2017 (2) TMI 1118 - AT - Income Tax

Penalty u/ 271(1)(c) - unexplained investment - Held that - As during the course of assessment proceedings, the assessee realized that out of various investments in mutual fund some were redeemed and reinvested and the difference between the sale proceeds of the units of the mutual funds and the amount invested was wrongly considered as dividend income instead of short term capital gain. Hon ble Supreme Court in the case of Price Waterhouse Coopers Pvt. Ltd. vs. CIT (2012 (9) TMI 775 - SUPREME COURT ) wherein the Hon ble Supreme Court has held that the assessee should have been careful cannot be doubted, but the absence of due care, in a case such as the present, does not mean that the assessee is guilty of either furnishing inaccurate particulars or attempting to conceal its income. As it was pointed out by the ld. Counsel for the assessee that in other years also such mistake occurred and the department has accepted the explanation given by the assessee and has not imposed the penalty. This fact is not controverted by the revenue. Therefore, under the peculiarity of the facts in the present case CIT (A) ought not to have sustained the penalty. Therefore, we set aside the order of ld. CIT (A) and direct the AO to delete the penalty. - Decided in favour of assessee

Summary

Issues Involved:
Levy of penalty under section 271(1)(c) for concealing income.

Detailed Analysis:

Issue 1: Levy of Penalty
The assessee's appeal was against the order of the ld. CIT (Appeals)- III, Jaipur, regarding the levy of a penalty of ?24,87,400 under section 271(1)(c) for the assessment year 2007-08. The assessee contended that the penalty should be deleted as it was based on a bona fide mistake. The AO initiated penalty proceedings for concealing income during the assessment under section 143(3) of the Income Tax Act, 1961. The assessee, in a revised computation, corrected the error of claiming an amount as exempt income which should have been taxed as short term capital gain. The AO accepted the revised computation but still initiated penalty proceedings. The ld. CIT (A) confirmed the penalty, leading to the appeal by the assessee.

Issue 1.1: Mistake in Claiming Exempt Income
The assessee, during assessment proceedings, realized the mistake of claiming certain income as exempt instead of short term capital gain. The error was rectified through a revised computation, and the tax was paid on the corrected amount. The assessee argued that the mistake was inadvertent and not an attempt to conceal income. The assessee cited relevant case laws to support the contention that in case of inadvertent errors rectified during assessment proceedings, no penalty should be levied under section 271(1)(c).

Issue 1.2: Bona Fide Mistake
The assessee maintained that the mistake was made in a bona fide manner and that there was no deliberate attempt to conceal income. The ld. Counsel for the assessee highlighted that the assessee promptly rectified the error and offered the correct income for taxation. The argument was supported by legal precedents emphasizing that in cases of inadvertent errors corrected during assessment, penalties should not be imposed.

Judgment:
After considering the submissions and perusing the material on record, the Tribunal held that the penalty imposed by the ld. CIT (A) was not justified. The Tribunal noted that the assessee rectified the error voluntarily during assessment proceedings and offered the correct income for taxation. Relying on relevant judgments of the Supreme Court and High Courts, the Tribunal concluded that the penalty should be deleted. The Tribunal set aside the order of the ld. CIT (A) and directed the AO to delete the penalty. Consequently, the appeal of the assessee was allowed, and the penalty was revoked.

Conclusion:
The Tribunal's decision emphasized the importance of rectifying inadvertent errors during assessment proceedings and highlighted that penalties under section 271(1)(c) should not be imposed in such cases. The judgment provided relief to the assessee by deleting the penalty, considering the bona fide nature of the mistake and the corrective actions taken by the assessee during the assessment process.