2019 (6) TMI 1221 - HC - Income Tax

Penalty u/s 271(1)(c) - assessee had made incorrect claims while filing the return assessee has given incorrect details and when it was cornered it corrected the mistakes - assessee has given incorrect details and when it was cornered it corrected the mistakes - Tribunal deleted penalty - HELD THAT - In case of the assessee the returned income was 35.37 crores. In these circumstances the court is in agreement with the view adopted by the Tribunal that in a case of this magnitude an error of 1, 30, 869/- and 1, 01, 956/- which the assessee had on its own accepted as inadvertent mistake cannot be said to be deliberate so as to amount to furnishing of inaccurate particulars. Insofar as the penalty in respect of addition made on account of exchange rate fluctuation AO has accepted that the income was booked on capital account by mistake as a result of wrong posting of capital field vouchers in the revenue account. There was a mistake on part of the assessee while filing the return of income. In the opinion of this court having regard to the findings recorded by the Tribunal whereby the Tribunal has found the explanation submitted by the assessee to be plausible which in the opinion of this court is a reasonable view there is no reason to interfere with the findings recorded by the Tribunal. - Decided against revenue

Summary

Issues:
Challenge to penalty under section 271(1)(c) of the Income Tax Act, 1961 for assessment year 2009-10.

Analysis:
1. The appellant-revenue challenged the penalty under section 271(1)(c) imposed by the Assessing Officer, which was confirmed by the Commissioner (Appeals), but later deleted by the Tribunal. The penalty was levied on various additions/disallowances made during assessment, including other income, interest expenses, exchange rate fluctuation, depreciation, and disallowance under section 40A(2)(b).

2. The Tribunal, in its order, considered each addition/disallowance separately. It noted that the assessee had accepted certain mistakes as inadvertent and provided reasonable explanations for them. The Tribunal found that the errors were not deliberate but rather genuine mistakes, especially considering the size of the returned income. Thus, the Tribunal decided to delete the penalty based on the explanations provided by the assessee.

3. The appellant's counsel argued that the penalty was justified based on the principle that incorrect claims made by the assessee should not go unpunished, as it would encourage tax evasion. Reference was made to a decision of the Delhi High Court emphasizing the importance of penalizing incorrect claims to maintain the deterrent effect of penalty provisions in the Act.

4. The High Court analyzed the Tribunal's findings and upheld the deletion of the penalty. It agreed with the Tribunal's reasoning that the errors were not deliberate and that the explanations provided by the assessee were reasonable. The court emphasized that the penalty provision under section 271(1)(c) focuses on whether the assessee has a reasonable explanation for the claim, irrespective of its legal admissibility, and not on the legal correctness of the explanation.

5. The High Court distinguished the present case from the Delhi High Court decision cited by the appellant's counsel, stating that in this case, the Tribunal found no deliberate furnishing of inaccurate particulars by the assessee. Therefore, the court concluded that there was no legal infirmity in the Tribunal's order and dismissed the appeal, stating that no substantial question of law arose warranting interference.

In conclusion, the High Court upheld the Tribunal's decision to delete the penalty under section 271(1)(c) based on the reasonable explanations provided by the assessee for the errors in the return of income, emphasizing that the penalty provision focuses on the reasonableness of explanations rather than the legal correctness of claims.