Tribunal upholds CIT (A)'s decision to delete penalty under sec 271(1)(c)

The Tribunal upheld the CIT (A)'s decision to delete the penalty imposed under section 271(1)(c) of the Act. The Revenue's appeal against the deletion of the penalty of Rs. 12,58,371/- was dismissed, with the Tribunal finding that the assessee's explanation for the disputed amount was bona fide. Additionally, the Tribunal ruled that the provisions of section 41(1) were not applicable as there was no cessation or remission of liability by the creditor. The order was pronounced on 26-10-2012.

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Issues Involved:
1. Deletion of penalty u/s 271(1)(c) of the Act.
2. Addition u/s 41(1) of the Act.

Summary:

Issue 1: Deletion of penalty u/s 271(1)(c) of the Act

The Revenue appealed against the CIT (A)'s decision to delete the penalty of Rs. 12,58,371/- levied u/s 271(1)(c) of the Act on an addition of Rs. 37,38,477/- made u/s 41(1) of the Act. The assessee, a partnership firm, had written back a disputed amount payable to M/s. Hindustan Lever Limited (HLL) in three installments over three years and offered the same for taxation. The AO disputed this, adding the entire balance amount u/s 41(1) of the Act and initiated penal proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income. The CIT (A) canceled the penalty, reasoning that the assessee's explanation was bona fide and that two views were possible regarding the write-back period. The Tribunal upheld the CIT (A)'s decision, stating that the provisions of s. 41(1) were not applicable as there was no cessation or remission of liability by the creditor.

Issue 2: Addition u/s 41(1) of the Act

The AO added the balance amount of Rs. 37,38,477/- u/s 41(1) of the Act, arguing that the entire sum should be added as deemed profit in the first year of write-back. The assessee contended that the amount was in dispute and HLL had not confirmed the waiver, thus the provisions of s. 41(1) were not applicable. The Tribunal referenced previous judgments, including CIT v. Bharat Iron & Steel Industries and CIT v. Silver Cotton Mills Co. Ltd, concluding that unless there is a cessation or remission of liability, the amounts written back cannot be added to the income u/s 41(1). The Tribunal found that the addition was made on a misconception and upheld the CIT (A)'s decision to delete the penalty.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming that the CIT (A) was justified in deleting the penalty imposed u/s 271(1)(c) of the Act. The order was pronounced in the open Court on 26-10-2012.

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