TMI Blog2017 (4) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessing such cash credits in the hands of partnership firm during the first year of operation has got divergent views. Hence the entire addition itself becomes debatable one. It is well settled proposition of law that the penalty u/s 271(1)(c) cannot be levied on debatable issues. - Decided in favour of assessee - I.T.A. No. 5346/Mum/2014 - - - Dated:- 22-3-2017 - Shri B.R. Baskaran (AM) And Shri Ravish Sood (JM) Assessee by : Dr. P Daniel Department by : Mrs. Jyotilakshmi Nayak ORDER Per B. R. Baskaran ( AM ) The appeal filed by the assessee is directed against the order dated 20- 06-2014 passed by Ld CIT(A)-33, Mumbai and it relates to the assessment year 2009-10. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the penalty levied by the AO u/s 271(1)(c) of the Act. 2. The facts relating to the case are discussed in brief. The assessee is a partnership firm and its principal source of income was rental income. The partnership firm was formed on 10-04-2008 and hence the year under consideration was the first year of operation. During the course of assessment proceedings, the AO noticed that the assessee has taken loan from vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income and accordingly the assessee prayed the AO to drop penalty proceedings. The AO was not convinced with the submissions of the assessee. He took the view that the assessee had no other option but to offer the cash credits as its income as the assessee could not justify the cash credits. Accordingly he held that the assessee has filed inaccurate particulars and concealed his income. Accordingly he levied penalty of ₹ 79.80 lakhs u/s 271(1)(c) of the Act. In the appellate proceedings, the Ld CIT(A) confirmed the penalty levied by the AO by holding that the surrender of income merely to purchase peace would not exonerate the assessee from penal liability as held by Hon ble Supreme Court in the case of MAK Data Pvt Ltd (Appeal No,9772 of 2013). Aggrieved by the order passed by Ld CIT(A), the assessee has filed this appeal before us. 4. The Ld A.R submitted that the year under consideration is the first year of operation and the impugned loans were obtained by the assessee during the initial period of the year. He submitted that the assessee has filed confirmation letters including the financial statements/return of income copies obtained from the Creditors during the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representative of the assessee, since the spouse of the authorized representative was also one of the partners of the assessee firm. Further he was holding Power of Attorney obtained from his wife. He submitted that the assessing officer has issued notices u/s 133(6) of the Act to the creditors, which remain un-responded. Further the Inspector of the Income tax has conducted field enquiries and furnished a report, wherein the concerned creditors have either denied the transactions. When these factual aspects were presented before the authorized representative during the course of survey operations, he agreed to offer the sundry creditors balance as well as one of the partners capital as income u/s 68 of the Act. Accordingly the Ld D.R submitted that the assessing officer has made addition after making proper enquiries u/s 68 of the Act and hence the penalty levied u/s 271(1)(c) of the Act was rightly confirmed by the Ld CIT(A). The Ld D.R submitted that the Ld A.R is taking new plea about the year of operation before the Tribunal and objected to the same. 7. We have heard rival contentions and perused the record. We have noticed that the assessee firm was formed on 10-04-2008 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of sec. 68 provides a legal fiction to assess the capital receipts as revenue income of the assessee, when the assessee fails to prove the initial burden of proof placed upon it. The provisions have been introduced to curb the practice of introducing the income in the form of Capital receipts. In the facts, we have noticed that the year under consideration is the first year of operation and further there is no allegation that the assessee has suppressed its rental income, being the lone source of income. Hence, in the instant case, the impugned cash credits have been assessed as income of the assessee due to legal fiction introduced in sec. 68 of the Act. Otherwise there is no scope for treating impugned loan credits/capital credits as income of the assessee. We have also noticed that the documents furnished by the creditors have not been proved to be false and hence there is merit in the submission of the assessee that it has offered the cash credits/capital credits as its income, since it could not produce the creditors at that point of time. 9. The penalty u/s 271(1)(c) of the Act is levied for concealing the particulars of income or furnishing inaccurate particulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rship firm is a debatable one and the Courts have expressed divergent view thereon. 12. We have noticed that the Ld CIT(A) has confirmed the penalty by following the decision rendered by Hon ble Supreme Court in the case of MAK Data P Ltd (supra). The Hon ble Supreme Court has laid down a principle that the voluntary surrender of income will not exonerate the assessee from the clutches of penalty provisions u/s 271(1)(c) of the Act. However, in the facts and circumstances of the case, we have come to the conclusion that the impugned addition has been made due to legal fiction prescribed u/s 68 of the Act and there is no scope that the assessee could have earned income to the extent assessed by the partnership firm. We have also noticed that the question of assessing such cash credits in the hands of partnership firm during the first year of operation has got divergent views. Hence the entire addition itself becomes debatable one. It is well settled proposition of law that the penalty u/s 271(1)(c) cannot be levied on debatable issues. 13. In view of the foregoing discussions, we are of the view that the impugned addition would not lead to levy of penalty u/s 271(1)(c) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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