2019 (6) TMI 466 - AT - Income Tax

Penalty u/s 271(1)(c) - interest on income-tax refund received u/s 244A and not included in the Return of Income - bonafide error or mistake - HELD THAT - As submitted by assessee that it did not not have requisite details of interest embedded in refund amount and came to know about the same only from system generated Form 26AS - there was no willful submission of false return with tested on the touchstone of preponderance of probabilities. As submitted on behalf of the assessee that it is large taxpayer alleged and concealments is disproportionately miniscule which is an indicator that it is a bonafide error. We find merit in the circumstances narrated on behalf of the assessee. A bonafide error or mistake does not necessarily invite penalty proceedings in every case. It will not be out of context to recollect the observation in the case of Hindusthan Steel Ltd. vs. State of Orissa 1969 (8) TMI 31 - SUPREME COURT wherein it was held that penalty cannot be imposed merely because it is lawful to do so. In the absence of any intentional omission of the taxable income from the return of income as reasonably demonstrated on behalf of the assessee, we are disposed to hold that statutory discretion vested with the AO for imposition of penalty ought to have been exercised for the assessee. We see force in the plea of the assessee that a person of his stature diligently paying large taxes would not imagine to keep away something from the very Department which issued the refund and which would be making the assessee s assessment. Failure of the assessee to look into the aforesaid form at the time of filing return would not indicate any contumacious or obstinate conduct on the part of the assessee, but possibly reflect laxity or some carelessness. Under these circumstances, we are of the view that benefit of doubt should go to the assessee - AO directed to cancel this penalty - Decided in favour of assessee.

Summary

Issues:
Challenge to penalty under s.271(1)(c) for interest on income-tax refund not included in the Return of Income.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax(Appeals) confirming the penalty under s.271(1)(c) of the Income Tax Act on interest on income-tax refund not included in the Return of Income for Assessment Year 2014-15. The assessee argued that the interest income on IT refund was not known until reconciliation with Form No.26AS, and the mistake was unintentional. The assessee promptly paid the taxes upon discovery of the error, claiming it was a bona fide mistake due to lack of information. The Department, however, relied on the lower authorities' orders.

The Tribunal considered the submissions and noted that penalty proceedings were initiated for non-disclosure of interest received on excess tax paid. It was observed that the assessee, being a large taxpayer, had no motive to conceal the interest received from the Income Tax Department. The Tribunal cited the Hindusthan Steel Ltd. case, emphasizing that penalties cannot be imposed merely because it is lawful to do so. In the absence of intentional omission of taxable income, the Tribunal found merit in the assessee's argument that it was a bona fide error. The Tribunal concluded that the AO should have exercised discretion in favor of the assessee, given the circumstances. It was highlighted that the failure to notice the interest component in Form 26AS at the time of filing did not indicate deliberate conduct but possibly carelessness. Therefore, the penalty was canceled, and the appeal of the assessee was allowed.

In conclusion, the Tribunal set aside the order of the Commissioner of Income Tax(Appeals) and directed the Assessing Officer to cancel the penalty imposed under s.271(1)(c) on the interest on income-tax refund not included in the Return of Income.