Appeal granted, penalty set aside under Income Tax Act; error deemed inadvertent, lacking malafide intent.

The Tribunal allowed the appeal, setting aside the penalty of Rs. 4,23,449 imposed under section 271(1)(c) of the Income Tax Act. The error in not adding back the exchange rate difference on loan repayment was deemed inadvertent, lacking malafide intent, and not constituting grounds for penalty as per the Act.

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Issues:
Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 for inadvertent error in filing return of income.

Analysis:
The appeal pertains to the assessment year 2009-10 and challenges the penalty imposed under section 271(1)(c) of the Act amounting to Rs. 4,23,449. The appellant, a company engaged in the manufacture of diamond/gold jewellery, declared a loss of Rs. 23,92,146, which was later assessed at Rs. 10,06,419 due to the disallowance of Rs. 13,70,387 representing exchange rate difference on loan repayment. The Assessing Officer imposed the penalty on the grounds of concealment or furnishing inaccurate particulars of income. The appellant contended that the error was inadvertent as it failed to disallow the exchange rate difference on loan repayment while computing total income for tax purposes. The appellant argued that there was no malafide intent and cited the decision of the Bombay High Court to support their claim.

The Departmental Representative asserted that the error in the return of income justified the penalty under section 271(1)(c) of the Act. However, the Tribunal noted that the difference between reported and assessed income alone does not warrant a penalty under section 271(1)(c). In this case, the error was deemed inadvertent as the exchange rate difference was already debited in the Profit & Loss Account. The Tribunal agreed with the appellant's argument that the mistake did not amount to deliberate concealment or furnishing inaccurate particulars of income. Citing the Bombay High Court's decision, the Tribunal ruled in favor of the appellant and directed the Assessing Officer to delete the penalty imposed.

In conclusion, the Tribunal allowed the appeal, setting aside the penalty of Rs. 4,23,449 imposed under section 271(1)(c) of the Act. The decision was based on the finding that the error in not adding back the exchange rate difference on loan repayment was inadvertent and did not constitute grounds for penalty as per the provisions of the Act.

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