either. Besides this, natural corollary was that there was no operational income or expenditure. Meaning thereby that the assessee company is operationally inactive since its inception and lying dormant with no commercial activities. The AR has submitted that certain expenses were incurred by M/s Air Agro Private Limited and the Indian Steel & Wire Products Limited erstwhile sister concerns, at the time of setting of business on behalf of the Company. The amount lying to their credit were shown as liability towards them and these liabilities are in no way trading liability as the company never came 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 Ai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has been accepted by the assessee when it has not filed appeal against the assessment order. It is in these fact and circumstances the AO has held that the appellant has furnished inaccurate particulars of income. The AO has established beyond doubt that the intention of the assessee was of mutual cessation of the above liabilities with the creditors. The case laws relied by the AR do not help the case of the assessee in the light above facts of the assessee. Hence, penalty imposed by the AO is confirmed. The Ground of Appeal is dismissed." 7. We have heard the rival contentions and carefully perused the orders of the authorities below. The issue before us relates to levy of penalty on the addition made in assessment, to the income of the assessee, u/s 41(1) of the Act, being liabilities relating to two creditors ,ceasing to exist. It is an admitted fact that the assessee has not challenged the said addition before the appellate authorities. 8. Having said so we agree 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 proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlier by the assessee are treated as profits and gains of business. Further the section treats such liabilities as incomes of the year in which the liability ceases to exist. 12. In the present case we find that both the requirements of the section are not fulfilled. The Ld.CIT(A) himself has recorded a finding of fact at para 4.5 of his order , reproduced above, that the impugned liabilities do not represent any trading liability since the assessee had never commenced business and had therefore never incurred any operational expense or earned any income. The Ld.CIT(A) has gone on to mention the assesses explanation that these liabilities represented advances given by the two creditors for setting up business of the assessee, but has not controverted the same nor found any falsity in the same. Therefore even 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 admiss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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