2017 (2) TMI 1018 - AT - Income Tax

Income Tax Appeal: Penalties under Sections 68 and 41(1) partially upheld, appellant's evidence crucial

M/s. Diamond Ply Pvt. Ltd. Versus Dy. CIT (OSD), Range-1, Ahmedabad

The Tribunal partially allowed the appeal against the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961. The penalty for unexplained ... Penalty u/s.271(1)(c) - addition u/s 68 and 41(1) - Held that:- The assessee could not file even a single relevant particular of its creditor so far as Section 68 addition is concerned so as to form even a prima facie case to claim genuineness thereof. Even in the instant penalty file does not contain any such particulars much less to talk about quantum proceedings. It is thus clear that the assessee raised the impugned sundry credits claim without any evidence at all. We accordingly find no reason to disturb learned CIT(A)’s finding as extracted in the preceding paragraph that the abovestated Section 68 addition amount is an instance of furnishing of inaccurate particulars of income. For addition u/Section 41(1) both the authorities below hold that the assessee did not file any details of the relevant creditor in order to prove its liability by way of verification. Shri Madhusudan (learned Senior Departmental Representative) strongly argues that the assessee failed to discharge even its prima facie onus alike Section 68 addition so as to claim its sundry credit liability. We find no force in this plea as the assessing authority invoked Section 41(1) of the Act thereby treating assessee’s liability to have been ceased to exist as the same was more than a year old. We observe in these peculiar facts that the said liability claim already stood accepted earlier since Section 41(1) pre-supposes existence of a liability in order to treat the same to have been ceased to exist. We accordingly conclude that the authorities below have erred in treating the assessee’s liability as both bogus as well as ceased to exist u/s.41(1). We thus accept assessee’s challenge to the impugned penalty pertaining to this latter component. Assessee’s appeal is partly allowed. Issues:Assessment of penalty under section 271(1)(c) of the Income Tax Act, 1961 for furnishing inaccurate particulars of income based on sundry creditors claimed by the assessee.Analysis:1. The appeal was against the penalty imposed by the Assessing Officer for assessment year 2007-08, upholding the penalty of &8377; 28,30,981/- as the assessee failed to provide details of sundry creditors amounting to &8377; 87,48,322/-. The Assessing Officer treated the creditors as bogus and initiated penalty proceedings under section 271(1)(c) of the Act.2. The Assessing Officer made additions under Section 68 for unexplained credit entry and under Section 41(1) for cessation of liabilities. The CIT(A) upheld the penalty, stating that the appellant did not submit any information or details regarding the creditors during the assessment or penalty proceedings. The appellant failed to discharge its onus by not providing confirmations or other relevant details, leading to the conclusion that the credits were unexplained cash credits, deemed as income of the appellant.3. The Tribunal found that the appellant did not provide any evidence to support the sundry credits claimed, leading to the confirmation of the penalty for the Section 68 addition. However, regarding the Section 41(1) addition for &8377; 38,13,206/-, it was observed that the liability had already been accepted earlier. The authorities erred in treating this liability as both bogus and ceased to exist under Section 41(1) of the Act. The Tribunal accepted the challenge to the penalty related to this component, partially allowing the appeal.4. In conclusion, the Tribunal partially allowed the appeal, emphasizing that the appellant failed to provide evidence for the sundry credits claimed, leading to the confirmation of penalty under Section 68. However, the penalty related to the Section 41(1) addition was challenged successfully as the liability was previously accepted. The decision was pronounced on February 17, 2017.