Penalty under Income Tax Act canceled for non-disclosure of sundry balances: inadvertent error, no evasion

The penalty under section 271(1)(c) of the Income Tax Act for assessment year 2008-09, imposed on the assessee for not adding sundry balances written off in the return of income, was canceled. The ld. CIT(Appeals) found the mistake to be inadvertent, lacking intentional evasion, and noted the absence of deliberate or malafide intent. The Tribunal upheld the cancellation, emphasizing the assessee's disclosure of facts, bonafide explanation, and rectification of the error without any tax evasion motive. Citing precedents, including decisions by the Gujrat High Court and the Madras High Court, the Tribunal affirmed the cancellation of the penalty and dismissed the departmental appeal.

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Issues:
Challenge to cancellation of penalty under section 271(1)(c) of the Income Tax Act for assessment year 2008-09.

Analysis:
The Assessing Officer levied a penalty in relation to an addition of Rs. 96,45,276 made by the assessee in its return of income due to not adding sundry balances written off during the computation of total income. The Assessing Officer believed it was an attempt to evade tax and initiated penalty proceedings. The assessee contended that the mistake was inadvertent and not intentional, as the amount was in the nature of disallowable expenses to be added back. The ld. CIT(Appeals) considered the explanation of the assessee and canceled the penalty, noting that the mistake was not intentional and that the surrounding circumstances did not suggest any deliberate or malafide intention to deceive the revenue.

The ld. CIT(Appeals) highlighted that the mistake was pointed out by the Assessing Officer during assessment, and the nature of the item should have caught the attention of the person finalizing the income tax return. It was observed that there was no deliberate intention to make a wrongful claim, especially considering the company's history of scrutiny assessments. The ld. CIT(Appeals) referenced a Supreme Court decision where even reputable firms were found to make mistakes, emphasizing that the absence of due care did not equate to furnishing inaccurate particulars or concealing income. The penalty was directed to be deleted based on these considerations.

In the appeal, the ld. DR argued that the penalty should be upheld, citing civil liability and referring to relevant Supreme Court decisions. However, the Tribunal found that the assessee had disclosed all relevant facts and offered a bonafide explanation for the mistake. It was noted that the mistake was rectified by the assessee upon realization and that there was no intention to evade taxes. The Tribunal agreed with the ld. CIT(Appeals) and upheld the cancellation of the penalty under section 271(1)(c) of the Act.

The Tribunal cited decisions by the Gujrat High Court and the Madras High Court where penalties were deleted due to admitted mistakes in accounts and under-valuation of stock, respectively. Considering the facts and circumstances of the case, the Tribunal affirmed the cancellation of the penalty by the ld. CIT(Appeals) and dismissed the departmental appeal.

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