TaxTMI 
TaxTMI 
2015 (11) TMI 480
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....appeal was filed before the Tribunal. The AO thereafter levied penalty of Rs. 1,51,930/- u/s 271(1)(c) of the Act which the assessee appealed unsuccessfully before the Ld CIT(A). The assessee is now before us against the levy of said penalty. 2.1 Before we proceed to examine the matter of levy of penalty, it would be relevant to note the facts which have a bearing on the matter in more detail, the AO's action and response/explanation of the assessee. 2.2. During the course of assessment proceedings on examination of balance sheet, AO found that the assessee has shown sundry credits of Rs. 5,18,000/- in the name and style of M/s. Mayank Fabrics. Information u/s 133(6) was called from M/s. Mayank Fabrics. M/s. Mayank Fabrics filed a written reply dated 21-08-2009 stating that no account is available in the name of M/s. Agarwal Texco Industries during the financial year 2006-07 in their books of account. Again vide office letter No. 965 dated 25-08-2009, M/s. Mayank Fabrics was provided copy of account in the books of assessee and requested to explain the difference. In response to this query, vide letter dated 4-09-2009 they have reiterated what was stated in the earlier letter th....
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..... On examination of the same, it is found that no cheque has been issued to M/s. Agarwal Texcom Industry in these dates. 2.5. The above facts were made known to the assessee and in response, the assessee filed a written reply on 20-11-2009as under:- ''(1) As per our records we have the credit balance of Rs. 5,18,000/- in our books in the account of M/s. Mayank Fabrics for the year ended on 31-03-2007. (2) As the party is not acknowledging the same, hence, we hereby surrendered the balance of Rs. 5,18,000/- for taxation to purchase the peace and to avoid further litigation.''; 2.6. In light of above facts, the AO held that the credit balance shown in the name of M/s. Mayank Fabrics was bogus and the amount of Rs. 5,18,000/- was treated as assessee's income u/s 41(1)(a) of I.T. Act and added to the total income. 2.7 Being aggrieved by the order of the AO, the assessee carried the matter before the ld. CIT(A) who dismissed the appeal of the assessee by observing (para 4.22) as under:- "When the present case is examined in view of this legal position, it is found that appellant claimed bogus liability in respect of sundry credit balances of Rs. 5.18 ....
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....nt year, any entry in respect of any funds from M/s. Vikas Industries is written in the books of assessee. 2.9 The ld. AR further submitted that the law is well settled that though the finding recorded in the assessment orders are relevant for penalty proceedings, but these cannot be the foundation for holding the assessee guilty of concealment of particulars of income more particularly when no amount whatsoever was received during the year under appeal and the amount for which the assessee is held as concealing the particulars of income was the opening balances for which the credit entries were made in the books of accounts in preceding assessment years. Hon'ble Apex Court in the case of Eilly Lilly & Company reported in 312 ITR 225 has held that the penalty u/s 27(1)(c) is not an automatic or mandatory fallout of the addition made during the assessment proceedings. Merely because an addition had been made during assessment proceedings does not ipso fact constitute default of concealment on part of the assessee, therefore, the same should not be levied in routine manner. It is an admitted fact that the assessee had received a sum of Rs. 5,38,000/- through cheques in the F.Y. 20....
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....abrics amounting to Rs. 5.18 lacs under the head "sundry creditors". The particulars of trade credits in name of M/s Mayank Fabrics were thus apparent and visible on the face of the balance sheet. During the course of assessment proceedings, the AO found that the assessee has received three cheques totaling to Rs. 5.38 lacs during the financial year 2005-06 relevant to assessment year 2006-07. This fact shows that these trade credits form part of the opening balance at the start of the financial year 2006-07 relevant to subject assessment year 2007-08 and these were not trade credits which were received during the subject assessment year. Thus, legally speaking, if trade credits are treated as credits whose liability has ceased to exist, the relevant entries exists in books of accounts and if they are held as bogus, they belong to earlier financial year 2005-06 and not to the year under consideration. Further, if that be the case, whether the said bogus liability can be brought to tax in the year under consideration and provisions of section 41(1) can come to the rescue of the AO as has been done in the instant case. In this regard, reference is invited to the decision of Hon'ble G....