2024 (12) TMI 1259 - AT - Income Tax

Penalty order u/s. 271(1)(c) - assessee had earned LTCG exempt u/s.10(38) - exempt LTCG shall be taken into account in computing the book profit u/s.115JB - HELD THAT - Notice was for furnishing of inaccurate particulars of income as recorded by the AO in the assessment order. However, the penalty u/s. 271(1)(c) of the Act was imposed for concealment of income. The facts of the present case are, thus, found to be identical to the facts as discussed in the above referred decisions. We, therefore, hold that the order imposing penalty in this case for concealment of income when the penalty proceeding was initiated for furnishing of inaccurate particulars of income, was invalid. Therefore, the penalty imposed u/s. 271(1)(c) of the Act for concealment of income is cancelled. The legal ground taken by the assessee is allowed. On merit also, we do not find any reason to impose the penalty. The fact that the assessee had earned LTCG exempt u/s.10(38) of the Act, was duly disclosed in the return of income, in the tax audit report and also in the annual accounts. No penalty u/s. 271(1)(c) of the Act could have been imposed for concealment of income. The question of concealment would arise only if the relevant fact regarding earning of exempt LTCG was not disclosed by the assessee in the return of income. There could have been a case for furnishing of inaccurate particulars of income, for which the penalty proceeding was rightly initiated by the AO. However, considering the fact that there was amendment in this year in the provision of Section 10(38) of the Act, which stipulated that the exempt LTCG shall be taken into account in computing the book profit u/s.115JB of the Act, but there was no such corresponding amendment in Section 115JB of the Act; no motive can be imputed to the assessee. Explanation of the assessee that there was a bona-fide mistake on its part, is found acceptable. The technical glitch explained by the assessee in the first year of e-filing wherein the details relating to MAT was required to be auto filled and Form 29B could not be filled until there was liability under MAT, has not been controverted by the Revenue. Obviously these technical glitches had led to misreporting of the book profit under MAT. In the e-filing scheme of return filing, when the assessee has reported its exempt income u/s 10(38) of the Act, the book profit for MAT should have been automatically computed by the Systems by including this exempt income. The assessee alone can t be blamed for such misreporting which was also due to technical glitch in the system. Therefore, on merit also there was no case for imposition of penalty u/s. 271(1)(c). Penalty imposed u/s. 271(1)(c) of the Act in respect of concealment of book profit is cancelled and the ground as taken by the assessee is allowed. Appeal of the assessee is allowed.

Summary

Issues Involved:

1. Validity of the penalty order under Section 271(1)(c) of the Income Tax Act, 1961.
2. Justification of penalty for concealment of income versus furnishing inaccurate particulars.
3. Consideration of technical glitches and bona fide errors in the e-filing process.

Issue-wise Detailed Analysis:

1. Validity of the Penalty Order under Section 271(1)(c):

The primary issue was the validity of the penalty order imposed under Section 271(1)(c) of the Income Tax Act, 1961. The assessee contended that the penalty proceedings were initiated for furnishing inaccurate particulars of income, but the penalty was ultimately imposed for concealment of income. The tribunal found that the penalty order was invalid as the penalty proceedings were initiated on one charge and imposed on another. This inconsistency rendered the penalty order unsustainable. The tribunal relied on precedents such as the case of Multivision Infotech P. Ltd. and Samson Perinchery to support its decision that a penalty imposed for a different reason than initially stated is invalid.

2. Justification of Penalty for Concealment of Income versus Furnishing Inaccurate Particulars:

The tribunal examined whether the penalty for concealment of income was justified. The assessee had disclosed the long-term capital gain (LTCG) exempt under Section 10(38) in its return, tax audit report, and annual accounts. The tribunal noted that the penalty for concealment could only be justified if the LTCG was not disclosed, which was not the case here. The tribunal found that the penalty proceedings were appropriately initiated for furnishing inaccurate particulars, but the imposition for concealment was incorrect. The tribunal emphasized that the amendment in the law regarding the inclusion of exempt LTCG in book profits under Section 115JB was recent, and the assessee's failure to include it was not deliberate but a bona fide mistake.

3. Consideration of Technical Glitches and Bona Fide Errors in the E-filing Process:

The tribunal also considered the impact of technical glitches in the e-filing process during the assessment year 2007-08, which was the first year of e-filing. The assessee argued that the details relating to Minimum Alternate Tax (MAT) were required to be auto-filled, and Form 29B could not be filed unless there was a MAT liability. The tribunal accepted the explanation that the misreporting of book profit under MAT was attributable to a technical glitch and not a deliberate act by the assessee. The tribunal acknowledged that the system should have automatically computed the book profit by including the exempt income, and the assessee could not be solely blamed for the misreporting.

Conclusion:

The tribunal concluded that the penalty order was invalid due to the inconsistency between the initiation and imposition of penalty charges. Furthermore, the tribunal found no justification for imposing the penalty on merits, as the assessee had disclosed the LTCG and the misreporting was due to a technical glitch and bona fide error. Consequently, the penalty imposed under Section 271(1)(c) for concealment of book profit was canceled, and the appeal of the assessee was allowed.