2016 (9) TMI 812 - AT - Income Tax

Penalty u/s. 271(1)(c) - Held that - It is a judicially acknowledged fact that the tax laws of this country are complex and complicated and often requires for compliance therewith, the assistance of a tax practitioner specializing in this field. It is possible that mistake could happen by improper understanding of the law and practice. Viewing from this angle coupled with the fact of the voluntary rectification of the mistake by the assessee besides he is declaring the income in the return of next year, we find that the breach is only venial in nature. With this view of the matter, we do not propose to interfere with the finding of the Ld. CIT(A) and sustain the same. We, therefore, answer the issue in the affirmative holding that the deletion of penalty by the CIT(A) does not suffer any illegality or irregularity. - Decided against revenue.

Issues Involved:
1. Deletion of penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961 for concealment of commission income.
2. Whether the assessee voluntarily disclosed the commission income.
3. Whether the omission was a bona fide mistake.
4. Interpretation and application of Section 271(1)(c) regarding the concealment of income and furnishing of inaccurate particulars.
5. Relevance of mens rea in penalty proceedings under Section 271(1)(c).
6. The role of deterrence in enforcing tax laws.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Imposed Under Section 271(1)(c) for Concealment of Commission Income:
The primary issue was whether the CIT(A) was justified in deleting the penalty of ?25,06,868 imposed by the AO under Section 271(1)(c) for concealment of commission income. The AO had initiated penalty proceedings on the grounds that the assessee deliberately avoided tax payment by not including the commission income of ?73,77,914 in the relevant assessment year. However, the CIT(A) concluded that the omission was a bona fide mistake and not an intentional concealment, leading to the deletion of the penalty.

2. Whether the Assessee Voluntarily Disclosed the Commission Income:
The revenue argued that the assessee did not voluntarily disclose the commission income but did so only after the AO detected the lapse. The assessee contended that upon realizing the mistake, he voluntarily filed a revised computation of income before the AO detected the omission. The CIT(A) found that the assessee had acknowledged the mistake and offered the income for inclusion before the AO's inquiry, indicating a voluntary disclosure.

3. Whether the Omission was a Bona Fide Mistake:
The assessee claimed the omission of the commission income in the relevant year was due to a mistaken belief that income should be reported on a receipt basis rather than an accrual basis. The CIT(A) verified the records and found that the income was included in the subsequent year's return, supporting the claim of a bona fide mistake. The CIT(A) concluded that the error was not intentional and was rectified voluntarily by the assessee.

4. Interpretation and Application of Section 271(1)(c) Regarding Concealment of Income and Furnishing of Inaccurate Particulars:
The revenue argued that under Section 271(1)(c), both concealment of income and furnishing inaccurate particulars attract penalty, and mens rea is not required. The assessee's act of omitting the income in the original return but declaring it in the revised computation was considered by the revenue as furnishing inaccurate particulars. The CIT(A) and the Tribunal found that since the assessee rectified the mistake voluntarily before any detection by the AO, it did not amount to concealment or furnishing inaccurate particulars.

5. Relevance of Mens Rea in Penalty Proceedings Under Section 271(1)(c):
The revenue contended that the CIT(A) erred in relying on old judgments requiring mens rea for penalty under Section 271(1)(c), which were reversed by the Supreme Court. However, the Tribunal referred to the Third Member decision in Addl CIT vs Prem Chand Garg, which held that if an assessee rectifies an omission before detection by the AO, it cannot be considered concealment. The Tribunal found that the assessee's voluntary disclosure before detection negated the need for establishing mens rea.

6. The Role of Deterrence in Enforcing Tax Laws:
The revenue emphasized that Section 271(1)(c) aims to deter tax evasion and ensure fiscal discipline. However, the Tribunal noted that the tax laws are complex, and bona fide mistakes can occur. The Tribunal concluded that penalizing bona fide mistakes would not serve the purpose of deterrence and upheld the CIT(A)'s decision to delete the penalty.

Conclusion:
The Tribunal affirmed the CIT(A)'s decision, holding that the deletion of the penalty did not suffer from any illegality or irregularity. The appeal of the revenue was dismissed, and the order pronounced that the deletion of the penalty by the CIT(A) was justified.

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