MANGALA KAMATH,MUMBAI vs. ITO 20(2)(2), MUMBAI

2. The brief facts of the case as extracted from the orders of authority below that assessee is Proprietor of M/s Print Image and engaged in the business of Card Board Labels, filed her return of income for relevant assessment year on 31st of October 2007 declaring taxable income of Rs. 7,90,120/-. The assessment was completed on 28 October 2009 under section 144 read with section 143(3). The assessing officer while framing assessment made the addition on account of disallowance of unsecured loan of Rs.5,84,768/-, addition of on account of sundry creditors of Rs.70,09,908/- and disallowed expenses of Rs. 64,156/-. On appeal before Commissioner (appeals), the addition on account of unsecured loan were deleted, the additions of expenses was partly restricted. However the addition on account of sundry creditors was restricted to Rs. 12,42,256/- and made addition under section 41(1) as no payments to sundry creditors were made since financial year 2006-07 till 2010-11. The ld CIT(A) also treated the cash payment of Rs. 1,75,000/- made to M/s Manjunath Enterprises in violation of section 40A(3) and added the same in the income of assessee. Aggrieved by the order of Commissioner (Appeals) the assessee has filed the present appeal before the Tribunal in challenging the treatment of sundry creditors under section 41(1) as cession of liability and the disallowance under section 40A(3). (AY 2007-08) Mangla Kamath

We have heard the ld AR for the assessee and the ld DR for the revenue and perused the material available on the record. The ld AR for the assessee argued that the amount paid to M/s Manjunatha Enterprises in cash was allowable under section 40A(3). M/s Manjunatha Enterprises was doing job work and the payments were made for labour charges. For the additions under section 41(1) the ld AR for the assessee argued that the ld CIT(A) deleted the penalty for the same addition, copy of the order of ld CIT(A) is filed on record, thus the additions are liable to be deleted. On the other hand the ld DR for the revenue strongly relied on the order of ld CIT(A) and it was argued that the order was passed after considering the remand report of the assessing officer. The assessee has raised the grounds of appeal before ld CIT(A) that no opportunity was given to her during the assessment proceedings. The assessee filed written submissions before ld CIT(A) which were referred to assessing officer for his remand report. The assessing officer submitted remand report after giving the full opportunity to the assessee. The payment of Rs.1,75,000/- to M/s Manjunatha Enterprises is in violation of section 40A(3) and the assessee has not shown any exception provided under Rule 6DD. For the additions under section 41(1) the ld CIT(A) has given cogent reason in her order before disallowing the amount. It was argued that (AY 2007-08) Mangla Kamath the parameters for consideration of appeal in quantum assessee and in penalty are altogether different.

Ground No.2 relates to disallowance under section 41(1) for Rs. 12,42,256/-. The AO during the remand proceedings while verifying the accounts submitted by the assessee, the AO noted that an amount of Rs. 12,42,256/- related with all eight parties were outstanding till 16.09.2014. The AO confronted this fact to the assessee, the representative of the assessee, the ld AR for the assessee admitted that till 16.09.2014 the said amount is outstanding. Thus, on the basis of the statement of representative of the assessee the AO suggested to treat the said amount as cessation of liability and to make an addition to the income of the assessee. The ld CIT(A) made the addition on the basis of remand Report of AO, wherein it was submitted that the balance of eight parties are outstanding since 2006-07 till the financial year 2010-11 and no payments had been made. The ld AR for the assessee argued that during the appeal against the levy of penalty the facts related to the additions were explained and the penalty was deleted by the same ld CIT(A) vide order dated 23.01.2015.

We have carefully perused the order of ld CIT(A) in appeal No. CIT(A)-36/II-351/ITO 20(20)(2)/10-11 dated 23.01.2015. We have noted that during the appellate stage in penalty proceedings the 6 ITA no.72/M/2015 (AY 2007-08) Mangla Kamath assessee explained that the amounts treated under section 41(1) were trade liability as per books of account of the assessee and that all have been fully disclosed. The ld CIT(A) on the basis of submissions of the assessee concluded that penalty cannot be levied for every additions or disallowance made in the assessment and that the assessee has not concealed the income or furnished inaccurate particulars of income with reference to the amount added under section 41(1) of the Act. It is settled position under the law that the quantum assessment and the penalty proceedings are separate with each other, moreover, different parameter are applicable while deciding the issues involve therein.