2022 (4) TMI 1072 - AT - Income Tax

Levy of penalty u/s. 271(1)(C) - excess expenses disallowed - Authorities below rejected the reasonable explanation offered by the assessee that the assessee had not concealed any income and had declared the entire income and the addition made was due to mistake committed by the chartered accountant who had been engaged by the assessee and consequently there was no concealment - HELD THAT - Under Section 271(1)(c), two faults or omissions exposes the assessee to concealment penalty i.e. concealment of particulars of income and furnishing inaccurate particulars of such income. Assessee has admitted before the AO that the new auditor appointed, had pointed out certain mistakes in the expenses claimed by the assessee and submitted the revised computation correcting the wrong claim work-in-progress as expenditure. This fact is being confirmed by the AO in the assessment order. Assessee has filed a complaint before the Institute of Chartered Accountants of India against the auditor who had filed the original return of income of the assessee. In our considered view, in the instant case, what has emerged is that the assessee, having realised that the expenditure claimed was not tenable as pointed out by the new auditors, offered the amounts expended to be added to the income and, accordingly, paid the requisite tax. This was not a case in our opinion, where, the assessee could be said to have either concealed particulars or furnished inaccurate particulars of the income. It was, essentially, a case, where, an untenable claim for deduction of work-in progress had been made and that too based on the advice of a professional, i.e., Chartered Accountant. The explanation to section 271(1) provides that the penalty under subsection (c) is leviable when the person fails to prove that the explanation of facts is bona fide. In assessee s case the wrong claim of the expenditure is not intentional and is based on a wrong professional advice. The fact that once the assessee is pointed out the error, the assessee has admitted the same before the AO and paid taxes is proof enough that there is no intentional concealment. The coordinate bench of the Tribunal is assessee s own case 2022 (1) TMI 330 - ITAT BANGALORE has examined the claim of the assessee with regard to wrong professional advice and had deleted the penalty u/s.271B stating that it is a reasonable cause . The assessee in the present appeal also contending the levy of penalty on the same premise that the assessee was under the bona fide belief that the accounts are maintained properly by the auditor and that there is no intention to conceal the income. In our view therefore, the ratio laid down by the coordinate bench of the Tribunal is applicable in the present case of the assessee. The delay in furnishing the revised computation is also considered by the coordinate bench of the Tribunal where the Hon ble Tribunal has taken cognizance of the fact that severing relationship with earlier CA might take time. We are of the view that the claim of the expenditure by the assessee is bona fide and accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to delete the penalty levied u/s 271B(1)(c) for the year under consideration. Appeal of assessee allowed.

Summary

Issues involved:
Levy of penalty under section 271(1)(c) of the IT Act for assessment year 2014-15 based on the explanation offered by the assessee, the mistake committed by the chartered accountant, and the subsequent actions taken by the assessee.

Analysis:

Issue 1:
The assessee challenged the correctness of holding the penalty under section 271(1)(c) as sustainable despite offering an explanation that was not found to be faulty or in bad faith.

Analysis: Both the Assessing Officer (AO) and the Commissioner of Income Tax Appeals (CIT(A)) rejected the reasonable explanation provided by the assessee, emphasizing that the mistake made by the chartered accountant should not absolve the assessee from penalty. However, the Tribunal observed that the assessee rectified the errors voluntarily upon realizing the mistake, paid the requisite tax, and initiated proceedings against the negligent chartered accountant. The Tribunal found that the assessee's actions did not amount to intentional concealment or furnishing inaccurate particulars of income, as the errors were based on wrong professional advice.

Issue 2:
The assessee contended that the penalty proceedings under section 271(1)(c) were initiated without proper satisfaction and that voluntary admission of the error should not lead to penalty imposition.

Analysis: The CIT(A) upheld the penalty, citing the delay in getting the accounts audited and the voluntary admission only towards the conclusion of assessment proceedings. However, the Tribunal noted that the assessee's belief in the proper maintenance of accounts by the chartered accountant was genuine, and the errors were rectified promptly upon discovery. The Tribunal referred to a similar case where penalty was deleted due to wrong professional advice being considered a reasonable cause, and applied the same reasoning in the present case.

Final Decision:
The Tribunal set aside the CIT(A)'s order and directed the AO to delete the penalty levied under section 271(1)(c) for the assessment year in question, considering the bona fide nature of the assessee's claim and the prompt corrective actions taken upon realizing the errors.

This judgment highlights the importance of genuine belief, prompt rectification of errors, and the impact of wrong professional advice in penalty proceedings under the IT Act.