2013 (10) TMI 1421 - AT - Income Tax

Penalty u/s 271(1)(c) - Held that - We find that the case squarely falls within the parameters of ignorance , even by the CA, who conducted audit and tax audit. In such a case, the bonafide of the assessee gets explained automatically. In these circumstances, the penalty, in our opinion cannot be levied on the assessee. In so far as the bonafides of the CA firm is concerned, even the Hon ble Supreme Court has accepted the fact that certain silly mistakes can never be ruled out. We, therefore, cannot hold even the CA to be guilty of committing a mistake, because, the relevant expression was inserted in the relevant assessment year only which went unnoticed by everyone.

Summary

Issues:
1. Penalty cancellation under section 271(1)(c) of the Income Tax Act, 1961 based on failure to make complete disallowance under section 43B(e).

Detailed Analysis:
1. The appeal was filed against the cancellation of a penalty of Rs. 1,82,83,210/- imposed by the AO under section 271(1)(c) of the Income Tax Act, 1961. The assessee, a manufacturer and trader in yarn, had defaulted in payment of bank interest amounting to Rs. 7,99,20,976/-. The AO added back Rs. 5,09,63,653/- to the assessee's income as the assessee had only added back Rs. 2,89,57,323/- as per section 43B(e). The CIT(A) cancelled the penalty, citing that the mistake was a bona fide one, as the appellant was not aware of the amendment made in clause (e) of section 43B. The CIT(A) referred to the Finance Act 2003, which substituted the term "term loan" with "loan or advances" in section 43B(e), and concluded that it was not a fit case for levy of penalty for concealment of income due to the bona fide mistake made by the assessee.

2. The department appealed before the ITAT, arguing that the penalty was rightly levied as the assessee failed to make complete disallowance under section 43B(e), resulting in a reduced loss. The department contended that the CIT(A) did not consider the bonafides of the assessee in canceling the penalty. However, the AR for the assessee argued that the amendment adding "loan or advance" was inserted in the Finance Act, 2003, effective from 01.04.2004, and even the auditor was unaware of this amendment. The AR emphasized that it was a bona fide mistake, especially in the first year of the amendment. Referring to similar cases, the AR highlighted decisions where penalties were deleted due to genuine mistakes made by tax consultants or auditors, and the ignorance of law was considered a valid explanation for the error.

3. The ITAT examined the submissions and case laws cited by both parties. It noted that the case fell within the scope of "ignorance," even by the CA who conducted the audit. The tribunal observed that in such circumstances, the bonafide nature of the assessee's mistake was evident. The ITAT also considered the argument that certain "silly mistakes" could occur, as acknowledged by the Hon'ble Supreme Court. Consequently, the ITAT upheld the CIT(A)'s order, rejecting the grounds raised in the appeal and dismissing the revenue's appeal. The tribunal concluded that the penalty could not be levied on the assessee due to the genuine mistake made, which was considered a bona fide error given the circumstances and the lack of awareness regarding the relevant legal provision at the time.