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In the present case we find that both the requirements of the section are not fulfilled. The learned CIT(A) himself 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 learned CIT(A) has gone on to mention the assesses explanation that these liabilities represented advances given by the two creditors for setting up business of the assessee, but has not controverted the same nor found any falsity in the same. Therefore even as per the learned CIT(A) the liabilities did not represent any expense, allowance or loss claimed earlier by the assessee. Further we find that that there is nothing on record to show that the liabilities ceased to exist in the impugned year. In fact we find the assessee had contended that the parties had written off the amounts in earlier years. And on the basis of this admission of the assessee the Revenue derived that the liabilities ceased to exist, but there is no finding, when. The entire case of the learned CIT(A) for treating the same as income under s. 41(1) of the Act, rests on the fact that the amounts represent liabilities and the facts demonstrate that they cease to exist. But this is not sufficient to treat the amount as profits and gains of business for the year as required by s. 41(1)

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Sec. 41(1) & 271(1)(c) of Income-tax Act, 1961— Penalty—As per section 41(1), 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 business, further section 41(1) treats such liabilities as incomes of the year in which the liability ceases to exist and in the case of assessee, both the requirements of the section are not fulfilled as the learned CIT(A) himself has recorded a finding of fact 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 and there is nothing on record to show that the liabilities ceased to exist in the impugned year. The entire case of the CIT(A) for treating the same as income under section 41(1) rests on the fact that the amounts represent liabilities and the facts demonstrate that they cease to exist but this is not sufficient to treat the amount as profits and gains of business for the year as required by s. 41(1), therefore, there was no legally sustainable basis with the Revenue for making the addition under s. 41(1) , thus, as a corollary it cannot be said that the assessee had furnished inaccurate particulars of income or concealed particulars of income in relation to the addition made, so as to attract levy of penalty under s. 271(1)(c), therefore, penalty so levied is directed to be deleted — Brahma Steyr Tractor Ltd. vs. ITO [2020] 203 TTJ 33 (UO)(CHD)