2018 (11) TMI 1326 - AT - Income Tax

Penalty u/s 271(1)(c) - short disallowance of interest expenditure under the head Income from Business or Profession which led to the claim of increased loss by the assessee in the return of income filed with the Revenue causing prejudice to the Revenue - incorrect claim of expenditure - Held that - The assessee has also explained that during the year there was a major change in shareholding of the assessee to the tune of 100% which led to triggering of provisions of Section 79 and its accumulated losses lapsed, thus no advantage could be obtained by the assessee in any case by inflating losses as the losses lapsed. It is explained that it was a bonafide human error which occurred while filing return of income due to peculiar circumstances as narrated above which led to claim of higher losses which was a bonafide mistake committed inadvertently due to human error and immediately on being notified by the AO, the assessee rectified the said mistake suo-motu during assessment proceedings. It is explained that under the circumstances, assessee could not have derived any benefit and no loss could have been caused to Revenue owing to higher losses claimed as in any case these losses lapsed being hit by provisions of Section 79 of the 1961 Act. As observed from the audited financial statements filed by the assessee that during the year under consideration, 100% shareholding of the assessee got transferred to Suhani Trading and Investment Consultants Private Limited , which led to triggering of provisions of Section 79 of the 1961 Act leading to lapsing of losses. Thus, this explanation of the assessee is also correct that claiming of the higher losses could not have brought any advantage to the assessee on the face of provisions of Section 79. The ratio of decision in the case of Price Waterhouse Coopers Private Ltd. v. CIT (2012 (9) TMI 775 - SUPREME COURT) is applicable on the factual and circumstantial matrix surrounding this particular case and in our considered view the assessee has furnished bonafide and genuine explanations as to an inadvertent mistake committed by it which was an human error committed while filing its return of income and there cannot be any ulterior motive attached to this error committed by the assessee, which has taken it out from the clutches of penalty under the provisions of Section 271(1)(c) as it is well settled proposition of law that every error committed in filing of return of income cannot be visited with penal provisions as are contained in Section 271(1)(c). - decided in favour of assessee.

Summary

Issues Involved:
1. Whether the CIT(A) erred in deleting the penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Whether the CIT(A) ignored the decision of the Supreme Court in CIT v. Reliance Petro Products (P) Ltd.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c):

The Revenue challenged the deletion of the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 by the CIT(A). The penalty was initially levied by the AO on the grounds that the assessee made an incorrect claim of expenditure, which was only corrected during the assessment proceedings. The AO observed that the assessee had claimed an interest expenditure of ?52.37 crores under section 24(b) against income from house property, but while computing income from business, only ?41.11 crores was added back, leading to an incorrect claim of ?11.26 crores. This discrepancy was corrected by the assessee during the assessment proceedings, but the AO initiated penalty proceedings for furnishing inaccurate particulars of income/concealment of income.

The assessee contended that the discrepancy was due to a clerical error and not an intentional act to defraud the Revenue. The CIT(A) accepted the assessee's explanation, noting that the error was due to a formula in an Excel sheet from a previous year being used as a base for the current year's computation. The CIT(A) also noted that the assessee had significant accumulated losses, which lapsed due to a change in shareholding, and thus, there was no benefit to the assessee from the error. The CIT(A) cited several judicial precedents, including the Supreme Court's decision in Price Waterhouse Coopers v. CIT, to conclude that the error was a bona fide human mistake and not grounds for penalty.

2. Ignoring the Supreme Court Decision in CIT v. Reliance Petro Products (P) Ltd.:

The Revenue argued that the CIT(A) ignored the Supreme Court's decision in CIT v. Reliance Petro Products (P) Ltd., where it was held that the liability for penalty would arise when particulars in the return are found to be inaccurate. The AO had relied on this decision to justify the penalty, arguing that the assessee's incorrect claim would have gone undetected if not for the scrutiny assessment.

However, the Tribunal upheld the CIT(A)'s decision, noting that the assessee's error was a genuine and bona fide mistake without any intention to conceal income or furnish inaccurate particulars. The Tribunal concurred with the CIT(A) that the error was due to a clerical mistake and that the assessee had corrected it upon being pointed out by the AO. The Tribunal emphasized that not every mistake warrants a penalty under section 271(1)(c) and that the assessee's explanation was credible and supported by judicial precedents.

Conclusion:

The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s order to delete the penalty of ?3,48,12,251/- levied by the AO under section 271(1)(c) of the Income-tax Act, 1961. The Tribunal held that the error was a bona fide human mistake, and there was no intention to defraud the Revenue, thus not justifying the imposition of penalty. The Tribunal's decision was based on a detailed analysis of the facts, the assessee's explanations, and relevant judicial precedents.