2019 (4) TMI 279 - AT - Income Tax

Condonation of delay of 280 days - not filed appeal against penalty being smallness of the amount - revenue has started prosecution of the Director by issuing notice under section 276/277 - appeal filed - HELD THAT - Considering the facts and circumstances of the case and the ratio of law laid down in B. MADHURI GOUD VERSUS B. DAMODAR REDDY 2012 (7) TMI 1019 - SUPREME COURT OF INDIA , we are of the view that the assessee has acted on the advice of his tax advisor. The assessee acted on the advice keeping in view the cost of litigation, which in our view is a reasonable cause. And the assessee is now compelled to file the present appeal. We have also found that the assessee has got merit in their favour. Levy of penalty u/s 271(1)(c) - assessee debited the capital expenditure of franking charges for increase in authorized share capital without adding back the same in its computation of income - Addition accepted - HELD THAT - AO has not disputed the contention of assessee in the penalty order. The contention of assessee throughout the proceeding are that the franking charges were inadvertently mistake to be disallowed by the assessee as the same was not reported in TAR. The assessee s contention is that the error was unintentional and bonafide mistake. The assessee has shown reasonable cause by offering the franking charges during the assessment by offering suomoto disallowance at the cost of repetition, we may ad that the assessee while filing reply to the show-cause notice that assessee realized its error and admitted that aforesaid franking charges ought to have been disallowed. This fact is duly recorded by Assessing Officer in para-2.1 of the penalty order. AO has not countered the bonafide explanation furnished by assessee. In Price Waterhouse P. Ltd. vs. CIT (2012 (9) TMI 775 - SUPREME COURT) held that the penalty under section 271(1)(c) could not be levied, where it involves a mistake by assessee on account of human error - we direct the Assessing Officer to delete the entire penalty.- Decided in favour of assessee.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Validity of penalty under section 271(1)(c) of the Income Tax Act.
3. Bonafide mistake and reliance on the Tax Audit Report (TAR).
4. Validity of the notice under section 271(1)(c).

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was filed with a delay of 280 days. The appellant submitted an application for condonation of delay supported by an affidavit. The appellant argued that the delay was due to reliance on the advice of their tax consultant, who suggested not pursuing the appeal due to the small amount involved and to avoid prolonged litigation. However, the appellant was compelled to file the appeal after the department initiated prosecution against the directors. The appellant cited various judicial precedents to support their request for condonation of delay, emphasizing a liberal and justice-oriented approach.

The tribunal considered the rival submissions and various case laws, noting that the appellant acted on the advice of their tax consultant and found the reason for the delay to be reasonable. Therefore, the delay in filing the appeal was condoned, and the appeal was heard on merit.

2. Validity of Penalty under Section 271(1)(c):
The appellant argued that the penalty under section 271(1)(c) was levied without considering the bonafide explanation provided. The appellant admitted the mistake of not disallowing the franking charges during the assessment and accepted the disallowance. The appellant contended that the mistake was unintentional and relied on the decision of Price Waterhouse P. Ltd. vs. CIT, where the Supreme Court held that penalty could not be levied for a bonafide mistake.

The tribunal noted that the Assessing Officer (AO) disallowed the franking charges treating them as capital expenditure and initiated penalty proceedings. The AO levied a penalty of 100% of the tax sought to be evaded. The appellant's contention that the mistake was bonafide and unintentional was not disputed by the AO. The tribunal found that the appellant had shown reasonable cause for the mistake and that the penalty was not leviable. Consequently, the tribunal directed the AO to delete the entire penalty.

3. Bonafide Mistake and Reliance on TAR:
The appellant argued that the mistake of not disallowing the franking charges was due to reliance on the TAR, which did not reflect the franking charges. The appellant contended that the mistake was bonafide and unintentional. The tribunal acknowledged that the appellant realized the mistake during the assessment and admitted the disallowance. The tribunal found that the appellant acted in good faith based on the TAR and that the mistake was a human error.

4. Validity of the Notice under Section 271(1)(c):
The appellant argued that the notice under section 271(1)(c) was invalid as the relevant limb of the section, which was inapplicable to the appellant's case, was not struck off. The appellant relied on various judicial precedents to support this contention. However, since the tribunal accepted the primary statement of the appellant on merit and deleted the entire penalty, the discussion on the validity of the notice became academic.

Conclusion:
The tribunal allowed the appeal, condoning the delay in filing and directing the deletion of the entire penalty under section 271(1)(c). The tribunal emphasized the bonafide mistake of the appellant and reliance on the TAR, aligning with the Supreme Court's decision in Price Waterhouse P. Ltd. vs. CIT. The tribunal did not delve into the validity of the notice under section 271(1)(c) as the penalty was deleted on merit.