Palkhi Investments & Trading Co. P. Ltd., Mumbai .. vs. The Income Tax Officer, Mumbai [INCOME TAX APPEAL NO.50 OF 2014; dt 9/6/2016 (Bombay High Court )] Affirmed [Palkhi Investments & Trading Co. Pvt Ltd vs. ITO CIR 9(2)(4) (ITA No.2623/Mum/2011 AY-2005-06; 24- 07-2013)]

The Assessing Officer made an addition of Rs.1.26 crore to the total income declared by the assessee. This addition was in respect of trade liabilities which had ceased to exist and represented income in terms of Sec. 41(1) of the Act. Being aggrieved the assessee carried the issue in appeal to the CIT (Appeal), who confirmed the same. On further appeal, the Tribunal reduced the addition u/s. 41(1) of the Act from Rs.1.26 crores to Rs.1.05 crores. The assessee carried the issue in further appeal to the High Court. The Court by order dated 16th November, 2010 dismissed the appeal interalia recording as under :

“The tribunal also recorded a finding that one of the creditors had even denied that any amount was due to it from the assessee. The tribunal has also recorded a finding of fact that some of the creditors named by the assessee were not found available at the addresses given by the assessee.”

The appellant filed SLP to the Supreme Court and the same was also dismissed. Thereafter review petition before High court was also dismissed on 4th August, 2015.

The Assessing Officer imposed penalty u/s 271(1)(c) of the Act. This was for furnishing inaccurate particulars of income and concealing income in its return of income for subject assessment year. The order of the Assessing Officer imposing penalty was confirmed by the CIT (A).

The Tribunal recorded the fact that the assessee was unable to prove genuineness of the amount shown as outstanding liabilities to the extent of Rs.1.05 crore. In the above view the assessee had to show on the basis of some evidence that it had a bonafide belief that the liability shown in the balance sheet was existing. During the course of hearing in penalty proceedings the Tribunal raised two queries, namely, evidence to prove as to when liability claimed to be subsisting arose for first time and other whether the assessee had received any letter from HDFC Ltd. stating that the amount due to M/s. Karamchand Chunnilal should be paid over to them as it had taken over its business as contended by the assessee. The impugned order records that the assessee was not in position to respond on both the issues. The impugned order further recorded that the claim made with regard to existing liabilities was not genuine claim as already established in quantum proceedings. The tribunal held that it was established that the assessee had filed inaccurate particulars of claim of income resulting in concealing of income. In above view, the tribunal upheld the order of AO imposing penalty of Rs.38.71 lakhs u/s. 271(1)(c) of the Act.

The Hon’ble Court observed that in quantum proceedings which were taken up to the Supreme Court the Tribunal had recorded a fact that a creditor had denied that any amount was due to the appellant and one of them was also not found at the address given. Further, in penalty proceedings all three authorities have concurrently arrived at a finding of fact that the claim made by the assessee with regard to its outstanding liabilities for subject assessment year was false. These findings of fact are not shown to be perverse in any manner. The legal claim made before the court that once a liablility is shown in the balance sheet, it must follow that it is bonafide, is not understood. The liability shown in the balance sheet as existing is found to be false. The assessee has to show the reason why he believed at the time he filed his balance sheet, it was true. No such attempt was even made.

The fact is that in terms of section 139 of the Act a return of income under the Act has to be filed along with the balance sheet and profit and loss account. In its absence the return of income is defective. Thus, same are to be considered as a part of the return of income. Further by showing a non existing liability as an existing liability, in the subject AY , the attempt was to escape offering of the ceased liability as income obliged to do u/s. 41(1) of the Act. Thus, not offering to tax, the above ceased liabilities would by itself amounted to furnishing inaccurate particulars of income leading to escapement of income from tax. In view of the above the assessee’s appeal was dismissed.