Tribunal cancels penalty under Income-tax Act due to assessee's genuine mistake and voluntary rectification

The Tribunal ruled in favor of the assessee, directing the Assessing Officer to delete the penalty imposed under section 270A of the Income-tax Act, 1961. The Tribunal found that the error in claiming deduction under section 32AC was a bona fide mistake rectified voluntarily before detection by the AO. As the explanation provided was deemed bona fide and all material facts were disclosed, the penalty was not applicable under section 270A. The Tribunal emphasized the importance of specificity in show cause notices but granted relief based on the assessee's genuine conduct.

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Issues Involved:

1. Justification of penalty under section 270A of the Income-tax Act, 1961.
2. Bona fide error in claiming deduction under section 32AC.
3. Voluntary rectification of the error by the assessee.
4. Applicability of exceptions under section 270A(6).
5. Specificity of the show cause notice.

Summary:

1. Justification of Penalty under Section 270A:
The primary issue to be decided was whether the Commissioner of Income Tax (Appeals) was justified in upholding the penalty levied under section 270A of the Income-tax Act, 1961. The assessee had claimed a deduction under section 32AC of the Act at 100% of the investment in new plant and machinery, which was later corrected to 15%. The Assessing Officer (AO) initiated penalty proceedings on the grounds of underreporting or misreporting of income.

2. Bona Fide Error in Claiming Deduction:
The assessee argued that the incorrect claim was due to a bona fide inadvertent mistake by the Tax Auditor, which was voluntarily rectified before any query by the AO. The Tribunal noted that the tax audit report and other relevant documents were duly furnished, and the error was acknowledged and corrected by the assessee before detection by the AO.

3. Voluntary Rectification of the Error:
The Tribunal observed that the assessee had voluntarily withdrawn the excess claim of deduction under section 32AC through a letter dated 02.04.2019, before any query was raised by the AO. This voluntary action was supported by a certificate from the Tax Auditor, confirming the inadvertent mistake.

4. Applicability of Exceptions under Section 270A(6):
The Tribunal held that the assessee's case fell under the exceptions provided in section 270A(6)(a) of the Act, as the explanation given by the assessee was bona fide and all material facts were disclosed. Therefore, the revenue was not eligible to levy penalty under section 270A.

5. Specificity of the Show Cause Notice:
The assessee contended that the penalty notice did not specify whether the penalty was for underreporting or misreporting of income, which are distinct offenses with different penalty rates. The Tribunal agreed that the AO must clearly specify the charge in the show cause notice, but this argument was not adjudicated as relief was granted based on the bona fide conduct of the assessee.

Conclusion:
The Tribunal directed the AO to delete the penalty, considering the bona fide nature of the error and the voluntary rectification by the assessee. The stay application was dismissed as infructuous. The appeal was allowed in favor of the assessee.

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