TaxTMI 
TaxTMI 
2014 (2) TMI 1151
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....e assessee was engaged in the business of crushing and processing of mustard seeds and sale of mustard oil and cakes at Aligarh. The AO found that the assessee has shown sundry creditors, other creditors and advance for customers in the balance sheet. The assessee was asked to furnish the details of sundry creditors shown with their PAN and to submit the confirmation of accounts and details as to how many of them were outstanding for more than three years and to produce any correspondence in regard to their outstanding balances shown with reasons and it was also directed that why the same be not disallowed u/s. 41(1) of the IT Act being remission / cessation of trading liability. The assessee in his reply disclosed the names and full addres....
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....ccordingly disallowed. 2.2 The AO also made addition of Rs. 30,969/- on account of Dharmada, which was collected on sale invoices to be spent for charitable purpose, but the same remained outstanding at the end of the year. The AO found that since the amount was not spent, therefore, the addition was made. The AO on all these additions, levied penalty u/s. 271(1)(c) of the IT Act, subject matter in this appeal. 3. The assessee challenged the levy of penalty on all the above additions before the ld. CIT(A).The written submissions of the assessee is noted in the appellate order in which the assessee briefly explained that surrender u/s. 41(1) was made of outstanding balances along with Dharmada, as the Dharmada was payable of previous y....
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.... of expenses u/s. 43B, penalty is not leviable. The assessee filed further submissions to show that sundry creditors came from several earlier years. The details of same are noted at page 18 of the appellate order to show that addition u/s. 41(1) is not justified. 3.1 On consideration of the submissions of the assessee and material on record, the ld. CIT(A) cancelled the penalty u/s. 271(1)(c) of the IT Act. The ld. CIT(A) found that addition on account of section 41(1) is addition purely on legal interpretation of the provisions and the assessee disclosed all the facts that the outstanding balances of the creditors were brought forward from earlier years. Thus, the assessee has given reasonable explanation and details of the same. The a....
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....authorities below and submitted that the assessee agreed for additions because of the heavy losses accumulated from earlier years. Sundry creditors are old balances carried forward from earlier years and there is no cessation of liability in the books of account of the assessee. Therefore, penalty was correctly cancelled by the ld. CIT(A). He has relied upon the following decisions : (i). Decision of Madras High Court in the case of CIT vs. Southern Roadways Ltd, 282 ITR 379, in which it was held - "that the addition under section 41(1) amounting to Rs. 6,21,863/- could not be treated as a cessation of liability, when the amounts were being merely carried forward for years and no details were submitted by the assessee." (ii). Decis....
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.... that the Tribunal after going through the records observed that the disallowance of interest under section 43-B of the Act did not amount to concealment of income and that when there is no tax payable, penalty could not be levied. The cancellation of penalty was justified." 4.2 The ld. counsel for the assessee also filed copy of acknowledgement of fling of return for subsequent assessment year 2009-10 and balance sheet to show that the amount of sundry creditors outstanding in assessment year under appeal was also carried forward in subsequent assessment year 2009-10. Therefore, penalty was correctly cancelled. With regard to service tax payable of Rs. 2,20,997/-, he has stated that since no service tax was payable on this amount, the a....
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....f heavy losses accumulated in the year under consideration. The ld. CIT(A) was, therefore, justified in holding that even the addition is doubtful in nature. It is, therefore, clear that the assessee has bona fide explanation and is supported by the above judgments cited. Therefore, it is not a fit case of levy of penalty u/s. 271(1)(c) of the IT Act. Similarly, it was fund that Dharmada was not expenditure of this year and it was merely carried forward from the earlier years. On mere disallowance of expenses u/s. 43B of the IT Act, penalty would not be leviable as per judgment of Madras High Court in the case of MSK Construction Pvt. Ltd. (supra). The assessee has been further able to explain that the major item of disallowance u/s. 43B wa....