M/s Brahma Steyr Tractors Ltd., Chandigarh V. ITO, W-1(2), Chandigarh

ITA 200/CHANDI/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9487 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 26-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 271(1)(c); 133(6)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH A , CHANDIGARH , ! ' # $ % & ' , ' BEFORE SMT.DIVA SINGH, JUDICIAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.200/CHD/2019 / ASSESSMENT YEARS : 2014-15 M/S BRAHMA STEYR TRACTORS LTD., SCO 604, 1 ST FLOOR KESHO RAM COMPLEX, SECTOR 45-C, CHANDIGARH. (NOW SCO 196-97, SECTOR 34-A, CHANDIGARH). THE INCOME TAX OFFICER, WARD 1(2), CHANDIGARH. ./PAN NO: AACCB1022C /APPELLANT /RESPONDENT /ASSESSEE BY : SHRI TEJ MOHAN SINGH, ADV. ! / REVENUE BY : SMT.CHANDERKANTA, SR. DR ' # $ /DATE OF HEARING : 28.08.2019 %&'( $ /DATE OF PRONOUNCEMENT: 27.09.2019 /ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER : THE ABOVE APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, CHANDIGARH [(IN SHORT REFERRED TO AS (CIT(A)] DATED 24.1.2019 RELATING TO ASSESSMENT YEAR 2014-15 , CONFIRMING THE LEVY OF PENALTY U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT. ITA NO.200/CHD/2019 A.Y. 2014-15 2 2. THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT (A) IN TERMS OF THE FOLLOWING GROUNDS: 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN SUSTAINING PENALTY U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE APPELLANT HAD NOT FURNISHED ANY INACCURATE PARTICULARS OF INCOME AS THE LIABILITY APPEARING IN THE BOOKS OF ACCOUNT OF THE APPELLANT COMPANY WAS SQUARED OFF BY THE RESPECTIVE PARTIES IN THEIR BOOKS OF ACCOUNT. THE SAME DOES NOT TANTAMOUNT TO FURNISHING OF ANY INACCURATE PARTICULARS OF INCOME ON THE PART OF THE APPELLANT. IN VIEW OF THE ABOVE STATED FACTS AND CIRCUMSTANCES, IT IS PRAYED THAT THE PENALTY ORDER MAY KINDLY BE QUASHED. 3. DURING THE COURSE OF HEARING BEFORE US THE LD.CO UNSEL FOR THE ASSESSEE TOOK US THROUGH THE FACTS OF THE C ASE AS FIND MENTION AT PARA 4 OF THE ORDER OF THE LD.CIT(A ) IN TERMS OF REPRODUCTION OF THE PENALTY ORDER PASSED BY THE ASSESSING OFFICER. REFERRING TO THE SAME, LD.COUNSEL FOR THE ASSESSEE POINTED OUT THAT PENALTY IN THE PRESENT CASE HAD B EEN IMPOSED ON ADDITION MADE DURING THE ASSESSMENT PROCEEDINGS U/S 41(1) OF THE ACT, OF OUTSTANDING C REDIT BALANCE IN THE ACCOUNTS OF TWO PARTIES, HOLDING THA T THE SAME HAD CEASED TO EXIST. IT WAS POINTED OUT THAT THE TWO ITA NO.200/CHD/2019 A.Y. 2014-15 3 PARTIES WHOSE OUTSTANDING CREDIT BALANCE HAD BEEN SO TREATED AS INCOME OF THE ASSESSEE WERE THE FOLLOWIN G: 1) AIR AGRO PVT. LTD. = RS.11,64,889/- 2) INDIAN STEEL WIRE PRODUCT LIMITED = RS.19,49,26 3/- 4. IT WAS POINTED OUT THAT THE ASSESSMENT ORDER SO PASSED HAD NOT BEEN CHALLENGED BY THE ASSESSEE AND IN THIS BACKDROP AND CONSIDERING THE SUBMISSIONS MADE BY TH E ASSESSEE DURING PENALTY PROCEEDINGS THE AO HAD, AFT ER REJECTING THE CONTENTION OF THE ASSESSEE FINDING TH E PLEA TO BE UNACCEPTABLE, LEVIED THE PENALTY ON THE IMPUGNED ADDITIONS @ 100% OF THE TAX SOUGHT TO BE EVADED ON THE SAME, AMOUNTING TO RS.9,62,276/-. IT WAS POINTED OU T THAT THE SAME WAS CONFIRMED BY THE CIT(A) ALSO. 5. BEGINNING WITH THE ARGUMENTS, THE LD.COUNSEL FOR THE ASSESSEE STATED THAT THOUGH THE ADDITION MADE HAD N OT BEEN CHALLENGED IN APPEAL, THE ADDITION IN ANY CASE WAS NOT SUSTAINABLE IN LAW AND, THEREFORE, THERE WAS NO CA SE FOR LEVY OF PENALTY U/S 271(1)(C) OF THE ACT ON ACCOUNT OF T HE ASSESSEE HAVING FURNISHED ANY INACCURATE PARTICULAR S OF INCOME OR HAVING CONCEALED ANY PARTICULARS OF INCOM E. IT WAS STATED THAT THE ADDITION HAD BEEN WRONGLY MADE UNDER THE PROVISIONS OF SECTION 41(1) OF THE ACT AND THE PENALTY PROCEEDINGS BEING DISTINCT AND SEPARATE FROM ASSESS MENT ITA NO.200/CHD/2019 A.Y. 2014-15 4 PROCEEDINGS, THE ASSESSEE WAS WELL WITHIN ITS RIGHT S TO CHALLENGE THE ADDITION SO MADE IN THE PROCEEDINGS. THE LD.COUNSEL FOR THE ASSESSEE STATED THAT SECTION 41( 1) OF THE ACT BRINGS TO TAX ANY AMOUNT EARLIER CLAIMED AS ALL OWANCE OR DEDUCTION BY THE ASSESSEE ON ACCOUNT OF WHICH ANY B ENEFIT SUBSEQUENTLY ACCRUES TO THE ASSESSEE BY WAY OF REMI SSION OR CESSATION OF LIABILITY ARISING FROM THE SAME. THE LD.COUNSEL FOR THE ASSESSEE STATED THAT THE ESSENTIAL CONDITIO N, THEREFORE, FOR APPLYING SECTION 41(1) OF THE ACT IS THAT ANY LIABILITY OUTSTANDING IN THE BOOKS OF THE ASSESSEE REPRESENTS ANY ALLOWANCE OR EXPENSE CLAIMED BY THE ASSESSEE IN EARLIER YEARS. THE LD.COUNSEL FOR THE ASSESSEE STATED THAT THIS WAS NOT THE FACT IN THE PRESENT CASE SINCE BOTH THE LIA BILITIES OUTSTANDING WERE IN RELATION TO THE AMOUNTS ADVANCE D BY THE SAID CONCERN FOR SETTING UP OF THE BUSINESS OF THE ASSESSEE AND NOT FOR CARRYING OUT ANY BUSINESS. IT WAS POINT ED OUT THAT IN FACT THE ASSESSEE COMPANY HAD BEEN OPERATIO NALLY INACTIVE SINCE INCEPTION AND LYING DORMANT WITH NO COMMERCIAL ACTIVITIES AND HAD THEREFORE NEVER CLAIM ED ANY EXPENSE OR ALLOWANCE. OUR ATTENTION WAS DRAWN TO T HE SUBMISSIONS MADE TO THE CIT(A) IN THIS REGARD, REPR ODUCED AT PARA 4.1 OF THE CIT(A)S ORDER AS UNDER: 'THE COMPANY M/S BRAHMA STEYER TRACTORS LTD. WAS ESTABLISHED IN THE YEAR 1993 TO -SET UP A PLANT FOR MANUFACTURE OF TRACTORS. HOWEVER, THE COMPANY WAS ITA NO.200/CHD/2019 A.Y. 2014-15 5 UNABLE TO SET UP THE PLANT AND THEREFORE NEVER CAME INTO BUSINESS AND DID NOT HAVE ANY TRADING TRANSACTIONS, AS THERE WAS NO OPERATIONAL INCOME OR EXPENDITURE. THE COMPANY IS OPERATIONALLY INACTIVE SINCE ITS INCEPTION AND NOW LYING DORMANT WITH NO COMMERCIAL ACTIVITIES. CERTAIN EXPENSES WERE INCURRED BY M/S A IR AGRO PRIVATE LIMITED AND THE INDIAN STEEL & WIRE PRODUCT S LIMITED ERSTWHILE SISTER CONCERNS, AT THE TIME OF S ETTING OF BUSINESS IN BEHALF OF THE COMPANY. HENCE THE AMOUNT LYING TO THEIR CREDIT WERE SHOWN AS LIABILITY TOWARDS THE M AND THESE LIABILITIES ARE IN NO WAY TRADING LIABILITY A S THE COMPANY NEVER CAME INTO OPERATION. THE ASSESSING OFFICER DU RING THE COURSE OF ASSESSMENT PROCEEDINGS SOUGHT INFORMA TION U/S 133(6) OF THE INCOME TAX ACT, 1961 REGARDING OU TSTANDING BALANCE BY M/S AIR AGRO PRIVATE LIMITED AND THE IND IAN STEEL & WIRE PRODUCTS LIMITED. M/S AIR AGRO PRIVATE LIMIT ED CONFIRMED HAVING NO BUSINESS DEALING WITH THE APPEL LANT. M/S INDIAN STEEL & WIRE PRODUCTS LIMITED WAS IN BIF R. IT IS SUBMITTED THAT THE AMOUNT IN QUESTION WAS NOT TRADING LIABILITIES. THE RESPECTIVE COMPANIES HAD INCURRED CERTAIN EXPENSES ON BEHALF OF THE APPELLANT COMPANY WHICH W AS SHOWN AS PAYABLE TO THEM BY THE APPELLANT. THE RESP ECTIVE PARTIES HAD SQUARED OFF THE AMOUNT DUE TO THEM MUCH EARLIER IN THE RESPECTIVE BOOKS. THE SAME DOES NOT TANTAMOU NT TO FURNISHING OF INACCURATE PARTICULARS BY ANY STRETCH OF IMAGINATION. 6. FURTHER THE LD.COUNSEL FOR THE ASSESSEE CONTENDE D THAT ON EOF THE CREDITORS THE INDIAN STEEL & WIRE PRODUCTS LIMITED . , ISWPL, HAD BECOME SICK AND HAD GONE TO BIFR AND THEREAFTER SQUARED OFF THE AMOUNTS MUCH EARLIER IN ITS BOOKS OF ACCOUNT. THAT THE OTHER, M/S AIR AGRO PVT. LTD. HAD BEEN TAKEN OVER BY M/S BLUE COAST INFRASTRUCTURE DEVELO PMENT LTD. IN 2008 AND SUBSEQUENTLY ITS NAME HAD BEEN CHA NGED TO JOY HOTEL & RESORTS PVT. LTD. IT WAS CONTENDED B Y THE LD.COUNSEL FOR THE ASSESSEE THAT WHEN THE AO HAD MA DE ENQUIRY WITH THE SAID COMPANY U/S 133(6) OF THE ACT , IT HAD ITA NO.200/CHD/2019 A.Y. 2014-15 6 BEEN STATED THAT THE PRESENT ENTITY HAD NO DEALING WITH THE ASSESSEE COMPANY, WHICH MEANT THAT THEY WERE NOT UNDERTAKING ANY BUSINESS TRANSACTION WITH THE ASSES SEE COMPANY WHICH WAS A FACT ON RECORD. LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT THE SAME HAD BEEN INCORRECT LY INTERPRETED BY THE REVENUE AS MEANING DENIAL OF EX ISTENCE OF ANY AMOUNT OUTSTANDING FOR PAYMENT TO THE SAID P ARTY. THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT BOTH THESE COMPANIES HAD ON THEIR OWN SQUARED OFF THE AMOUNT I N THEIR BOOKS OF ACCOUNT MUCH EARLIER BUT THE ASSESSEE WAS UNAWARE OF THE SAME AND CONTINUED REFLECTING THE SAME AS OUTSTANDING IN ITS BOOKS OF ACCOUNT. THE LD.COUNSEL FOR THE ASSESSEE, THEREFORE, CONTENDED THAT THE AMOUNTS OUTSTANDING NOT BEING IN THE NATURE OF TRADING LIAB ILITY AND THE SAID CREDITORS HAVING SUO MOTTO WRITTEN OFF THE IR CLAIM, IT COULD NOT BE SAID THAT THERE WAS ANY CESSATION OR R EMISSION OF ANY LIABILITY U/S 41(1) OF THE ACT SO AS TO TREA T THE SAME AS BENEFIT ACCRUING TO THE ASSESSEE IN THE IMPUGNED YEAR AND LIABLE TO TAX AS PER THE PROVISIONS OF THE SAI D SECTION. THE LD.COUNSEL FOR THE ASSESSEE, THEREFORE, CONTEND ED THAT ON MERITS IT COULD NOT BE SAID THAT THE ASSESSEE H AD CONCEALED OR FURNISHED ANY INACCURATE PARTICULARS O F INCOME SO AS TO ATTRACT THE LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. ITA NO.200/CHD/2019 A.Y. 2014-15 7 6. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE O RDER OF THE CIT(A) AND STATED THAT IT WAS ABUNDANTLY CLEAR THAT THE LIABILITY OF THESE TWO PARTIES HAD CEASED TO EXIST AND THE ASSESSEE HAVING NOT WRITTEN OFF THE LIABILITY AND B ROUGHT THE SAME TO TAX AS PER THE PROVISIONS OF SECTION 41(1) OF THE ACT, HAD CLEARLY CONCEALED/FURNISHED INACCURATE PARTICUL ARS OF INCOME. THE LD. DR RELIED UPON THE FINDINGS OF THE LD.CIT(A) AT PARAS 4.5 OF THE ORDER AS UNDER: 4.5 IN THE PRESENT CASE, THE ASSESSEE COMPANY M/S BRAH MA STEYER TRACTORS LTD. WAS ESTABLISHED IN THE YEAR 1993 TO S ET UP A PLANT FOR MANUFACTURING OF TRACTORS, BUT THAT PLANT COULD NOT BE SET UP AND RESULTANTLY THE COMPANY'S BUSINESS NEVER CAME I NTO BEING. THERE WERE NO TRADING TRANSACTIONS EITHER. BESIDES THIS, NATURAL COROLLARY WAS THAT THERE WAS NO OPERATIONAL INCOME OR EXPENDI TURE. MEANING THEREBY THAT THE ASSESSEE COMPANY IS OPERATIONALLY INACTIVE SINCE ITS INCEPTION AND LYING DORMANT WITH NO COMMERCIAL ACTI VITIES. THE AR HAS SUBMITTED THAT CERTAIN EXPENSES WERE INCURRED BY M/ S AIR AGRO PRIVATE LIMITED AND THE INDIAN STEEL & WIRE PRODUCT S LIMITED ERSTWHILE SISTER CONCERNS, AT THE TIME OF SETTING O F BUSINESS ON BEHALF OF THE COMPANY. THE AMOUNT LYING TO THEIR CREDIT WE RE SHOWN AS LIABILITY TOWARDS THEM AND THESE LIABILITIES ARE IN NO WAY TRADING LIABILITY AS THE COMPANY NEVER CAME INTO OPERATION. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS SOUGHT INFORM ATION U/S 133(6) OF THE ACT REGARDING OUTSTANDING BALANCE BY M/S AIR AGRO PRIVATE LIMITED AND THE INDIAN STEEL & WIRE PRODUCT S LIMITED. M/S AIR AGRO PRIVATE LIMITED CONFIRMED HAVING NO BUSINE SS DEALING WITH THE APPELLANT. M/S INDIAN STEEL &WIRE PRODUCTS LIMITED WAS IN BIFR. AR CONCLUDED IN HIS ARGUMENTS THAT THE AMO UNT IN QUESTION WAS NOT TRADING LIABILITIES. THE RESPECTIV E COMPANIES HAD INCURRED CERTAIN EXPENSES ON BEHALF OF THE APPE LLANT COMPANY WHICH WERE SHOWN AS PAYABLE TO THEM BY THE APPELL ANT. ITA NO.200/CHD/2019 A.Y. 2014-15 8 THESE TWO RESPECTIVE PARTIES HAD SQUARED OFF THE AM OUNT DUE TO THEM MUCH EARLIER IN THE RESPECTIVE BOOKS. THE SAME DOES NOT TANTAMOUNT TO FURNISHING OF INACCURATE PARTICULARS BY ANY STRETCH OF IMAGINATION. ON PERUSAL OF PENALTY ORDER, AND THE S UBMISSIONS OF THE AR, IT IS CLEAR THAT THESE TRANSACTIONS WERE REFLECTING IN THE BOOKS OF ACCOUNTS. THIS IS ALSO AN UNDISPUTED FACT THAT M/S INDIAN ST EEL & WIRE PRODUCTS LIMITED WAS IN BIFR. THE OTHER COMPANY I.E. M/S AI R AGRO PRIVATE LIMITED NOW M/S JOY HOTEL & RESORTS PVT. LTD. CONFIRMED HAV ING NO BUSINESS DEALING WITH THE APPELLANT IN RESPONSE TO NOTICE U/ S 133(6) OF THE ACT. IT IS ALSO AN UNDISPUTED FACT THAT THE AMOUNT OWED TO M/S AIR AGRO PVT. LTD., REMAINED UNCLAIMED AS THERE WAS CHANGE IN THE MANAG EMENT OF THE SAID COMPANY AND THE PRESENT ENTITY M/S JOY HOTEL & RESO RTS PVT. LTD., HAS NOT RAISED ANY CLAIM OF THE AMOUNT DUE TO AIR AGRO PVT. LTD. IT IS IN THESE FACTS AND CIRCUMSTANCES; THE AO HAS HELD THAT THERE IS CESSATION OF LIABILITY. M/S AIR AGRO PRIVATE LIMITED NOW M/S JOY HOTEL & RESORTS PVT. LTD. CONFIRMED HAVING NO BUSINESS DEALING WITH THE APPELLANT. IT HAS SQUARED UP THE SAID CLAIMED 'LONG TERM LIABILITY' B Y THE ASSESSEE ON ITS OWN. NO EFFORT HAS BEEN MADE BY M/S AIR AGRO PRIVAT E LIMITED NOW M/S JOY HOTEL & RESORTS PVT. LTD. TO RECOVER THIS AMOUN T. SIMILARLY, M/S INDIAN STEEL & WIRE PRODUCTS LIMITED WAS IN BIFR BUT IT HA S ALSO NOT MADE ANY EFFORT TO CLAIM THE SAID AMOUNT FROM THE ASSESSEE W HEN IT WAS IN DIRE NEED OF FUNDS. THE ACT OF BOTH THE CREDITORS VIS-A- VIS THE ASSESSEE CLEARLY ESTABLISHES THAT THERE IS MUTUAL UNDERSTANDING FOR CESSATION OF THE SAID LIABILITIES. THIS CESSATION OF LIABILITY WAS NEVER SHOWN AS INCOME BY THE ASSESEE, WHERE AS THE ASSESSEE LOUDLY SUBMITS THAT BOTH THE SAID COMPANIES HAD SQUARED OFF THE AMOUNT DUE TO THEM M UCH EARLIER IN THE RESPECTIVE BOOKS. AO HAS RIGHTLY CONSIDERED IT AS C ESSATION OF LIABILITIES U/S 41(1) OF THE ACT AND THIS ACT OF AO HAS BEEN A CCEPTED BY THE ASSESSEE WHEN IT HAS NOT FILED APPEAL AGAINST THE ASSESSMENT ORDER. IT IS IN THESE FACT AND CIRCUMSTANCES THE AO HAS HELD THAT THE APP ELLANT HAS FURNISHED INACCURATE PARTICULARS OF INCOME. THE AO HAS ESTABL ISHED BEYOND DOUBT THAT THE INTENTION OF THE ASSESSEE WAS OF MUTUAL CE SSATION OF THE ABOVE LIABILITIES WITH THE CREDITORS. THE CASE LAWS RELIE D BY THE AR DO NOT HELP THE CASE OF THE ASSESSEE IN THE LIGHT ABOVE FACTS O F THE ASSESSEE. HENCE, PENALTY IMPOSED BY THE AO IS CONFIRMED. THE GROUND OF APPEAL IS DISMISSED. ITA NO.200/CHD/2019 A.Y. 2014-15 9 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE IS SUE BEFORE US RELATES TO LEVY OF PENALTY ON THE ADDITION MADE IN ASSESSMENT, TO THE INCOME OF THE ASSESSEE, U/S 41(1 ) OF THE ACT, BEING LIABILITIES RELATING TO TWO CREDITORS ,C EASING TO EXIST. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS NOT CHALLENGED THE SAID ADDITION BEFORE THE APPELLATE AUTHORITIES. 8. HAVING SAID SO WE AGREE WITH THE LD.COUNSEL FOR THE ASSESSEE THAT THE PENALTY PROCEEDINGS ARE DISTINCT AND SEPARATE FROM ASSESSMENT PROCEEDINGS AND THE ASSESS EE CAN JUSTIFIABLY CHALLENGE THE LEGALITY OF THE ADDITIO N MADE IN PENALTY PROCEEDINGS. 9. THE CONTENTION OF THE LD.COUNSEL FOR THE ASSESSE E BEFORE US IS THAT NO PENALTY IS LEVIABLE SINCE THE ADDITION IS NOT SUSTAINABLE IN LAW, AS THE PROVISIONS OF SECTI ON 41(1) OF THE ACT DO NOT APPLY TO THE FACTS OF THE PRESENT CA SE. THE REVENUE, ON THE OTHER HAND, HAS OPPOSED THIS CONTEN TION OF THE LD.COUNSEL FOR THE ASSESSEE. 10. WE FIND MERIT IN THE CONTENTION OF THE LD.COUNS EL FOR THE ASSESSEE. WE FIND THAT THE ASSESSEE HAS MADE OUT A JUSTIFIABLE CASE AGAINST THE SUSTAINABILITY OF THE ADDITION ITSELF. WE HAVE GONE THROUGH THE PROVISIONS OF SECT ION 41(1) ITA NO.200/CHD/2019 A.Y. 2014-15 10 OF THE ACT, UNDER WHICH ADDITION WAS MADE IN THE PR ESENT CASE AND PENALTY LEVIED THEREON. THE SAID SECTION I S REPRODUCED HEREUNDER: PROFITS CHARGEABLE TO TAX. 41. (1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXP ENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINA FTER REFERRED TO AS THE FIRST- MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR,- (A) THE FIRST- MENTIONED PERSON HAS OBTAINED, WHETH ER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RE SPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY SUCH PERSON OR THE VALUE OF BENE FIT ACCRUING TO HIM SHALL BE DEEMED TO BE PROFITS AND G AINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE T O INCOME- TAX AS THE INCOME OF THAT PREVIOUS YEAR, WHETHER TH E BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEAR OR NOT; OR (B) THE SUCCESSOR IN BUSINESS HAS OBTAINED, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPE CT OF WHICH LOSS OR EXPENDITURE WAS INCURRED BY THE FIRST - MENTIONED PERSON OR SOME BENEFIT IN RESPECT OF THE TRADING LIABILITY REFERRED TO IN CLAUSE (A) BY WAY OF REMIS SION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY THE SUCCE SSOR IN BUSINESS OR THE VALUE OF BENEFIT ACCRUING TO THE SU CCESSOR IN BUSINESS SHALL BE DEEMED TO BE PROFITS AND GAINS OF THE BUSINESS OR PROFESSION, AND ACCORDINGLY CHARGEABLE TO INCOME TAX AS THE INCOME OF THAT PREVIOUS YEAR. 11. AS IS EVIDENT FROM A BARE READING OF THE SECTIO N AND AS RIGHTLY POINTED OUT BY THE LD.COUNSEL FOR THE ASSES SEE, CESSATION OF ONLY THOSE LIABILITIES WHICH REPRESENT EXPENSES, ALLOWANCES OR LOSSES CLAIMED IN ASSESSMENT EARLIER BY THE ASSESSEE ARE TREATED AS PROFITS AND GAINS OF BUSINE SS. FURTHER THE SECTION TREATS SUCH LIABILITIES AS IN COMES OF THE YEAR IN WHICH THE LIABILITY CEASES TO EXIST. ITA NO.200/CHD/2019 A.Y. 2014-15 11 12. IN THE PRESENT CASE WE FIND THAT BOTH THE REQUI REMENTS OF THE SECTION ARE NOT FULFILLED. THE LD.CIT(A) HIM SELF HAS RECORDED A FINDING OF FACT AT PARA 4.5 OF HIS ORDER , REPRODUCED ABOVE, THAT THE IMPUGNED LIABILITIES DO NOT REPRESENT ANY TRADING LIABILITY SINCE THE ASSESSEE HAD NEVER COMMENCED BUSINESS AND HAD THEREFORE NEVER INCURRED ANY OPERATIONAL EXPENSE OR EARNED ANY INCOME. THE LD.CI T(A) HAS GONE ON TO MENTION THE ASSESSES EXPLANATION THA T THESE LIABILITIES REPRESENTED ADVANCES GIVEN BY THE TWO C REDITORS FOR SETTING UP BUSINESS OF THE ASSESSEE, BUT HAS NO T CONTROVERTED THE SAME NOR FOUND ANY FALSITY IN THE SAME. THEREFORE EVEN AS PER THE LD.CIT(A) THE LIABILITIES DID NOT REPRESENT ANY EXPENSE, ALLOWANCE OR LOSS CLAIMED EA RLIER BY THE ASSESSEE. FURTHER WE FIND THAT THAT THERE IS NO THING ON RECORD TO SHOW THAT THE LIABILITIES CEASED TO EXIST IN THE IMPUGNED YEAR. IN FACT WE FIND THE ASSESSEE HAD CON TENDED THAT THE PARTIES HAD WRITTEN OFF THE AMOUNTS IN EAR LIER YEARS. AND ON THE BASIS OF THIS ADMISSION OF THE ASSESSEE THE REVENUE DERIVED THAT THE LIABILITIES CEASED TO EXIS T, BUT THERE IS NO FINDING, WHEN. THE ENTIRE CASE OF THE L D.CIT(A) FOR TREATING THE SAME AS INCOME U/S 41(1) OF THE AC T, RESTS ON THE FACT THAT THE AMOUNTS REPRESENT LIABILITIES AND THE FACTS DEMONSTRATE THAT THEY CEASE TO EXIST. BUT THI S IS NOT SUFFICIENT TO TREAT THE AMOUNT AS PROFITS AND GAINS OF ITA NO.200/CHD/2019 A.Y. 2014-15 12 BUSINESS FOR THE YEAR AS REQUIRED BY SECTION 41(1), AS POINTED OUT ABOVE BY US. 13. THEREFORE, WE HOLD, THAT THE THERE WAS NO LEGA LLY SUSTAINABLE BASIS WITH THE REVENUE FOR MAKING THE A DDITION U/S 41(1) OF THE ACT. AS A COROLLARY THEREFORE IT C ANNOT BE SAID THAT THE ASSESSEE HAD FURNISHED INACCURATE PAR TICULARS OF INCOME OR CONCEALED PARTICULARS OF INCOME IN REL ATION TO THE ADDITION MADE, SO AS TO ATTRACT LEVY OF PENALTY U/S 271(1) OF THE ACT. THE PENALTY SO LEVIED IS THEREF ORE DIRECTED TO BE DELETED. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- # $ % & ' (DIVA SINGH) (ANNAPURNA GUPTA) ! ' /JUDICIAL MEMBER () ' /ACCOUNTANT MEMBER # /DATED: 27 TH SEPTEMBER, 2019 * * &) *+,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ' - / CIT 4. ' - ( )/ THE CIT(A) 5. +./ 0 , $0 , 123/4 / DR, ITAT, CHANDIGARH 6. /35# / GUARD FILE &) ' / BY ORDER, / ASSISTANT REGISTRAR