2015 (2) TMI 1300 - AT - Income Tax

Tribunal cancels penalty for EPF deductions error, emphasizing penalties not for genuine mistakes

The tribunal allowed the appeal, holding that the penalty of &8377; 8.50 lacs imposed on the assessee for non-service of notice u/s. 143(2) and ... Penalty u/s. 271(1)(c) - assessee not deposited in EPF account after deducting the same from the employees - Held that:- We find that the fact regarding nonpayment of such dues to the Government account were obtained by A.O. from the documents accompanying income tax return only and A.O. had not detected any concealed income of the assessee. Full particulars regarding statutory payment to be made were disclosed in the return of income therefore, we hold that assessee had not concealed particulars of income and had not furnished inaccurate particulars of income. Mere wrong claim made by assessee cannot amount to concealment of income. In the case law of Price Waterhouse Coopers[2012 (9) TMI 775 - SUPREME COURT] the assessee had not added back to its computation of income the quantity as per the provisions of section 40A(7) of the Act. However, Hon'ble Supreme Court deleted the penalty holding that mistake was due to human error. In the present case, we observe that not adding back to the income of unallowable expenses, was due to a bona fide mistake which is strengthened from the fact that assessee had declared a loss of ₹ 153.35 lacs and even if the amount of ₹ 21.54 lacs was suo moto added back by assessee, still the income figure would have remained in negative. Therefore, it cannot be said that intention of assessee was to evade taxes by claiming wrong deductions. We hold that penalty was not imposable and therefore we delete it. - Decided in favour of assessee. Issues:Assessment on legal issue for non-service of notice u/s. 143(2), challenge against penalty imposition of &8377; 8.50 lacs.Analysis:1. The appeal was filed by the assessee against the order of Ld. CIT(A) challenging the assessment on legal issues for non-service of notice u/s. 143(2) and the imposition of a penalty amounting to &8377; 8.50 lacs. Despite the absence of the assessee, the tribunal proceeded with the case based on material on record and the submissions of the Ld. D.R.2. The Ld. D.R. argued that the case of the assessee was similar to the case law of CIT v. Zoom Communications, and therefore, the penalty should be upheld based on this precedent.3. The tribunal noted that the assessee, a cooperative society engaged in the manufacture of cotton yarn, had amounts deducted from employees' salaries for deposit in the EPF account but failed to pay them to the government account. The penalty was imposed by the A.O. under Section 271(1)(c) after the assessee did not attend the hearing. The Ld. CIT(A) upheld the penalty, emphasizing that the disallowance related to EPF account deductions constituted inaccurate particulars of income.4. The tribunal observed that although the disallowance was justified under Section 43B, the necessary particulars regarding the deductions were disclosed with the return of income, indicating no concealment or furnishing of inaccurate particulars. The A.O. had not detected any concealed income but based the disallowance on information provided in the return.5. Citing the case law of Reliance Petro Products, the tribunal emphasized that mere wrong claims by the assessee do not amount to concealment of income. The tribunal also referred to Price Waterhouse Coopers Pvt. Ltd. v. CIT, highlighting that penalties cannot be imposed for bona fide mistakes or normal human errors.6. In a similar vein to Price Waterhouse Coopers, where the penalty was deleted due to a bona fide mistake, the tribunal found that the assessee's failure to add back unallowable expenses was a genuine error, as evidenced by the overall loss declared. Therefore, the tribunal concluded that the penalty was not justified and deleted it, as there was no intention to evade taxes.7. Consequently, the tribunal allowed the appeal, holding that the penalty was not imposable based on the facts and circumstances of the case. The legal grounds raised by the assessee were not adjudicated as relief was granted on the merits.