ITO 24(2)(4), MUMBAI vs. MAMTA MALHOTRA, MUMBAI

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ITA 1842/MUM/2015Status: DisposedITAT Mumbai22 March 2017AY 2007-084 pages

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

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision to delete the penalty. It reasoned that the addition under Section 41(1) for old creditors where no benefit was claimed by the assessee, and where the CIT(A) found the assessee's explanations not to be false, did not warrant a penalty.

What were the facts?

The Assessing Officer (AO) added Rs. 71,23,160/- to the assessee's income for old outstanding sundry creditor balances, as confirmation letters were not provided. The CIT(A) confirmed part of the addition, leading the AO to levy a penalty under Section 271(1)(c).

What were the issues?

Whether penalty under Section 271(1)(c) is leviable when income is added under Section 41(1) for old outstanding creditors without the assessee claiming any benefit of remission or cessation of liability.

Which sections of the Income-tax Act were involved?

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

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B” Bench, Mumbai

Before: Shri B.R. Baskaran (AM)& Shri Ravish Sood (JM)

For Appellant: Shri Abhishek Jhunjhunwala
For Respondent: Shri N.P. Singh
Hearing: 22.3.2017Pronounced: 22.3.2017

O R D E R Per B.R. Baskaran (AM) :-

The appeal filed by the revenue is directed against the order dated 14-01- 2015 passed by Ld CIT(A)-36, Mumbai and it relates to the assessment year 2007-08. The penalty of Rs.21,41,231/- levied by the AO u/s 271(1)(c) of the Act, having been deleted by Ld CIT(A), the revenue has filed this appeal before us.

2.

We have heard the parties and perused the record. We notice that the assessing officer noticed from the return of income filed by the assessee that the Sundry Creditors balances declared by the assessee in her proprietary concern named M/s Media Vision Advertising, consisted of old outstanding balances. Since the assessee did not obtain confirmation letters from the creditors, the AO assessed a sum of Rs.71,23,160/- as income of the assessee. The Ld CIT(A) confirmed the addition to the extent of Rs.63,61,352/-. After the receipt of the 2 Ms. Mamta H. Malhotra order passed by Ld CIT(A), the AO levied penalty of Rs.21,41,231/- u/s 271(1)(c) of the Act. The assessee challenged the penalty order by filing appeal before Ld CIT(A), who deleted the penalty and hence the revenue has filed this appeal before us.

3.

At the time of hearing, the Ld A.R submitted that the assessee had challenged the addition confirmed by Ld CIT(A) by filing appeal before ITAT and the Tribunal has granted relief to the extent of Rs.56,14,437/-. Accordingly the Ld A.R submitted that the revised total income computed by the AO after giving effect to the order of the Tribunal works out to Rs.7,46,913/- only, on which the penalty u/s 271(1)(c) of the Act would work out to only Rs.1,73,985/-. Accordingly the Ld A.R submitted that the appeal filed by the revenue is liable to be dismissed on low tax effect in terms of the Circular issued by CBDT.

4.

On the contrary, the Ld CIT-DR submitted that the assessee has not furnished revised penalty order passed by the AO and in the absence of the same, the demand relating to penalty should be considered as Rs.21,41,231/-, in which case, the Circular issued by CBDT would not be applicable in this case.

5.

Thereafter both the parties argued the matter on merits also.

6.

We notice that the addition has been made u/s 41(1) of the Act in respect of old outstanding creditors balance, since the assessee could not furnish confirmation letters relating to the same. We notice that the Ld CIT(A) has taken following view in this matter:- “...In the case of appellant, the amounts shown against the creditors named above were added back on account of difference in balances, writing off by creditors in subsequent or preceding years or on account of parties not being traceable. In this regard, it is to be noted that these amounts are not amounts credited to the books of the appellant during the year under consideration but are old balances carried forward. In the 3 Ms. Mamta H. Malhotra

case of creditors where there is a difference of balances, the appellant cannot be stated to have failed to furnish an explanation. The explanation furnished is also not demonstrated to have been false in anyway. Similarly, in the case of creditors who have written off balances in preceding or subsequent years, nothing on record shows that the appellant possessed information of such writing off and deliberately furnished inaccurate particulars. Rather from the statements of parties recorded by the AO, it is evident that there were on-going disputes between the appellant and these parties and there was little or no communication between them. For creditors that were not available at the given addresses, the appellant had submitted confirmations, ledger accounts etc. The non-genuineness of these documents was not established either during assessment or penalty proceedings and the explanations furnished by the appellant was not found false. These balances were clearly mentioned and disclosed in the return of income. Even otherwise, for the creditors that were untraceable, the impact of the returned notices would be in the years in which such amounts were shown as received by the appellant and consequently, the question of levy of penalty would arise, if at all, only in those years. Another factor to be considered is that the appellant had not claimed any benefit during the year under consideration on account of remission or cessation of these liabilities. In view of these facts, the appellant cannot be held to have concealed income or furnished inaccurate particulars of income with reference to the amounts added back u/s 41(1).....”

7.

We notice that the Ld CIT(A) has analysed the issue in proper perspective. First of all, these are old outstanding creditors and the assessee has not claimed any remission or cessation of liabilities. It is the AO who has added the amount by invoking the provisions of sec. 41(1) of the Act only for the reason that there were differences in accounts, the concerned creditors have written off the balances in other years, some creditors are not traceable. Hence we are of the view that the Ld CIT(A) was justified in forming the view that the assessment so made u/s 41(1) of the Act, in the facts and circumstances of the case, would not attract penalty u/s 271(1)(c) of the Act. In any case, we have noticed that the Tribunal has given further relief of Rs.56,14,437/- and hence the penalty u/s 4 Ms. Mamta H. Malhotra 271(1)(c) of the Act would automatically be deleted proportionately. In view of the foregoing, we uphold the order passed by Ld CIT(A).

8.

In the result, the appeal filed by the revenue is dismissed. Order has been pronounced in the Court on 22.3.2017.

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