2015 (12) TMI 830 - HC - Income Tax

Penalty proceedings u/s 271(1)(C) - addition being the professional income included in the income from mutual funds and disallowance on account of partners remuneration debited to the P/L account - Tribunal upheld the order of the CIT(A) in deleting the penalty - Held that - The mistake was committed by the accountant of the assessee. Even it was not noticed by the AO, and the assessee itself during the course of assessment proceedings while preparing the details from its ledge accounts came to know the said mistake had been committed by the accountant and proposed for addition. Therefore, through a bonafide and inadvertent error the assessee claimed the income as exempt and wrongly provided for partners salary. But the submissions of the assessee was that the error occurred by a mistake of its accountant, who treated the said professional income as income from Mutual funds and the salary was claimed on the basis of the clause mentioned in the original partnership deed was not found to be false. We, therefore, keeping in view of the ratio laid down by the Hon ble Supreme Court in the case of Price Waterhouse Coopers Pvt Ltd 2012 (9) TMI 775 - SUPREME COURT are of the view that the ld. CIT(A) was justified in deleting the penalty so levied by the AO. - Decided in favour of assessee

Summary

Issues:
Income tax appeal against the order of the Income Tax Appellate Tribunal regarding penalty imposition under Section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2007-08.

Analysis:
The case involved an income tax appeal by the Department against the order of the Income Tax Appellate Tribunal, where the Tribunal had upheld the CIT(A)'s decision to delete the penalty imposed by the Assessing Officer. The Assessing Officer had initiated penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961, based on additions and disallowances made during assessment. The CIT(A) found that the appellant, a firm engaged in the profession of attorney, had mistakenly included professional income as income from mutual funds in their return. The CIT(A) concluded that the mistake was not intentional but due to an error by the accountant, and hence, the penalty was unjustified. The Tribunal concurred with this finding, noting that the mistake was inadvertent and not mala fide, leading to the dismissal of the Department's appeal.

The CIT(A) and the Tribunal both emphasized that the mistake in classification of income was due to an error by the accountant, which was not intentional or mala fide. The appellant had disclosed the mistake during assessment proceedings, and the explanation provided was considered genuine. The Tribunal cited the Hon'ble Supreme Court's decision in a relevant case to support the deletion of the penalty. It was highlighted that the mistake was detected by the appellant and not rebutted by the Assessing Officer, indicating that the penalty imposition was unwarranted.

The decision to delete the penalty was based on the fact that the mistake in income classification was unintentional and attributed to the accountant's error. Both the CIT(A) and the Tribunal found the appellant's explanation to be genuine and not mala fide. The Tribunal's decision was supported by the failure of the Assessing Officer to rebut the explanation provided by the appellant. The judgment underscored the importance of considering the circumstances leading to the error and the absence of any deliberate intent to conceal income or provide inaccurate particulars.

In conclusion, the Tribunal's decision to dismiss the Department's appeal and uphold the deletion of the penalty by the CIT(A) was justified. The courts noted the inadvertent nature of the mistake, the lack of mala fide intent, and the genuine explanation provided by the appellant. The judgment highlighted the significance of considering the facts and circumstances surrounding the error in determining the appropriateness of penalty imposition under Section 271(1)(c) of the Income Tax Act, 1961.