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M/s. Meta Tiles Private Limited New India Center, 5th floor 17, Cooperage Road Mumbai 400 039. Vs. Income Tax Officer 1 (2) 3, Room No. 536, 5th floor Aayakar Bhavan M.k. Road, Mumbai 400 020.
January, 13th 2016


                   ./I.T.A. No. 8760/Mum/2011
                  (   / Assessment Year: 2003-04)

M/s. Meta Tiles Private Limited            Income Tax Officer 1 (2) 3,
New India Center, 5th floor                Room No. 536, 5th floor
17, Cooperage Road                         Aayakar Bhavan
Mumbai 400 039.                        Vs. M.k. Road,
                                           Mumbai 400 020.
     . /  . /PAN/GIR No.                           AAACT 3954F
        ( /Appellant)                     :           (    / Respondent)

      / Appellant by                     :     Shri Vishwas V. Mehendale

         /Respondent by                  :     Shri Mavrya Pratap

                       /                 :     12/10/2015
                Date of Hearing
                                         :     07/01/2016
         Date of Pronouncement

                                    / O R D E R

      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:
                                                                     ITA No.8760/Mum/2011
                                                   M/s. Meta Tiles Private Limited Vs.ITO

     1. The learned CIT (A) erred in confirming the Penalty u/s 271(1)(c) of
        Rs.45633/- on the facts and circumstances of the case.
     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.

2.      The only issue raised in all the grounds of appeal relates to confirmation of

penalty u/s 271(1)(c) of Rs.45,633/- by CIT(A) for the addition made u/s 41(1)(a)

to the tune of Rs.1,24,170/-. The brief facts of the case are that the assessment was

framed at a loss of Rs.1,06,890/- vide order dated 08.02.2006 against returned loss

of Rs.3,85,938/- by making various additions inter alia of Rs.1,24,170/- on account

of unexplained expenses/cessation of liability. The penalty proceedings were

initiated u/s 271(1)(c) r.w.s. 274 on 08.02.2006. The quantum appeal is confirmed

by the CIT(A) and assessee had not gone into further appeal against the order of

the CIT(A) in quantum proceedings. During the course of assessment the AO

found that assessee had shown a liability of Rs.1,53,119/- payable to M/s. Punit
                                                                   ITA No.8760/Mum/2011
                                                  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.

3.    The ld. CIT(A) confirmed the order of the AO by observing as under:-

      " After examining the facts and circumstances of the case, I find that it was

      due to the efforts of the Assessing Officer the difference in the accounts of

      M/s. Punit Agency P. Ltd vis a vis books of accounts of the appellant was

      detected. The addition in the quantum of appeal has already been confirmed

      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
                                                                  ITA No.8760/Mum/2011
                                                 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."

4.    The ld. AR submitted before us that the assessee had correctly accounted for

all the transactions entered into with M/s. Punit Agency and it was only the

mistake in the books of M/s. Punit Agency which had resulted in the difference of

Rs.1,24,170/-. The ld. Counsel further submitted that penalty could not be levied

u/s 271(1)(c) of the Act where there was the difference of opinion on the issue .

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.

5.    We have heard the rival submissions and perused the material on record. On

the basis of the facts before us, we find that there was a difference of Rs.1,24,170/-
                                                                 ITA No.8760/Mum/2011
                                                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.
                                                                  ITA No.8760/Mum/2011
                                                 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
                                                                     ITA No.8760/Mum/2011
                                                    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


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.
                                                               ITA No.8760/Mum/2011
                                             M/s. Meta Tiles Private Limited Vs.ITO

     Order pronounced in the open court on 7th January, 2016

            Sd/-                                     Sd/-
      (Joginder Singh)                         (Rajesh Kumar)
         / Judicial Member                      / Accountant Member
   Mumbai;  Dated : 07.01.2016
Ps. Ashwini Gajakosh

        /Copy of the Order forwarded to :
1.  / The Appellant
2.      / The Respondent
3.      () / The CIT(A)
4.       / CIT ­ concerned
5.       ,     ,       / DR, ITAT,
6.      / Guard File

                                              / BY ORDER,

                                     /  (Dy./Asstt. Registrar)
                             ,   / ITAT, Mumbai
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