2005 (11) TMI 363 - AT - Income Tax

Summary

Issues:
Common issues involved in the judgment:
1. Validity of the revised return filed by the assessee.
2. Deletion of penalty under section 271C by CIT(A).
3. Applicability of section 271C to the assessee's case.

Analysis:

Issue 1: Validity of the revised return
The assessee filed annual salary returns for the impugned years which were subsequently revised. The Assessing Officer initiated penalty proceedings under section 221(1) and 271C of the Act, contending that the revised return was not a valid defense. The Assessing Officer held that the mistake of law and facts could not be used as a defense in penal proceedings. However, the assessee argued that the revised returns were filed voluntarily after realizing the error and rectifying it immediately. The CIT(A) held that there was no prohibition against filing revised annual salary returns before the order under section 201(1) of the Act, making the revised returns valid.

Issue 2: Deletion of penalty under section 271C
The Assessing Officer levied a penalty under section 271C on the assessee for failure to deduct tax at source. The assessee contended that there was a reasonable cause for the short deduction, citing bona fide belief and voluntary compliance upon professional advice. The CIT(A) held that since no demand was raised for short deduction in the order under section 201 of the Act, the penalty under section 271C was not applicable. The tribunal upheld the CIT(A)'s decision, emphasizing the assessee's immediate corrective actions upon realizing the mistake and the absence of recording satisfaction by the Assessing Officer for penalty initiation.

Issue 3: Applicability of section 271C
The revenue contended that the revised returns were not filed voluntarily, citing a previous court decision. However, the tribunal found that the assessee's actions were based on a genuine belief regarding the taxability of allowances. The tribunal emphasized that ignorance of the law is not an excuse, but immediate corrective actions upon realizing the mistake constitute a reasonable cause. The tribunal also highlighted the importance of the Assessing Officer recording satisfaction for penalty initiation, which was not done in this case.

In conclusion, the tribunal dismissed the revenue's appeals for all years under consideration, upholding the CIT(A)'s decision regarding the validity of revised returns and the deletion of penalty under section 271C based on the reasonable cause shown by the assessee.