2014 (2) TMI 423 - AT - Income Tax

ITAT upholds CIT(A) decision, deletes penalty under section 271(1)(c) in company's appeal

Asstt. Commissioner of Income Tax Versus M/s. Dynamic Pharmacaps Pvt. Ltd. (Now merged in Capsulation Services Pvt. Ltd.)

The ITAT upheld the CIT(A)'s decision to delete the penalty under section 271(1)(c) in the department's appeal. The ITAT agreed that the company was a ... Deletion of penalty u/s 271(1)(c) of the Act – inaccurate documents furnished - Held that:- The decision in Asst. Commissioner of Income-tax Versus M/s. Universal Medicare Pvt. Ltd.[2012 (8) TMI 993 - ITAT MUMBAI] followed - Penalty u/s 271(1)(c) of the Act cannot be imposed for furnishing inaccurate particulars/concealing the particulars of income - Penalty is imposed where an assessee conceals his income, so that it does not suffer taxation – here, assessee-company was cheated by its employees and the AO has admitted the fact by allowing defalcation in subsequent A.Y - In these peculiar circumstances, if the assessee could not support the claim made by it, during the assessment proceedings, it cannot be held that it had filed inaccurate particulars – thus, if wrong claims were made by the assessee-company, on the basis of the material supplied by the employee-CA, penal provisions should not have been invoked - there was no omission or commission on part of the assessee-company for which it should have been visited by penalty u/s 271(1)(c) of the Act – order of the CIT(A) upheld – Decided against Revenue. Issues:Department's appeal against deletion of penalty under section 271(1)(c) by CIT(A).Analysis:The appeal was filed by the department challenging the deletion of penalty under section 271(1)(c) by the CIT(A). The case involved the claim of a loss due to defalcation by an employee, amounting to Rs. 14.10 lacs. The AO rejected the claim and imposed a penalty equal to the tax amount. However, the CIT(A) held that the claim was based on valid and legal grounds, supported by evidence, and the penalty was deleted. The CIT(A) noted that the defalcation was committed by the employee, and the appellant's explanation was satisfactory and justified. The CIT(A) also highlighted that similar penalties were deleted in cases of sister concerns based on identical facts.The AR presented orders of sister concerns where penalties were dropped on similar grounds. The AR referred to a coordinate Bench order in the case of Universal Medicare Pvt. Ltd., emphasizing that the company was a victim of fraud by its employees. The Bench concluded that the penalty under section 271(1)(c) was not justified as the company was not concealing income but was a victim of fraud. The AR argued that since penalties were deleted in cases of sister concerns, the penalty in this case should also be dropped.After considering the facts and the coordinate Bench orders in sister concerns' cases, the ITAT upheld the CIT(A)'s decision to delete the penalty. The ITAT found no legal infirmity in the CIT(A)'s order and agreed with the reasoning that the company was a victim of fraud and did not conceal income. The ITAT rejected the department's appeal and sustained the CIT(A)'s decision to delete the penalty under section 271(1)(c).In conclusion, the ITAT dismissed the department's appeal, affirming the deletion of the penalty under section 271(1)(c) by the CIT(A) based on the justifications provided and the precedent set by similar cases involving sister concerns.