2015 (7) TMI 433 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee had two opportunities to add back this amount to its returned income. First when it filed the return of income the assessee could have revised the return of income and secondly when it filed return of income in pursuance to the notice u/s 148 of the Act. The assessee agreed for the addition only when it was pointed out by the AO during the course of reassessment proceedings regarding its claim in respect of a capital loss. Merely because the assessee did not preferred any appeal against the said disallowance does not make it an inadvertent mistake. - It appears that the assessee was taking a chance whether its return would be selected for scrutiny assessment or not. Once the return was accepted u/s 143(1) of the Act the assessee took a sigh of relief without realizing that its return can be to be re-opened u/s 147 of the Act. Even after receiving notice u/s 148 the assessee continued to take a chance but this time could not get any success. - Following decision of Zoom Communication (P) Ltd 2010 (5) TMI 34 - DELHI HIGH COURT - Penalty amount reduced - Decided partly in favour of Revenue.

Summary

Issues:
- Appeal against deletion of penalty under section 271(1)(c) of the Income Tax Act, 1961 for assessment year 2005-06.

Analysis:
1. The appeal was filed by the revenue against the deletion of penalty of Rs. 9,69,889 under section 271(1)(c) by the ld. CIT(A)-17, Mumbai. The penalty was related to deductions claimed by the assessee in the return of income for the assessment year 2005-06.

2. The original return was filed by the assessee declaring total income at Rs. 2,71,17,770, which was processed under section 143(1) of the Act. The assessment was reopened under section 147 as the AO found deductions claimed by the assessee on account of obsolete store/spares and loss on assets sold to be capital in nature.

3. The Tribunal in a related case directed the AO to verify the claim of the assessee regarding the obsolete stock. The penalties under section 271(1)(c) were levied on these deductions. The penalty related to the loss on assets sold was set aside for fresh adjudication by the AO as per the Tribunal's direction.

4. Regarding the penalty on the deduction of Rs. 12,75,872, the assessee claimed it inadvertently failed to add back the amount to its income computation. The assessee relied on Supreme Court and High Court decisions to support its stance. However, the Tribunal found that the assessee had opportunities to rectify the error but only agreed to the disallowance during reassessment proceedings.

5. The Tribunal held that the assessee's failure to rectify the error earlier could not be considered inadvertent. The Tribunal referred to a Delhi High Court decision, stating that if a claim is incorrect and lacks a bona fide explanation, penalty under section 271(1)(c) would apply. Therefore, the Tribunal directed the AO to restrict the penalty to the amount of Rs. 14,27,654 only.

6. The Tribunal partly allowed the appeal filed by the assessee for statistical purposes. The decision was pronounced in open court on 6.02.2015.