2016 (6) TMI 209 - AT - Income Tax

Penalty under section 271(1)(c) - difference between the reported and the assessed income - inadvertent mistake - exchange rate difference on repayment of Term loan capitalized to the cost of assets in terms of section 43A of the Act not added back to the total income - Held that - Ostensibly, in all cases where there is a difference between the reported and the assessed income, penalty under section 271(1)(c) of the Act cannot be justified. As because there is a difference between the reported and the assessed income, it would not justify imposition of penalty under section 271(1)(c) of the Act. So far as the present controversy is concerned, it relates to an inadvertent error on the part of the assessee in not adding back a sum of ₹ 13,70,387/- representing exchange rate difference on repayment of Term loan capitalized to the cost of assets in terms of section 43A of the Act but the same was not added back to the total income, as it was already debited in the Profit & Loss Account. The circumstances explained by the assessee, which have not been doubted by the Revenue, clearly establish that it is a case of an inadvertent mistake and not a deliberate attempt to conceal the income or furnish inaccurate particulars of income within the meaning of section 271(1)(c) of the Act. The judgment of the Hon ble Bombay High Court in the case of Bennett Coleman & Co. Ltd.(2013 (3) TMI 373 - BOMBAY HIGH COURT) clearly supports the stand of the appellant that an inadvertent mistake on the part of the assessee while filing the return of income cannot be construed as liable for penalty under section 271(1)(c) of the Act. In view of the aforesaid discussion, we hereby set-aside the order of the CIT(Appeals) and direct the Assessing Officer to delete the penalty imposed under section 271(1)(c) of the Act. - Decided in favour of assessee

Summary

Issues:
Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 for inadvertent error in filing return of income.

Analysis:
The appeal pertains to the assessment year 2009-10 and challenges the penalty imposed under section 271(1)(c) of the Act amounting to ?4,23,449. The appellant, a company engaged in the manufacture of diamond/gold jewellery, declared a loss of ?23,92,146, which was later assessed at ?10,06,419 due to the disallowance of ?13,70,387 representing exchange rate difference on loan repayment. The Assessing Officer imposed the penalty on the grounds of concealment or furnishing inaccurate particulars of income. The appellant contended that the error was inadvertent as it failed to disallow the exchange rate difference on loan repayment while computing total income for tax purposes. The appellant argued that there was no malafide intent and cited the decision of the Bombay High Court to support their claim.

The Departmental Representative asserted that the error in the return of income justified the penalty under section 271(1)(c) of the Act. However, the Tribunal noted that the difference between reported and assessed income alone does not warrant a penalty under section 271(1)(c). In this case, the error was deemed inadvertent as the exchange rate difference was already debited in the Profit & Loss Account. The Tribunal agreed with the appellant's argument that the mistake did not amount to deliberate concealment or furnishing inaccurate particulars of income. Citing the Bombay High Court's decision, the Tribunal ruled in favor of the appellant and directed the Assessing Officer to delete the penalty imposed.

In conclusion, the Tribunal allowed the appeal, setting aside the penalty of ?4,23,449 imposed under section 271(1)(c) of the Act. The decision was based on the finding that the error in not adding back the exchange rate difference on loan repayment was inadvertent and did not constitute grounds for penalty as per the provisions of the Act.