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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI KULDIP SINGH & SHRI GAGAN GOYAL
Present for: Assessee by : None Revenue by : Shri Chetan M. Kacha, D.R. Date of Hearing : 20 . 04 . 2023 Date of Pronouncement : 28 . 04 . 2023 O R D E R
Per : Kuldip Singh, Judicial Member:
The appellant, M/s. The National Ex-Servicemen Co-op. Garage Ltd. (hereinafter referred to as ‘the assessee’) by filing the present appeal, sought to set aside the impugned order dated 20.05.2019 passed by Commissioner of Income Tax (Appeals), Mumbai [hereinafter referred to as the CIT(A)] qua the assessment year 2015-16 on the grounds inter-alia that :- 2 M/s. The National Ex-Servicemen Co-op. Garage Ltd.
“1. On the facts and circumstances of the case and in law the Commissioner of Income Tax (Appeals) erred in confirming the order of the Assessing Officer leving penalty u/s. 271(1) (c) of the Act. 2. The CIT(A) failed to appreciate that the cessation of liability with respect to deposits received from customers cannot attract the provisions of section 41(1). 3. The Appellant carves leave to add, amend and or delete any of the above grounds of appeal
.”
2. Briefly stated facts necessary for consideration and adjudication of the issues at hand are : on the basis of assessment framed under section 143(3) of the Income Tax Act, 1961 (for short ‘the Act’) determining the total income of Rs.22,88,440/- which has been adjusted/set off against the carry forward loss for A.Y. 2011-12, 2012-13 & 2013-14, by making addition of Rs.31,29,254/- on account of cessation of liability as per provisions of section 41(1) of the Act, penalty proceedings have been initiated under section 271(1)(c) of the Act for concealing the income. On failure of the assessee to file explanation to the notice issued by the Assessing Officer (AO) under section 274 read with section 271(1)(c) of the Act, the AO proceeded to levy the penalty of Rs.9,38,776/- @ 100% of tax sought to be evaded under section 271(1)(c) of the Act.
This appeal was filed on 08.07.2019 and on issuance of notice one Mr. Ashok Patil, Advocate appeared on behalf of the assessee and on last two dates he sought adjournment which was granted. Today i.e. on 20.04.2023 Mr. Ashok Patil, Advocate Ld. Counsel for the assessee by moving an application withdrew his letter of authority in this case which was allowed, however the Bench has decided to dispose of this appeal on the basis of material 3 M/s. The National Ex-Servicemen Co-op. Garage Ltd.
available on record with the assistance of the Ld. D.R. for the Revenue.
The assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has confirmed the penalty levied by the AO by dismissing the appeal. Feeling aggrieved with the impugned order passed by the Ld. CIT(A) the assessee has come up before the Tribunal by way of filing the present appeal.
We have heard the Ld. D.R. for the Revenue, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and case law relied upon.
Undisputedly the assessee is a co-operative society set up for the purpose of providing employment and training to the ex- servicemen in running a petrol pump, repairing cars, trading in cars etc. and at present the assessee is running a petrol pump next to mantralaya. It is also not in dispute that the assessee had accepted the assessment order passed by the AO by not filing appeal. It is also not in dispute that the penalty proceedings being distinct and separate from the assessment proceedings the assessee can justifiably challenge the legality of the addition made in the penalty proceedings.
In the backdrop of the aforesaid facts and circumstances of the case the order passed by the Lower Revenue Authorities and material available on record and argument addressed by the Ld. D.R. for the Revenue the sole question arises for determination in this case is “as to whether the assessee has concealed particulars 4 M/s. The National Ex-Servicemen Co-op. Garage Ltd.
of income or has furnished inaccurate particulars of income during the assessment proceedings so as to attract the provisions contained under section 271(1)(c) of the Act.”
It is a fact on record that from the perusal of the balance sheet as on 31.03.2015 the AO noticed under the head “customer deposits” there was an amount of Rs.33,26,254/- on the liability side, qua which the assessee was called upon to furnish the details of customers’ deposit certificate, confirmation, bank statement etc. However, the assessee could not file detail to the tune of Rs.1,97,000/- and on failure of the assessee to file the details of the deposit of the balance amount of Rs.31,29,254/-, the same was added back to the income of the assessee under section 41(1) of the Act as there is a cessation of liability to that extent.
In order to decide the issue if the provisions contained under section 41(1) of the Act are applicable to this case, the provisions contained under section 41(1) of the Act are extracted as under: “41(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first- mentioned person) and subsequently during any previous year.- (a) the first- mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever. any amount in respect of which loss or expenditure was incurred by the first- mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way 5 M/s. The National Ex-Servicemen Co-op. Garage Ltd.
of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income tax as the income of that previous year”
Bare perusal of the provisions contained under section 41(1) of the Act goes to show that cessation of only those liabilities which represent expenses, allowances or losses claimed in assessment earlier by the assessee are treated as profits and gains of the business and section 41(1) of the Act. Further the section treats such liabilities as the income of the year in which such liability ceases to exist. In the instant case aforesaid conditions are not fulfilled because as per table given in para 7 of the assessment order the assessee has shown losses to be carry forwarded to future years for set off which are as under: Asst. Year S.No. Due date for filing Dt. of filing of Returned of ROI income/Loss {Rs.) ROI 30-09-2010 16-12-2010 (-)1,90,876 1 2010-11 30-09-2011 28-09-2011 (-)12,36,541 2 2011-12 01-10-2012 30-09-2012 (-)1,91,006 3 2012-13 31-10-2013 30-09-2013 (-)9,51,770 4 2013-14 30-09-2014 03-11-2014 (-)11,02,917 5 2014-15 TOTAL LOSS C/F. (FROM A.Y- 2010-11 TO 2014-15) (-)36,73,110
So when the losses sought to be carried forward by the assessee pertain to earlier assessment years, as is evident from the table above, and not to the year under consideration i.e. A.Y. 2015-16 section 41(1) of the Act is not attracted. Moreover, the additions made by the AO under section 41(1) of the Act qua the deposits from the customers but are not trader, because the assessee has taken deposits from the customers who want to purchase fuel from the fuel pump on monthly credit basis. Subsequently some customers have discontinued the facilities but have not collected the 6 M/s. The National Ex-Servicemen Co-op. Garage Ltd.
deposit which does not come under the purview of section 41(1) of the Act.
Hon’ble Supreme Court of India in case of CIT vs. Mahindra & Mahindra on identical issue decided the applicability of provisions contained under section 28 and 41(1) of the Act by returning following findings: “On a perusal of the said provision 28 and 41(1) of the Income Tax Act, 1961, held that, it is evident that it is a sine qua non that there should be an allowance or deduction claimed by the assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then the assessee is liable to pay tax under Section 41 of the IT Act. The objective behind this Section is simple. It is made to ensure that the assessee does not get away with a double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability.”
So when addition itself is not legally sustainable subsequent initiation of penalty against the assessee is not sustainable in the eyes of law.
Moreover, it is settled principle of law that when the assessee society has brought on record correct fact in its balance sheet annexed with the return of income by showing Rs.33,26,250/- under the head “customer deposits”, though could not bring on record the documentary evidence in support of its claim it was for the Revenue to examine if the claim was sustainable or not.
Hon’ble Supreme Court in a case cited as Reliance Petro Products Pvt. Ltd. – 322 ITR 158 (SC) while interpreting the provisions contained u/s 271(1)(c) of the Act decided the identical 7 M/s. The National Ex-Servicemen Co-op. Garage Ltd.
issue in favour of the assessee. Operative part of which is reproduced for ready reference as under :- “A glance at the provisions of section 271(1)(c) of the I.T. Act, 1961 suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word “particulars” used in section 271(1)(c) would embrace the detail of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars.”
So in view of the decision rendered by the Hon’ble Supreme Court in case of Reliance Petro Products Pvt. Ltd. (supra), we are of the considered view that when complete details have come on record by way of filing balance sheet along with return of income qua the amount of Rs.33,26,250/- on liability side, incorrect claim if any made by the assessee would not tantamount to furnishing of inaccurate particulars. Moreover, the AO has not given any findings that the details supplied by the assessee in its return of income are found to be incorrect or erroneous, rather decided the issue against the assessee due to non furnishing of the documentary 8 M/s. The National Ex-Servicemen Co-op. Garage Ltd.
evidence, there is no question of attracting the provisions contained under section 271(1)(c) of the Act.
In view of what has been discussed above, we are of the considered view that penalty levied by the AO and sustained by the Ld. CIT(A) is not sustainable in the eyes of law, hence ordered to be deleted.
Resultantly, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 28.04.2023.