2024 (8) TMI 428 - AT - Income Tax

Penalty u/s 271(1)(c) - wrong claim of deduction u/s 11(1) of the Act in respect of building construction - HELD THAT -The wrong claim of business construction amount towards application of income had no impact on the total income of the assessee either in the current year or in the future years. Under the circumstances, the machinery provision to work out the penalty amount @ 100% of tax sought to be evaded doesn t work out as there was no evasion of income either in the current year or in future years. Therefore, the AO was not correct in imposing the penalty under Section 271(1)(c) of the act. The mistake on the part of the assessee was a bona-fide mistake, which ultimately had no impact on the taxable income of the assessee. Therefore, the penalty levied under Section 271(1)(c) of the Act is cancelled. Appeal of the assessee is allowed.

Summary

Issues:
Penalty under Section 271(1)(c) of the Income Tax Act for wrong claim of deduction under Section 11(1) in respect of building construction amount.

Analysis:
The appeal was filed against the order of the National Faceless Appeal Centre (NFAC) regarding the penalty imposed under Section 271(1)(c) of the Income Tax Act for a wrong claim of deduction under Section 11(1) in relation to building construction amount for the Assessment Year 2016-17. The assessee, a charitable trust, had received corpus donation for construction of a building and claimed exemption under Section 11(1)(d) of the Act. The Assessing Officer (AO) rejected the claim under Section 11(1) in respect of building construction amount, leading to the initiation of penalty proceedings. The First Appellate Authority confirmed the penalty, resulting in the appeal before the Appellate Tribunal.

The assessee admitted the mistake in claiming the building construction amount as application of income and clarified that the deduction was actually claimed to a lesser extent. The total income remained unaffected by this error, and the deduction claimed was within the permissible limit. The counsel cited a decision of the Hon'ble Gujarat High Court to support the argument that no penalty should be levied for a bona fide mistake that does not impact the income. The Revenue, however, supported the lower authorities' orders.

Upon examination, the Tribunal found that the wrong claim of building construction amount did not affect the total income of the assessee. Even after excluding the erroneous amount, the remaining deduction was sufficient and there was no evasion of income. The penalty provision under Section 271(1)(c) was deemed inapplicable as there was no impact on taxable income in the current or future years. The Tribunal concluded that the mistake was bona fide and canceled the penalty levied under Section 271(1)(c) of the Act.

Therefore, the appeal of the assessee was allowed, and the penalty under Section 271(1)(c) was canceled. The Tribunal's decision was pronounced on 06/08/2024.