C.R. TEXTILE MILLS, ,SALEM vs. ITO, CIRCLE-1,, SALEM

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ITA 1361/CHNY/2025Status: DisposedITAT Chennai24 July 2025AY 2016-17Bench: the Ld. CIT(A). On appeal, the Ld. CIT(A) confirmed the addition to the extent of Rs.3,04,414/- in respect of sundry creditors not confirmed. Based on the order of the Ld. CIT(A), the A.O levied a penalty of Rs.94,977/- for furnishing inaccurate particulars of income in respect of the unconfirmed sundry creditors of Rs.3,04,414/-. On appeal, the Ld. CIT(A) did not accept the assessee's contention that the credits were genuine and had been paid in the subsequent year, and therefore confirmed4 pages
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What did the Tribunal hold?

The Tribunal observed that the penalty notice was issued for concealment of income, but the penalty was actually levied for furnishing inaccurate particulars, creating a fatal discrepancy. Furthermore, relying on Supreme Court judgment, the Tribunal reiterated that merely sustaining an addition does not automatically warrant a penalty under Section 271(1)(c), and such proceedings are distinct from assessment.

What were the facts?

The assessee, CR Textile Mills, faced a penalty under Section 271(1)(c) for furnishing inaccurate particulars of income. This stemmed from an addition for unconfirmed sundry creditors, initially Rs. 10,95,493/- by the AO, later reduced to Rs. 3,04,414/- by the CIT(A), who also confirmed the penalty of Rs. 94,977/-.

What were the issues?

The key issues were whether a penalty under Section 271(1)(c) can be sustained when there's a mismatch between the ground stated in the notice (concealment) and the ground for levying penalty (inaccurate particulars), and if a sustained addition automatically warrants such a penalty.

Which sections of the Income-tax Act were involved?

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

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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI

Before: SHRI MANU KUMAR GIRI & SHRI JAGADISH

Hearing: 16.07.2025Pronounced: 24.07.2025

आदेश / O R D E R

PER JAGADISH, A.M : Aforesaid appeal filed by the assessee for Assessment Year (AY) 2016-17 arises out of the order of Learned Commissioner of Income Tax (NFAC), Delhi [hereinafter “CIT(A)”] dated 24.03.2025 in confirming levy of penalty u/s. 271(1)(c) of the Income-tax Act, 1961 (hereinafter “the Act”) by Ld. Assessing Officer (A.O) vide order dated 24.12.2018.

2.

The only ground of appeal in this appeal of assessee is against confirming the penalty of Rs. 94,977/- u/s. 271(1)(c) of the Act.

1.

1. 3. The assessee is a firm engaged in the business of manufacturing and trading of textile goods. The A.O, in the assessment order, made an addition of Rs. 10,95,493/- on account of sundry creditors not confirmed, and accordingly initiated penalty proceedings under section 271(1)(c) of the Act. Aggrieved by the said addition, the assessee preferred an appeal before the Ld. CIT(A). On appeal, the Ld. CIT(A) confirmed the addition to the extent of Rs.3,04,414/- in respect of sundry creditors not confirmed. Based on the order of the Ld. CIT(A), the A.O levied a penalty of Rs. 94,977/- for furnishing inaccurate particulars of income in respect of the unconfirmed sundry creditors of Rs. 3,04,414/-. On appeal, the Ld. CIT(A) did not accept the assessee’s contention that the credits were genuine and had been paid in the subsequent year, and therefore confirmed the penalty.

4.

The Ld. Authorized Representative (AR) of the assessee submitted that the A.O had issued notice u/s. 271(1)(c) of the Act for concealment of income however, the penalty was levied for furnishing inaccurate particulars of income. Therefore, it was argued that the penalty is not sustainable and should be cancelled. On merits, the Ld. AR submitted that the penalty was levied in respect of sundry creditors amounting to Rs. 3,04,414/-, which remained unconfirmed. It was contended that there was no furnishing of inaccurate particulars of income, and merely because an addition has been sustained, it does not attract penalty under section 271(1)(c) of the Act.

5.

The Ld. Departmental Representative has relied on the orders of the lower authorities.

6.

We have heard the rival submissions and perused the materials available on record. The A.O has levied a penalty of Rs. 94,977/- u/s. 271(1)(c) of the Act in respect of sundry creditors treated as income u/s. 41(1) of the Act, for furnishing inaccurate particulars of income.

The Ld. AR pointed out that the notice was issued for concealment of income, but the penalty was levied for furnishing inaccurate particulars therefore penalty cannot be sustained. It was further submitted that the sundry creditors are genuine and that the payments were made in the subsequent year. It is settled position of law that penalty proceeding is distinct from assessment proceeding and merely because the addition/disallowances has been sustained in itself does not automatically warrant the levy of penalty u/s. 271(1)(c) of the Act, as held by the Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts (P) Ltd. [2020] 322 ITR 158 (SC). In view of above, the present case, does not warrant penalty u/s 271(1)(c) of the Act and accordingly , the penalty levied is hereby cancelled.

7.

In the result, the appeal filed by the assessee is allowed.

Order pronounced on 24th day of July, 2025 at Chennai.

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