META TILES P.LTD,MUMBAI vs. ITO 1(2)3, MUMBAI

आदेश / O R D E R PER RAJESH KUMAR, A. M: This appeal by the assessee is directed against the order dated 12.10.2011 of Commissioner of Income Tax (Appeals)-2, Mumbai (hereinafter called as the CIT(A) ) for assessment year 2003-04.The assessee has raised following grounds of appeal:

2. The learned CIT (A) erred in not appreciating the fact that addition of Rs.124170/- made by the AO u/s.41(1)(a) was solely on account of different views taken on the same set of facts which at the best can be termed as difference of opinion and certainly not concealment of income or furnishing of inaccurate particulars of such income.

3. The learned CIT (A) further erred in appreciating the fact that the appellant company was legally bound to entertain the claim of creditor of Rs.1,24,170/- reflected in appellant company’s books of account for a period of three years during which creditor can make their claim for their dues.

M/s. Meta Tiles Private Limited Vs.ITO Agency. The ld. AO issued a notice u/s 133(6) to Punit Agency and in reply to the said notice stated that a sum of Rs.28,949/- was due from assessee as on 31.03.2003 and not Rs.1,53,119/- as claimed by the assessee and added Rs.1,24,170/- u/s 41(1)(a) of the Act by holding that difference between the confirmation from M/s. Punit Agency and in the books of assessee represented the cessation of liability and hence considered as the income in the hands of the assessee. The ld. AO imposed the penalty of Rs.45,633/- on the ground that the assessee had concealed particulars of its income by overstating its liability.

by my predecessor, CIT(A) due to cessation of liability amounting to income of Rs.1,24,170/- in the hands of the appellant company. The argument of the Authorized Representative that this income has been subsequently, offered for taxation in the A.Y. 2006-07 is without any merit and the same is not acceptable. Since the appellant company has furnished inaccurate

M/s. Meta Tiles Private Limited Vs.ITO particulars of income, therefore, it is liable to pay penalty u/s 271(1)(c) of the Income-Tax Act. I find no reason to interfere with the penalty order passed by the Assessing Officer in this case and accordingly, penalty imposed by the Assessing Officer is confirmed.”

The ld. Counsel further argued that the addition was made u/s 41(1)(a) of the Act which was in respect of remission or cessation of liability and further argued that the penalty could not even be imposed in that case. The ld. AR defended the case of the assessee while relying on the decision of the Gujrat High Court in case of CIT Vs. Bhogilal Ramjibhai Atara 43 taxmann.com55(Gujrat). The ld. DR relied on the order of the authorities below.

M/s. Meta Tiles Private Limited Vs.ITO which was added u/s 41(1)(a) of the Act. The difference had arisen between the confirmation as received by the AO and books of the assessee when the AO called for information u/s 133(6) of the Act. The AO added the said difference to the income of the assessee by holding that trading liability of the assessee had ceased and imposed the penalty of Rs.45,633/- u/s 271(1)(c) for furnishing the in accurate particulars of income. The assessee submitted before the AO that the said difference was only because of wrong entries in the book of M/S Punit Agency Pvt Ltd and tried to explain the same through a reconciliation statement listing out various reasons of differences which was filed before the AO as well as before the CIT(A) which is placed on page no.20 of the paper book in which the entire difference was explained. The assessee also filed the copies of the bills issued by of M/s. Punit Agency Private Ltd. which is placed at pg no. 21-23 of the paper book. The assessee also filed various payment vouchers on pg. no. 24-26 of the paper book which is regarding the various payments made to M/s. Punit Agency Private Ltd. It is clear from these facts that this is not a case of concealing the particulars of income nor inaccurate particulars of income. The assessee had even denied that the liability was ceased during the year. In our view this is a case of difference of opinion in which the case the penalty u/s 271(1)(c) cannot be levied.

M/s. Meta Tiles Private Limited Vs.ITO The case of the assessee also find support from the case of CIT Vs. Bhogilal Ramjibhai Atara(supra) wherein the Hon’ble Gujrat High Court has held as under:-

“Section 41(1) would apply in a case where there has been remission or cessation of liability during the year under consideration subject to the conditions contained in the statue being fulfilled. Additionally such cessation or remission has to be during the previous year relevant to the assessment year under consideration.

In the instant case, both elements are missing. There was nothing on record to suggest that there was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The assessing officer undertook the exercise to verify the records of the so called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assssee, nor did they know him. Of course, these inquiries were made ex parte and in that view of the matter, the assessee would be allowed to contest such findings.

Nevertheless, even if such facts were established through bi parte inquiries.

The liability as it stands perhaps holds that there was no cessation or M/s. Meta Tiles Private Limited Vs.ITO remission of liability. Therefore, the amount in question cannot be added back as deemed income under section 41(1).

This is one of the strange cases where even if the debt itself is found to be non genuine from the very inception, at least in terms of section 41(1) there is no cure for it. Therefore, the appeal filed by the revenue was liable to be dismissed.”

5.1 In the case of the assessee, there was no cessation of trading liability during the year and the assessee had even denied the difference in its books of accounts and the reasons of difference were explained through reconciliation and also filed the copies of the bills of the said party and details of vouchers qua payments made.

In our opinion the case of the assessee is squarely covered by above decision and we respectfully following the same decision delete the penalty levied by the AO by allowing the appeal of the assessee. The AO is directed accordingly.

In the result, the assessee’s appeal is allowed. M/s. Meta Tiles Private Limited Vs.ITO Order pronounced in the open court on 7th January, 2016