2015 (1) TMI 1227 - AT - Income Tax

Penalty u/s. 271(1)(c) - assessee had voluntarily admitted the mistake of inclusion of professional fees in exempted income from mutual fund - CIT(A) deleted penalty levy - Held that - In the present case, the AO in the penalty order u/s. 271(1) ( c) of the Act dated 30-06- 2010 himself observed that the error reveals a casual and irresponsible attitude towards tax accounting. Similarly, the assessee debited a sum of ₹ 2,76,893/- as partners salary on the basis of original partnership deed. But the AO on examination of the same found that there was no such provision in the current deed. The assessee is not contested the said addition. Therefore, the additions made by the AO was justified. However, it is well settled that the assessment and the penalty proceedings are different and distinct proceedings and even when addition is made for certain reasons, it cannot be said that the assessee had furnished inaccurate particulars of income or concealed the income. the mistake was committed by the accountant of the assessee. Even it was not noticed by the AO, and the assessee itself during the course of assessment proceedings while preparing the details from its ledger accounts came to know the said mistake had been committed by the accountant and proposed for addition. Therefore, through a bonafide and inadvertent error the assessee claimed the income as exempt and wrongly provided for partners salary. But the submissions of the assessee was that the error occurred by a mistake of its accountant, who treated the said professional income as Income from Mutual Funds and the salary was claimed on the basis of the clause mentioned in the original partnership deed was not found to be false. We, therefore, keeping in view of the ratio laid down by the Hon ble Supreme Court in the case of Price Waterhouse Coopers Pvt. Ltd (2012 (9) TMI 775 - SUPREME COURT ) are of the view that the ld.CIT(A) was justified in deleting the penalty so levied by the AO. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act.
2. Inclusion of professional income under the head "Income from mutual funds."
3. Disallowance of partners' salary.

Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c):
The main issue revolves around whether the penalty imposed under Section 271(1)(c) of the Income Tax Act for concealment of income or furnishing inaccurate particulars was justified. The department argued that the assessee did not voluntarily admit the mistake of including professional fees in exempted income from mutual funds, and no revised return was filed to enhance its income. The assessee contended that all material facts were fully disclosed, and the mistakes were bona fide without any intent to conceal income. The CIT(A) observed that the mistake was detected by the assessee itself during the assessment proceedings and not by the AO, indicating that it was a bona fide error. The CIT(A) relied on various case laws, including the Supreme Court's decision in Dharmendra Textiles Processors, which clarified that penalty under Section 271(1)(c) is a civil liability and not all cases of addition would automatically lead to penalty.

2. Inclusion of Professional Income under the Head "Income from Mutual Funds":
The assessee had mistakenly included professional income of Rs. 34,66,017 under the head "Income from mutual funds," which was exempt from tax. The AO added this amount to the professional income after the assessee admitted the mistake during assessment proceedings. The assessee explained that the mistake occurred due to the accountant's error, who recorded both professional income and mutual fund income in a single ledger account. The CIT(A) accepted this explanation, noting that the error was detected and disclosed by the assessee itself, and there was no intent to conceal income or furnish inaccurate particulars.

3. Disallowance of Partners' Salary:
The AO disallowed partners' salary amounting to Rs. 2,76,893, stating that there was no provision in the current partnership deed for such payment. The assessee argued that the provision existed in the original partnership deed and that oral agreements were valid for the firm's conduct. The assessee did not contest the disallowance to avoid litigation but maintained that this did not equate to concealment of income or furnishing inaccurate particulars. The CIT(A) observed that the mistake was due to the accountant's error and was not intentional, thus not justifying the penalty under Section 271(1)(c).

Conclusion:
The CIT(A) concluded that the assessee's mistakes were bona fide and not intentional. The penalty under Section 271(1)(c) was not justified as the errors were attributable to the accountant's mistakes, and the assessee had disclosed these errors during assessment proceedings. The CIT(A) referred to various judicial precedents, including the Supreme Court's decision in Price Waterhouse Coopers Pvt. Ltd., which held that inadvertent errors do not justify penalty imposition. The Tribunal upheld the CIT(A)'s order, dismissing the department's appeal and confirming the deletion of the penalty.