2020 (6) TMI 298 - AT - Income Tax

Tribunal cancels penalty for unintentional income tax refund interest non-disclosure.

Saubhagyalaxmi Developers Versus The Income Tax Officer, Ward 3 (1), Pune

The Tribunal canceled the concealment penalty imposed under section 271(1)(c) of the Income Tax Act for the assessment year 2013-14 on interest earned on ... Penalty u/s.271(1)(c) - Penalty levied on tax allegedly sought to be evaded on the amount of interest earned on income tax refund - HELD THAT:- As decided in JAYANTI SUPER CONSTRUCTION (PREVIOULSY : SUPER CONSTRUCTION CO.) AT & POST KAKOSHI TAL SIDHPUR VERSUS THE DCIT MEHSANA CIRCLE MEHSANA [2019 (6) TMI 466 - ITAT AHMEDABAD] we see force in the plea of the assessee that a person of his stature diligently paying large taxes would not imagine to keep away something from the very Department which issued the refund and which would be making the assessees assessment. Such brazen behaviour on the part of the assessee or of any assessee for that matter, cannot at all be ordinarily postulated. It is only on verification of records generated from Income Tax site that the information towards interest component has come to the fore. Failure of the assessee to look into the aforesaid form at the time of filing return would not indicate any contumacious or obstinate conduct on the part of the assessee, but possibly reflect laxity or some carelessness. Under these circumstances, we are of the view that benefit of doubt should go to the assessee, more so where we have a case in hand for determination of penalty which is penal in nature. The order of the CIT(A) is accordingly set aside and the Assessing Officer is directed to cancel this penalty on this score. - Decided in favour of assessee. Issues:Levy of concealment penalty under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2013-14 based on interest earned on income tax refund.Detailed Analysis:Issue 1: Levy of Concealment PenaltyThe case involved the assessment of a firm engaged in construction activity for the assessment year 2013-14. The Assessing Officer added the interest component of Rs. 8,24,805 to the total income declared by the firm, which was not offered for taxation during the year. Consequently, penal proceedings under section 271(1)(c) were initiated. The Assessing Officer concluded that the firm had concealed particulars of income and levied a penalty of 300% on the tax sought to be evaded. During the First Appellate Proceedings, the CIT(Appeal) confirmed the penalty. The firm contended that the interest amount was not specified in the refund voucher and Form 26AS, hence not taxable for the year under consideration. The firm also presented arguments regarding the absence of interest information in Form 26AS, discrepancies in refund transactions, and previous tax compliances to support its case.Issue 2: Judicial InterpretationUpon review, the Tribunal considered the case law of Jayanti Super Construction Vs. DCIT, where a similar penalty was canceled due to a bonafide error in not disclosing interest received on excess tax paid. The Tribunal observed that the firm, being a large taxpayer, had no willful intention to conceal income, and the penalty was disproportionate to the error made. Citing the Hindusthan Steel Ltd. case, the Tribunal emphasized that penalties should not be imposed merely because they are lawful. The Tribunal found merit in the firm's contentions, stating that a bonafide mistake does not always warrant penalty proceedings. The Tribunal concluded that the firm's diligent tax payment history and lack of intentional omission justified canceling the penalty, as the error was not contumacious but possibly due to carelessness.Final JudgmentThe Tribunal held that the facts of the present case were akin to the Jayanti Super Construction case, and thus, not suitable for penalty imposition. Consequently, the penalty levied by the Assessing Officer was canceled, and the firm's appeal was allowed. The order was pronounced on June 11, 2020, setting aside the CIT(Appeal)'s decision and directing the cancellation of the penalty.