2016 (10) TMI 1070 - AT - Income Tax

Penalty under section 271(1)(c) - deduction under section 80IC claim - not adding back the sundry debtors written off in computation of income - Held that - It is not in dispute that the amount of sundry balances written off was already added back in the computation of income of Baddi Unit on which deduction under section 80IC of the Act have been claimed. The assessee explained that due to inadvertent mistake, same was omitted to be added back in the computation of income of the assessee company. Thus assessee disclosed complete facts in the return of income as well as disclosed the relevant facts before Assessing Officer at the assessment stage. The assessee on realizing the mistake that sundry debtors written off have not been added in the computation of total income, submitted before Assessing Officer to make the addition of the same amount in the computation of income of the assessee for the year under consideration. The assessee has, thus, offered explanation to the same issue. The above facts proved that explanation of the assessee was bonafide and all the facts relating to the same and material to the computation of total income have been disclosed by the assessee. It was not intentional mistake because assessee s company is of higher income group and generally selected for scrutiny assessment. Therefore, there was no reason to believe that assessee would evade the taxes. - Decided in favour of assessee.

Summary

Issues:
Challenge to cancellation of penalty under section 271(1)(c) of the Income Tax Act for assessment year 2008-09.

Analysis:
The Assessing Officer levied a penalty in relation to an addition of ?96,45,276 made by the assessee in its return of income due to not adding sundry balances written off during the computation of total income. The Assessing Officer believed it was an attempt to evade tax and initiated penalty proceedings. The assessee contended that the mistake was inadvertent and not intentional, as the amount was in the nature of disallowable expenses to be added back. The ld. CIT(Appeals) considered the explanation of the assessee and canceled the penalty, noting that the mistake was not intentional and that the surrounding circumstances did not suggest any deliberate or malafide intention to deceive the revenue.

The ld. CIT(Appeals) highlighted that the mistake was pointed out by the Assessing Officer during assessment, and the nature of the item should have caught the attention of the person finalizing the income tax return. It was observed that there was no deliberate intention to make a wrongful claim, especially considering the company's history of scrutiny assessments. The ld. CIT(Appeals) referenced a Supreme Court decision where even reputable firms were found to make mistakes, emphasizing that the absence of due care did not equate to furnishing inaccurate particulars or concealing income. The penalty was directed to be deleted based on these considerations.

In the appeal, the ld. DR argued that the penalty should be upheld, citing civil liability and referring to relevant Supreme Court decisions. However, the Tribunal found that the assessee had disclosed all relevant facts and offered a bonafide explanation for the mistake. It was noted that the mistake was rectified by the assessee upon realization and that there was no intention to evade taxes. The Tribunal agreed with the ld. CIT(Appeals) and upheld the cancellation of the penalty under section 271(1)(c) of the Act.

The Tribunal cited decisions by the Gujrat High Court and the Madras High Court where penalties were deleted due to admitted mistakes in accounts and under-valuation of stock, respectively. Considering the facts and circumstances of the case, the Tribunal affirmed the cancellation of the penalty by the ld. CIT(Appeals) and dismissed the departmental appeal.