2019 (5) TMI 436 - HC - Income Tax

Penalty u/s 271(1)(c) - error in filing return - fresh declaration of revised income voluntarily before assessee was confronted with the incorrect claim - bonafide unintended error - HELD THAT - Once the assessee is served with a notice of scrutiny assessment, corrections to the declaration of his income, would not grant an immunity from penalty. Particularly, in a case where the assessee during such scrutiny assessment is confronted with a legally unsustainable claim which he thereafter forgoes, may not be a ground to delete penalty. However, in the present case the facts are glaring. The assessee made a fresh declaration of revised income voluntarily before he was confronted with the incorrect claim. The assessee had blamed the accountant for an error in filing the return. Affidavit of the occupant was also filed. As stated by the counsel, such error was committed by other group assessees also. Some of them corrected the error even before the scrutiny notices. In view of such facts, we do not find that the Tribunal is in error in coming to the conclusion that the original declaration of income suffered from a bonafide unintended error. No question of law arises. Income Tax Appeal is dismissed.

Summary

Issues involved:
Challenge to cancellation of penalty under Section 271(1)(c) of the Income Tax Act.

Analysis:
1. The appeal was filed by the revenue challenging the judgment of the Income Tax Appellate Tribunal regarding the cancellation of the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Act. The primary issue before the court was whether the Tribunal was justified in canceling the penalty.
2. The respondent-assessee, a Trust, had filed a return of income for the assessment year 2009-10, which was taken into scrutiny by the Assessing Officer. The assessee tried to rectify the return by making declarations and enlarging certain liabilities, paying additional income tax accordingly. The Assessing Officer, however, held the revised return as non-acceptable due to the timing of its filing. The penalty was imposed on the grounds of non-disclosure of income in the original return, which was confirmed by the CIT (Appeals) and appealed before the Tribunal.
3. The Tribunal, in its judgment, observed that the relevant details were disclosed in the return of income but under the wrong headings. The errors were rectified during the assessment proceedings, and relevant taxes were paid. It was argued that as long as the particulars of income were disclosed, the allegation of concealment was not sustainable. The Tribunal found that it was a case of wrong categorization of income under the wrong head, leading to the deletion of the penalty.
4. The Department argued that the assessee filed a false declaration in the original return and attempted to revise it only after scrutiny began, which should not grant immunity from the penalty. They relied on legal precedents to support the imposition of penalties without requiring mens rea. However, the counsel for the assessee contended that the errors were bonafide and corrected, demonstrating good faith.
5. The court agreed with the revenue that corrections to income declaration after receiving a notice of scrutiny assessment may not grant immunity from penalty. However, in this case, the assessee voluntarily made a fresh declaration of revised income before being confronted with the incorrect claim. The court found that the original declaration suffered from a bonafide unintended error, supported by the fact that similar errors were made by other group assessees who corrected them even before scrutiny notices were issued. The Tribunal's decision to delete the penalty was upheld, and no question of law was found to arise.

In conclusion, the High Court dismissed the Income Tax Appeal, affirming the Tribunal's decision to cancel the penalty under Section 271(1)(c) of the Income Tax Act based on the bonafide nature of the errors in income declaration.