M/S UNION TYRE MOULDING SUPPLIER,KOLKATA vs. I.T.O WD - 37(2),KOLKATA., KOLKATA

The Assessee is a firm engaged in the business of dealing in scraps. Originally order of assessment dated 27.03.2002 was passed by the AO for A.Y.1999-2000. Ultimately this assessment order was set aside by ITAT. Consequent to the directions of ITAT orders of assessment was passed by AO u/s 143(3) r.w.s..254 of the Act dated 31.03.2006. AO found that the assessee has received loans in cash from five loan creditors. The assessee filed confirmation letters only from two loan creditors namely that Mrs. Farida Khatun and Afsal Habib. The assessee could not produce the confirmation of the other three creditors namely Kaar Ahmed, Md.Siddhiki and Md.Nasad. The loans received from these persons were treated as unexplained cash credit and a sum of Rs.1,05,000/- was added to the total income of the assessee u/s.68 of the Income Tax Act, 1961 (Act). – M/s. Union Tyre Moulding Supplier ,A.Y.1999-2000

In the course of assessment proceedings, the AO had called upon the Assessee to produce the loan creditors for his examination. The Assessee expressed his inability in this regard as they refused to appear before the AO. Since the Assessee had not produced the creditors for examination, the addition was made by the AO. In respect of the aforesaid addition made in the course of assessment proceedings, penalty proceedings u/s 271(1)(c) of the Act were initiated. Ultimately by an order dated 31.03.2011 AO imposed penalty on the assessee u/s 271(1)(c) of the Act.

On appeal by the assesee CIT(A) confirmed the order of AO. Aggrieved by the order of CIT(A) assesse preferred an appeal before the Tribunal.

The main submission of the learned counsel for the assesee before us was that the addition has been made only because the assessee could not produce the creditors for examination by the AO. He further submitted that the assessee did not known the whereabouts of the loan creditors and he could not produce them for AO’s examination. The assessee did not even know the addresses of the creditors and this plea of the assessee has also been disbelieved either in the assessment proceedings or in the penalty proceedings. The assessee also submitted that neither in the original assessment nor in the order passed by the AO after remand by the Tribunal, was any satisfaction recorded for initiating penalty proceedings u/s 271(1)(c) of the Act by the AO in the course of assessment proceedings. He placed reliance on the decision of Hon’ble Karnataka High Court in the case of CIT vs MWP Ltd 264 CTR 502 (Karnataka) wherein the Hon’ble Karnataka High Court has held that mere observation of the assessing authority that he was satisfied that penalty proceedings u/s 271(1)(c) of the Act have to be initiated, cannot amount to arriving at a satisfaction recgarding concealment of income.

The learned DR placed reliance on the order of CIT(A). – M/s. Union Tyre Moulding Supplier ,A.Y.1999-2000

We have given careful consideration to the rival submissions. We are of the view that in the facts and circumstances of the present case penalty u/s 271(1)(c) of the Act ought not to have been imposed on the assessee. It is clear from the order of assessment that the assessee furnished confirmation letters from two of the creditors and expressed inability to file confirmation of the other three creditors. The assessee explained before the CIT(A) that the addresses of the creditors were not available with the assessee. The AO had drawn adverse inference against the assessee without brining any material on record to show that the plea of the assessee was not bona fide. The inability of the assessee to produce the creditors cannot be the basis to come to a conclusion that the assessee is guilty of concealment of particulars of income. The AO had the power to enforce the attendance of the creditors before him by issuing summons u/s 131 of the Act. The AO has not done so. In the given facts and circumstances we are of the view that the AO ought not to have imposed penalty on the assessee u/s 271(1)(c) of the Act. We also agree with the plea of the assessee that no satisfaction has been arrived at by the AO in the course of assessment proceedings. We, therefore, cancel the penalty sustained by CIT(A).

In the result the appeal of the assessee is allowed.