GOLDEN GREEN GOLF & RESORT LTD.,GURGAON vs. DCIT, CIRCLE-10(1), NEW DELHI

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ITA 8074/DEL/2019Status: DisposedITAT Delhi03 August 2022AY 2015-163 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that an unsecured loan cannot be considered a trading liability, and therefore, Section 41(1) was wrongly invoked. Since the foundation of the addition was shaky, the penalty imposed under Section 271(1)(c) could not survive.

What were the facts?

The Assessing Officer (AO) added an unsecured loan of Rs. 70,00,000/- under Section 41(1) of the Income Tax Act, treating it as cessation of a trading liability, after the notice to the concerned party returned unserved. The CIT(A) confirmed this addition and the consequent penalty.

What were the issues?

Whether an unsecured loan can be treated as a trading liability for the purpose of addition under Section 41(1) and whether penalty under Section 271(1)(c) can be sustained on such an invalid addition.

Which sections of the Income-tax Act were involved?

Section 41(1),Section 271(1)(c),Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘B’ : NEW DELHI

For Appellant: Shri Kamlesh Chaurasia, CA
For Respondent: Md. Gayasuddin Ansari, Senior DR
Hearing: 21.07.2022

(PAN : AAACG3219N) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Kamlesh Chaurasia, CA REVENUE BY : Md. Gayasuddin Ansari, Senior DR Date of Hearing : 21.07.2022 Date of Order : 03.08.2022 ORDER

PER SHAMIM YAHYA, ACCOUNTANT MEMBER :

1.

This appeal by the assessee is directed against the order of the ld. CIT (A)-4, New Delhi dated 30.07.2019 pertaining to assessment year 2015-16.

2.

The grounds of appeal

raised by the assessee read as under :- “1. That the appellant denies confirming liability of penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 by Ld. CIT(A) amount to Rs.21,63,000/-

2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming ./2019 penalty on addition of Rs.70,00,000/- on account of Disallowed/Addition under section 41 (1) of Income Tax Act, and penalty imposed under section 271(1)(c) for Rs. 21,63,000/-.

3. That in any case and in any view of the matter, action of rejecting appeal by Ld. CIT(A) on imposing penalty under section 271 (1)(c) amount to Rs. 21,63,000/- on account of disallowed/addition under section 41 (1), is bad In law and against the facts and circumstances of the case.”

3. In this case, penalty under section 271(1)(c) of the Income-tax Act, 1961 (for short ‘the Act’) was levied upon addition of unsecured loan of Rs.70,00,000/- under section 41(1) of the Act. The notice issued to the concerned party had returned unserved. Hence, AO held that the unsecured loan was to be added u/s 41(1) of the Act. AO held that it was remission of cessation of trading liability. Ld. CIT (A) confirmed the same.

4.

Against the above order, assessee has come up before us by way of filing an appeal. We have heard both the parties and perused the records.

5.

We find that addition u/s 41(1) is done in case of cessation of liability on trading account. In the present case, unsecured loan is being claimed to have ceased to exist and an addition is being done u/s 41(1) by holding it to be cessation of liability. Cessation if at all of an unsecured loan cannot be termed as cessation of a trading liability warranting attraction of section 41(1). We find that though quantum and penalty proceedings are different but when the very foundation of addition is unexplained, can be added u/s 68. There is no role of section 41(1) in this regard. Its invocation itself is bad in law. Hence when the foundation itself has no legs to stand the penalty cannot survive. Hence we set aside the order of authorities below and delete the penalty.

6.

In the result, the assessee’s appeal is allowed. Order pronounced in the open court on this 3rd day of August, 2022.

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