2025 (4) TMI 726 - HC - Income Tax

Penalty u/s 271(1)(c) - mismatch in the figures of book profit - voluntary disclosure of income discrepancies - HELD THAT - Correct book profit was not only shown in the Tax Audit Report but it was duly uploaded in the Income Tax Portal and filed before the AO much prior to the case was undertaken for scrutiny assessment and also reported the same on 22-11-2019 while making submission and reiterated on 6-12-2019 as well therefore in our considered opinion it is a case where the assessee came up fairly before the AO correcting the error crept in while submitting the return and revised return that too before initiation of the scrutiny assessment proceedings. Even it is not the case of the Revenue that the appellant/assessee has concealed the income. Once the Tax Audit Report conducted under Section 44AB of the IT Act was filed and it was uploaded in the Income Tax Portal along with the return of income there is no question of submission of any inaccurate particulars and no question of concealment of income by the appellant herein/assessee. While accepting the appeal of the appellant the Commissioner of Income Tax (Appeals) has rightly deleted the penalty levied holding that the mismatch in the figures of book profit was a case of feeding mistake and data transmission error and there was no mala fide intention on the part of the appellant being a Government entity. Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered was whether the imposition of a penalty by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961, was correct in light of the voluntary disclosure of income discrepancies attributed to a data feeding mistake by the appellant.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents:

The central provision under scrutiny was Section 271(1)(c) of the Income Tax Act, which pertains to the concealment of income or furnishing inaccurate particulars of income. The Court examined precedents from the Supreme Court, including Price Waterhouse Coopers Private Limited v. Commissioner of Income Tax, Commissioner of Income Tax v. Reliance Petroproducts Private Limited, and Sree Krishna Electricals v. State of Tamil Nadu, which elucidate the interpretation of "inaccurate particulars" and the conditions under which penalties may be imposed.

Court's Interpretation and Reasoning:

The Court interpreted Section 271(1)(c) to require either concealment of income or the furnishing of inaccurate particulars. It emphasized that both elements are independent and must be proven for the penalty to apply. The Court noted that the appellant had filed a tax audit report in compliance with Section 44AB, which reported the correct net profit figures. The Court found that the appellant's actions were consistent with a bona fide mistake rather than an attempt to conceal income or provide inaccurate particulars.

Key Evidence and Findings:

The appellant had submitted a tax audit report and financial statements indicating the correct net profit figures before the scrutiny assessment commenced. The discrepancy in the book profit figures was attributed to a data feeding mistake, which the appellant voluntarily disclosed during the assessment proceedings. The Court found no evidence of mala fide intent or concealment by the appellant, a government entity.

Application of Law to Facts:

The Court applied the principles from the cited precedents to the facts, concluding that the appellant's error was a bona fide and inadvertent mistake. The Court highlighted that the appellant had disclosed the correct figures in the tax audit report and during the assessment proceedings, thereby negating the possibility of concealment or furnishing inaccurate particulars.

Treatment of Competing Arguments:

The appellant argued that the error was a bona fide mistake and not intended to mislead the tax authorities. The Revenue contended that the penalty was justified due to the initial discrepancy in the book profit figures. The Court favored the appellant's argument, emphasizing the voluntary disclosure and the absence of any intent to conceal income.

Conclusions:

The Court concluded that the appellant's case did not fall within the mischief of Section 271(1)(c) of the Income Tax Act. The penalty imposed by the Assessing Officer was deemed unjustified, and the Court restored the order of the CIT (Appeals), which had set aside the penalty.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning:

The Court quoted the Supreme Court's reasoning in Price Waterhouse Coopers Private Limited, emphasizing that a bona fide and inadvertent error does not amount to furnishing inaccurate particulars or concealing income. The Court also referenced Reliance Petroproducts Private Limited, which clarified that a mere unsustainable claim does not attract penalties under Section 271(1)(c).

Core Principles Established:

The judgment reinforced the principle that penalties under Section 271(1)(c) require clear evidence of concealment or furnishing inaccurate particulars. Bona fide mistakes, especially those voluntarily disclosed, do not warrant penalties.

Final Determinations on Each Issue:

The Court set aside the ITAT's order and restored the CIT (Appeals) decision, concluding that the penalty was unwarranted due to the absence of concealment or inaccurate particulars. The substantial question of law was answered in favor of the appellant, and the appeal was allowed.