2019 (7) TMI 545 - HC - Income Tax

Court rules penalty unjustified for unintentional error in tax return, emphasizes importance of intent

The Commissioner of Income tax, Chennai. Versus M/s. Celebrity Fashions Ltd.

The Commissioner of Income tax, Chennai. Versus M/s. Celebrity Fashions Ltd. - [2020] 421 ITR 458 (Mad) Issues:1. Whether penalty under Section 271(1)(c) is attracted if the assessee claimed unpaid interest in its profit and loss account without disallowing it under Section 43B(e) of the Income-tax ActRs.2. Whether the assessee can be considered guilty of furnishing inaccurate particulars even if no steps were taken to rectify the error in the return despite being aware of itRs.Analysis:1. The appeal concerned the imposition of a penalty under Section 271(1)(c) of the Income-tax Act for the assessment year 2012-13. The Revenue contended that the penalty was justified as the assessee claimed unpaid interest in its profit and loss account without disallowing it under Section 43B(e) of the Act. The Assessing Officer imposed a penalty of Rs. 50,28,975, considering the furnishing of inaccurate particulars by the assessee, resulting in lesser income returned. However, the CIT(A) and the Tribunal found that the omission to disallow the interest was inadvertent and not with the intention to understate income. The Tribunal upheld the CIT(A)'s decision, emphasizing the absence of deliberate conduct on the part of the assessee.2. The second issue revolved around whether the assessee could be deemed to have furnished inaccurate particulars despite not rectifying the error in the return, even after being aware of it. The Revenue argued that the assessee's failure to file a revised return justified the penalty imposition. However, the Tribunal, following the decision in Price Waterhouse Coopers Private Limited case, held that the inadvertent error in not adding the interest provision to total income did not amount to furnishing inaccurate particulars or concealing income. The Tribunal and the High Court concurred that the assessee's conduct did not demonstrate contumacious behavior or an intention to understate income, thereby dismissing the appeal.In conclusion, the High Court dismissed the appeal, stating that the factual findings established the inadvertent nature of the error, ruling out any substantial question of law. The judgment highlighted the importance of intent and deliberate conduct in determining the applicability of penalties under Section 271(1)(c) of the Income-tax Act, emphasizing the need for a careful assessment of circumstances before penalizing taxpayers for inadvertent errors.