2018 (8) TMI 123 - AT - Income Tax

Penalty u/s.271(1)(c) - bonafide mistake - failure to voluntarily add back provision of gratuity in the computation of income, holding this mistake as malafide even though all facts were disclosed - Held that - The disclosure of provision for gratuity as income in the balance sheet of the current year filed with the return of income and offering such provision for gratuity as income in preceding year s computation of income, inspire confidence on the submission of the assessee that it was due to the mistake of Chartered Accountant not to add back such provision in the computation of income of the year under consideration. Therefore, in view of the decision in the case of CIT vs. Rice Mills (SD) (2004 (8) TMI 57 - PUNJAB AND HARYANA HIGH COURT) where it has been held that the fault of Chartered Accountant cannot be visited on the assessee, in our considered opinion, no adverse inference can be drawn against the assessee. This being a bonafide mistake, the assessee did not challenge the quantum addition made by the Assessing Officer. This, however, would not be proper in the interest of justice to saddle penalty against the assessee in the peculiar facts and circumstances of the case and the circumstantial evidences available to prove the bonafide mistake with no ulterior motive on the part of assessee, as assessment proceedings and penalty proceedings are two separate and distinct proceedings. Accordingly, the penalty imposed by the assessee and confirmed by ld. CIT(A) deserve to be cancelled. - Decided in favour of assessee

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income-tax Act for failure to add back provision for gratuity in the computation of income.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c):

Facts and Background:
The assessee's appeal is against the order of the CIT(A)-I, New Delhi, which confirmed the imposition of a penalty of ?1,77,000 under Section 271(1)(c) of the Income-tax Act. The penalty was imposed due to the failure to voluntarily add back the provision for gratuity in the computation of income. The original assessment was completed under Section 143(3) at an income of ?55,43,990, which was later reassessed under Section 147, resulting in an increased income of ?61,16,360 due to the addition of ?5,72,369 for the provision of gratuity.

Assessee's Arguments:
The assessee contended that the failure to add back the gratuity provision was an inadvertent mistake by their Chartered Accountant, with no intention to conceal income or file inaccurate particulars. The provision for gratuity was disclosed in the balance sheet, and the mistake did not result in any additional tax liability due to a loss in the computation of income. The assessee also highlighted that in other assessment years, the provision for gratuity was correctly added back, demonstrating that the mistake was not deliberate.

Legal Precedents Cited:
The assessee cited several case laws to support their argument that a bona fide mistake does not warrant a penalty. Notably, the Supreme Court in Price Waterhouse Coopers (P.) Ltd. v. Commissioner of Income-tax held that a bona fide and inadvertent error does not amount to furnishing inaccurate particulars or concealment of income. Other cases, such as CIT v. Rice Mills (S.D.), emphasized that the fault of a Chartered Accountant should not be visited upon the assessee.

Revenue's Arguments:
The Revenue argued that the penalty was justified as the assessee filed inaccurate particulars of income. They contended that if the reassessment had not occurred, the assessee would have escaped tax liability. The Revenue also claimed that the case laws cited by the assessee were not applicable due to distinguishable facts.

Tribunal's Findings:
The Tribunal found no justification to sustain the penalty. It noted that the provision for gratuity was disclosed in the balance sheet and that the failure to add it back was due to a bona fide mistake by the Chartered Accountant. The Tribunal observed that in preceding and subsequent years, the assessee correctly added back the provision for gratuity, indicating no malafide intention. The Tribunal also noted that the original assessment under Section 143(3) included all relevant information, and the mistake was evident from the balance sheet.

Conclusion:
The Tribunal concluded that the penalty under Section 271(1)(c) was not warranted as the mistake was bona fide and not deliberate. The Tribunal cited the decision in CIT vs. Rice Mills (SD), which held that the fault of a Chartered Accountant cannot be visited upon the assessee. The Tribunal emphasized that penalty proceedings are distinct from assessment proceedings and should consider the bona fide nature of the mistake. Consequently, the penalty imposed by the Assessing Officer and confirmed by the CIT(A) was cancelled.

Result:
The appeal of the assessee was allowed, and the penalty was cancelled.

Order Pronouncement:
The order was pronounced in the open court on 30th July, 2018.