2022 (8) TMI 1134 - AT - Income Tax

Penalty u/s 271(1)(c) - Addition on account of personal expenses of the Directors - HELD THAT - There was no material dispute regarding facts of the case between the representatives of two sides, i.e., for the assessee and for Revenue. It is not in dispute that the assessee filed revised computation of income/loss, offering the aforesaid amount for addition, in the course of assessment proceedings before the AO. It is also not in dispute that the assessee company had disallowed a part of the expenses as personal expenses of the Directors, in its computation of income, except the aforesaid amount. Addition of the aforesaid amount is based on ad hoc estimation of personal use of car by the Directors of the company. The personal use of the car was estimated in ad hoc manner at the rate of 1/6 of the claim. In the computation of income filed with return of income (loss); the assessee suo motu disallowed 1/6th out of claim of depreciation on car. Thus, Rs.3,07,651/- out of total depreciation claim of Rs.18,45,904/- was suo motu disallowed by the assessee. Further, 1/6th out of interest on car loan, and 1/3 out of telephone expenses were also suo motu disallowed by the assessee in computation of income filed with return of income (loss). The total amount of suo motu disallowance made by the assessee in computation of income filed with return of income, on account of personal use of the Directors of the assessee company is, Rs.4,40,942/- (including the aforesaid amount of Rs.3,07,651/-). However, the assessee made a computational error in not disallowing 1/6th out of expenses on car amounting to aforesaid Rs.1,63,263/- being 1/6th out of motor car expenses. We accept the assessee s claim in the facts and circumstances of the specific case before us, that this computational error was due to oversight and inadvertent mistake, and that the error was a bonafide one. We are of the view that the present case before us is squarely covered in favour of the assessee and against Revenue by order of Hon ble Supreme Court in the case to Price Waterhouse Coopers (P.) Ltd. vs. CIT 2012 (9) TMI 775 - SUPREME COURT Thus inadvertent and bonafide mistake made due to oversight did not amount to furnishing inaccurate particulars of income, or concealment of income. Thus this is not a fit case for levy of penalty u/s 271(1)(c) - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the order sustaining the assessment.
2. Justification of the penalty levied under Section 271(1)(c) of the Income Tax Act.
3. Adherence to principles of natural justice.

Detailed Analysis:

1. Legality of the Order Sustaining the Assessment:
The appeal was filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-2, New Delhi, dated 30/07/2020, for the Assessment Year 2016-17. The assessee contended that the order sustaining the assessment was "bad in law and on facts" and should be set aside. The initial assessment order dated 19/12/2018 determined the assessee's total loss at Rs. (48,71,176)/- against the returned loss of Rs. (50,39,439)/-, with an addition of Rs. 1,68,263/- on account of personal expenses of the Directors. The assessee accepted the addition during the assessment proceedings and did not appeal against it.

2. Justification of the Penalty Levied under Section 271(1)(c):
The penalty of Rs. 51,993/- was levied by the Assessing Officer under Section 271(1)(c) for furnishing inaccurate particulars of income. The assessee argued that the disallowance was due to a bonafide and inadvertent mistake, not a deliberate act to conceal income. The assessee had already disallowed similar expenses in its computation of income and filed a revised computation during the assessment proceedings. The tribunal noted that the addition was based on an ad hoc estimation of personal use of the car by the Directors and accepted the assessee's claim that the computational error was due to oversight and inadvertent mistake. The tribunal relied on the Supreme Court judgment in the case of Price Waterhouse Coopers (P.) Ltd. v. CIT, which held that a bonafide and inadvertent error does not amount to furnishing inaccurate particulars or concealment of income. Consequently, the tribunal set aside the appellate order dated 30/07/2020 and canceled the penalty.

3. Adherence to Principles of Natural Justice:
The assessee contended that the orders passed by the CIT(A) and the Assessing Officer were against the principles of natural justice. The tribunal found that the assessee had disclosed all particulars of expenses in the audited financial statements and provided details during the assessment proceedings. The tribunal concluded that there was no concealment or furnishing of inaccurate particulars by the assessee, and the penalty was not warranted.

Conclusion:
The tribunal allowed the appeal filed by the assessee, set aside the appellate order, and canceled the penalty of Rs. 51,993/- levied under Section 271(1)(c). The tribunal emphasized that the error was bonafide and inadvertent, and there was no intention to conceal income or furnish inaccurate particulars. The order was pronounced on 25/08/2022.