2017 (8) TMI 184 - HC - Income Tax

Court cancels penalty under Income Tax Act citing inadvertent error

The Pr. Commissioner of Income Tax (Central), Chandigarh Versus M/s SEL Manufacturing Co. Ltd.

The High Court upheld the decision of the Tribunal and the Commissioner of Income Tax (Appeals) to cancel the penalty imposed under Section 271(1)(c) of ... Penalty under Section 271(1)(c) - addition on account of sundry balances written off which was not suo motto offered for taxation even though the same was taken into consideration for claiming deduction under Section 80IB - Held that:- After examining the entire evidence on record that the assessee on realizing the mistake that sundry debtors written off had not been added in the computation of total income, submitted before the Assessing Officer to make the addition of the same amount in the computation of income for the year under consideration. The assessee, thus, offered explanation to the Assessing Officer. It was further noticed that the amount of sundry balances written off had already been added back in the computation of income of Baddi Unit of the assessee company on which deduction under Section 80IC of the Act had been claimed. The assessee explained that due to inadvertent mistake, the same was omitted to be added back in the computation of its income. Thus, the Tribunal concurred with the findings recorded by the CIT(A) and dismissed the appeal filed by the revenue. - Decided in favour of assessee. Issues:- Appeal against cancellation of penalty under Section 271(1)(c) of the Income Tax Act, 1961- Allegation of intentional concealment of income and tax evasion- Assessment of penalty by Assessing Officer and subsequent appeal processIssue 1: Appeal against cancellation of penalty under Section 271(1)(c) of the Income Tax Act, 1961The appellant-revenue filed an appeal challenging the cancellation of a penalty under Section 271(1)(c) of the Income Tax Act, 1961 by the Income Tax Appellate Tribunal (ITAT). The penalty was imposed due to the addition of sundry balances written off by the assessee, which had not been included in the computation of total income. The Assessing Officer initiated penalty proceedings under Section 271(1)(c) based on the belief that the omission was a deliberate attempt to evade tax. However, the Commissioner of Income Tax (Appeals) (CIT(A)) later overturned the penalty, citing that the error was inadvertent and not intentional. The Tribunal upheld the CIT(A)'s decision, leading to the appellant-revenue's current appeal.Issue 2: Allegation of intentional concealment of income and tax evasionThe Assessing Officer alleged that the assessee had a clear intention to conceal income and defraud tax payments by not including the sundry balances written off in the computation of total income. However, the CIT(A) found this allegation unfounded, stating that the mistake was not intentional but rather due to inadvertence. The CIT(A) noted that the company's higher income group status often led to scrutiny assessments, indicating a lack of intent to deceive the revenue. The Tribunal concurred with the CIT(A)'s findings, emphasizing that the assessee had promptly rectified the error upon realization and had disclosed all relevant facts. The Tribunal referenced a similar case law to support the decision to cancel the penalty.Issue 3: Assessment of penalty by Assessing Officer and subsequent appeal processThe Assessing Officer imposed a penalty under Section 271(1)(c) for the omission of sundry balances written off in the computation of total income. The CIT(A) overturned this penalty, highlighting the inadvertent nature of the error and the absence of intentional wrongdoing. The Tribunal upheld the CIT(A)'s decision, emphasizing the bonafide explanation provided by the assessee and the disclosure of all relevant information. The Tribunal cited precedents where penalties were canceled due to genuine mistakes in accounts or valuation errors. The High Court dismissed the appeal by the appellant-revenue, noting the absence of substantial legal questions and the lack of errors in the lower authorities' decisions.This detailed analysis of the legal judgment highlights the key issues involved, the assessments made by different authorities, and the reasoning behind the decisions to cancel the penalty under Section 271(1)(c) of the Income Tax Act, 1961.