2012 (11) TMI 936 - AT - Income Tax

Levy of penalty u/s.271(1)(c) - bona fide mistake Held that - Penalty under section 271(1)(c) of the Income-tax Act, 1961, was imposed only when there was some element of deliberate default and not a mere mistake. The finding had been recorded on the facts that the furnishing of inaccurate particulars was simply a mistake and not a deliberate attempt to evade tax - simply because a mistake has been committed on the advise of the auditor, then such addition cannot lead to the action of imposition of penalty Addition of dividend Held that - Normal dividend was exempt u/s. 10 34 and it is very much possible that dividend from the co-operative bank was also treated as normal dividend. This also seems to be a case of bona fide belief and in such circumstances penalty is not attracted - when assessee is making some claim on bona fide basis or under the wrong advise of the counsel then penalty cannot be levied - assessee s appeal is allowed.

Summary

Issues:
Levy of penalty u/s.271(1)(c) for erroneous claim of unabsorbed depreciation and exemption of dividend income.

Analysis:
1. The dispute in the appeal primarily revolves around the imposition of penalty u/s.271(1)(c) concerning the erroneous claim of brought forward unabsorbed depreciation and the incorrect exemption of dividend income.

2. The Assessing Officer (AO) observed that the assessee claimed unabsorbed depreciation for the current year, which had already been claimed in the previous assessment year. The assessee explained the error, attributing it to a misunderstanding regarding the treatment of depreciation under Minimum Alternate Tax (MAT) provisions. Additionally, the assessee wrongly claimed exemption for dividend income earned from a cooperative bank under section 10[35].

3. Both the AO and the Commissioner of Income Tax (Appeals) upheld the penalty, rejecting the assessee's contentions. The AO emphasized the erroneous nature of the claims and cited case laws to support the penalty imposition.

4. The assessee, in its defense, argued that the erroneous claims were made based on the advice of the auditor and under a bona fide belief. The counsel referred to relevant documents to demonstrate the inadvertent error in claiming depreciation and the reliance on the auditor's opinion.

5. The counsel relied on legal precedents such as the case of Concord of India Insurance Co. Ltd. vs. Smt. Nirmala Devi & Ors. to support the argument that following expert advice should absolve the assessee from penal consequences. The counsel also cited cases like CIT vs. Deepak Kumar, CIT vs. Amar Nath, and CIT vs. Sidhartha Enterprises to emphasize that penalties are not applicable in cases of genuine mistakes made in good faith.

6. After considering the arguments, the Tribunal found merit in the assessee's contentions. It acknowledged that the erroneous claims were made based on a genuine misunderstanding, supported by the auditor's report. Citing legal precedents, including the Punjab & Haryana High Court case of CIT vs. Deepak Kumar, the Tribunal concluded that penalties should not be levied for mistakes made in good faith.

7. Regarding the exemption of dividend income, the Tribunal opined that the error appeared to be a result of a bona fide belief and hence did not warrant a penalty. The Tribunal, therefore, set aside the orders of the lower authorities and annulled the penalty imposed on the assessee.

8. In conclusion, the Tribunal allowed the assessee's appeal, emphasizing that penalties should not be imposed when claims are made in good faith or based on professional advice. The judgment highlights the importance of considering the intent behind the errors while determining the applicability of penalties in tax matters.