2015 (11) TMI 480 - AT - Income Tax

Tribunal overturns penalty due to invalid basis under tax law, assessee's appeal successful.

The Tribunal concluded that the addition of Rs. 5,18,000 under Section 41(1)(a) was not justified as the liability was from a previous year, and there was ... Penalty u/s 271(1)(c) - bogus credit balance shown in the books of accounts of the assessee in the name of M/s. Mayank Fabrics and treated as assessee’s income u/s 41(1)(a) - Held that:- The AO has questioned the genuineness of the liability and in absence of the requisite confirmation, has held the same to be a bogus liability. Where the liability itself has been held to be a bogus liability, where is the question of remission or cessation thereof. Thus, in the instant case, where the addition itself is doubtful under the provisions of section 41(1), the same cannot form the basis for levy of penalty. See COMMISSIONER OF INCOME TAX Versus BHOGILAL RAMJIBHAI ATARA [2014 (2) TMI 794 - GUJARAT HIGH COURT] - Penalty deleted - Decided in favour of assessee. Issues Involved:1. Confirmation of penalty levied under Section 271(1)(c) of the Income Tax Act.2. Validity of the addition of Rs. 5,18,000 as income under Section 41(1)(a) of the Income Tax Act.Issue-wise Detailed Analysis:1. Confirmation of penalty levied under Section 271(1)(c) of the Income Tax Act:The primary issue was whether the CIT(A) erred in confirming the penalty of Rs. 1,51,930 levied under Section 271(1)(c) of the Income Tax Act. The penalty was imposed due to the assessee allegedly furnishing inaccurate particulars of income by claiming a bogus liability in the name of M/s. Mayank Fabrics. The assessee contended that the credit balance of Rs. 5,18,000 was genuine, originating from preceding financial transactions and supported by bank statements. However, the AO found discrepancies in the records, with M/s. Mayank Fabrics denying any such account. Despite the assessee's explanation and partial repayment evidence, the AO concluded that the liability was bogus and added the amount to the income, leading to the penalty imposition. The CIT(A) upheld this penalty, stating the surrender of income was not voluntary but a result of the AO's detection.2. Validity of the addition of Rs. 5,18,000 as income under Section 41(1)(a) of the Income Tax Act:The second issue was whether the addition of Rs. 5,18,000 as income under Section 41(1)(a) was valid. The AO treated the credit balance as ceased liability and added it to the income. The assessee argued that the amount was received through banking channels and the liability was genuine, citing previous transactions and repayments. The AO's reliance on third-party information without thorough verification was challenged. The Tribunal referred to the Gujarat High Court's decision in CIT vs. Bhogilal Ramjibhai Atara, which held that for Section 41(1) to apply, there must be remission or cessation of liability during the relevant year. Since the liability was from a previous year and there was no remission or cessation in the current year, the addition under Section 41(1)(a) was deemed inappropriate.Conclusion:The Tribunal concluded that the addition of Rs. 5,18,000 under Section 41(1)(a) was not justified as the liability was from a previous year, and there was no remission or cessation during the relevant year. Consequently, the basis for the penalty under Section 271(1)(c) was invalid. The Tribunal deleted the penalty of Rs. 1,51,930, allowing the assessee's appeal.Order Pronounced:The appeal of the assessee was allowed, and the penalty levied under Section 271(1)(c) was deleted. The order was pronounced in the open court on 01/10/2015.