2021 (2) TMI 1075 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - undisclosed salary income - omission of salary from income declared in the ROI - assessment proceedings u/s 153A - HELD THAT - As during the course of assessment proceedings u/s 153A when the assessee prepared her statement of affairs it came to her notice that salary from M/s Bhatia Corporation Pvt. Ltd. which was credited in her account but not actually received was left to be included in the income by mistake. Accordingly, she filed revised computation of total income and offered the same for taxation. Thus, the omission of salary from income declared in the ROI filed u/s 153A is a bonafide mistake. On such bonafide mistake no penalty is leviable. The Hon'ble Supreme Court in case of Price Waterhouse Coopers (P.) Ltd. 2012 (9) TMI 775 - SUPREME COURT wherein, in this case the assessee firm filed its return of income along with tax audit report. In its tax audit report, it was indicated that provision towards payment of gratuity was not allowable but it failed to add provision for gratuity to its total income. It was held that it was a bona fide and inadvertent error. The same can only be described as a human error which we all are prone to make. The assessee could not be held guilty of either furnishing inaccurate particulars or attempting to conceal its income. Therefore, imposition of penalty was unjustified. Salary was credited in the account of Yash Bhatia but was not actually received by him and therefore, it was left to be included in the income by mistake but when such mistake was noticed while preparing the statement of affair, the same was included in the income. Hence, for this reason it cannot be inferred that the assessee has intentionally not declared the salary income in the return of income. - Decided in favour of assessee.

Summary

Issues:
Confirmation of penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for undisclosed salary income.

Analysis:
1. The appeal was filed against the order confirming the penalty imposed under section 271(1)(c) of the Act for the assessment year 2010-11. The assessee's salary income from M/s Bhatia Corporation Pvt. Ltd. of ?1,80,000 was inadvertently left out from the return. The Assessing Officer (AO) initiated penalty proceedings on the grounds of concealment of income particulars. The penalty was imposed based on explanation 5A to section 271(1)(c), considering the undisclosed salary income.

2. The assessee contended that no incriminating material was found during the search, making the addition unsustainable. The argument was based on the absence of any intention to conceal income and the inadvertent omission of the salary from the return. However, the CIT(A) upheld the penalty, citing a decision of the Kerala High Court and questioning the credibility of the explanation provided by the assessee regarding the undisclosed salary income.

3. The ITAT hearing focused on the comparison with a similar case where the penalty was deleted by the Coordinate Bench. The ITAT analyzed the legal provisions and observed that the conditions specified in explanation 5A to section 271(1)(c) were not met in the present case. It emphasized that penal provisions must be strictly construed, and in the absence of incriminating material during the search, the penalty was unjustified.

4. The ITAT further noted that the addition made by the AO in the assessment proceedings under section 153A was incorrect as it was not based on any seized material. The ITAT highlighted the importance of incriminating documents for invoking section 153A and concluded that the penalty imposed on the undisclosed salary income was unsustainable. Referring to a Supreme Court decision, the ITAT emphasized adopting a view favoring the assessee when two interpretations are possible.

5. Ultimately, the ITAT found that the omission of the salary income from the return was a bona fide mistake, similar to a case where a penalty was deleted due to inadvertent errors. The ITAT directed the AO to delete the addition of the undisclosed salary income, considering the totality of facts and circumstances, and the decision of the Coordinate Bench in a related case. As a result, the appeal of the assessee was allowed, and the penalty was set aside.

6. The judgment was pronounced on 28th January 2021 by the ITAT Jaipur, emphasizing the importance of adhering to legal provisions and ensuring that penalties are imposed only when justified by the circumstances.