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Tuesday, 08 March 2016 11:48

Penalty u/s 271(1)(c) - Concealment of Income - Clerical error in computation does not amount to concealment of income and penalty u/s 271(1)(c) is unjustified - Delhi Tribunal

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Penalty u/s 271(1)(c) - Clerical error

When the assessee had committed an inadvertent and bona fide error and had not intended to or attempted to either conceal its income or furnish inaccurate particulars, imposition of penalty on the assessee is not justified. This can only be described as a human error which we are all prone to make. The calibre and expertise of the assessee has little or nothing to do with the inadvertent error. 

1. The assessee company is engaged in the business of construction of residential flats

2. It has construction contracts with DDA and Group Housing Societies

3. During the year under consideration, the assessee declared taxable income of Rs.62,88,941/- on a turnover of Rs.34,70,27,097/-

4. The assessee was maintaining its regular books of accounts which were audited both under the Companies Act, 1956 and under section 44AB of the Act

5. The return of Income was selected for scrutiny u/s 143(2) of the Act and all the details along with audited accounts , tax audit reports as called for were duly furnished

6. The assessment was made under section 143(3) at Rs.70,63,560/- vide order dated 30.08.2011 and the AO made the disallowance of Rs.1,95,240/- being 10% of miscellaneous expenses, repair & maintenance etc. being unverifiable in nature and disallowance of Rs.5,79,374/- being loss on sale of asset which was debited to profit & loss account.

7. The additions so made by the AO was agreed upon by the assessee, therefore, he did not prefer any appeal before the CIT (A) and the assessment became final

8. The AO initiated penalty proceedings against the assessee

9. The assessee participated in the penalty proceedings and brought to the knowledge of the AO that the loss on sale of fixed asset of Rs.5,79,374/- was reflected in schedule 18 of the audited accounts

10. However, the AO was not convinced and levied a penalty at the minimum rate of 100% which comes to Rs.1,95,017/-

11. Aggrieved by the said order of the AO, the assessee preferred an appeal before the ld. CIT (A) who has upheld the order of the AO

12. Aggrieved by the said decision of the CIT (A), the assessee is before ITAT

13. After hearing both parties Honb. Tribunal deleted the penalty u/s 271(1)(c) 

Arguments by Assessee

Ld. AR for the assessee, while reiterating the submissions made before the lower authorities, submitted that one of the divisions of the assessee company, RMC Ghaziabad, had discontinued its business during financial year 2007-08. He submitted that the building was dismantled and disposed off during the year under consideration and sold off. He submitted that the sale consideration has been reduced from the block of fixed assets for computing depreciation under the Act. He further submitted that while computing the taxable income the loss on fixed assets aggregating to Rs.5,79,374/-, on the basis of which the penalty was imposed, has inadvertently been omitted to be added. The mistake being clerical since in the computation the said disallowance has been mentioned but the figure was inadvertently omitted from the column due to linking. He submitted that these facts have already been brought to the knowledge of the AO during the course of assessment proceedings vide letter dated 18.08.2011. He also drew our attention to page 19 and page 6 of the paper book to justify this mistake. He submitted that mistake being bonafide and inadvertent was rectified during the course of assessment proceedings and as such, there was neither concealment nor any explanation that was furnished, was found to be false. 

Adjudication

We note that the assessee participated in the penalty proceedings and brought to the knowledge of the AO that the loss on sale of fixed asset of Rs.5,79,374/- was reflected in Schedule 18 of the audited accounts. We also note that while computing the depreciation under the Act, the gross sale consideration was reduced and the depreciation has been claimed at the reduced WDV. However, due to clerical mistake, the said amount was omitted in the computation. We find that in the copy of the Income-tax computation, the said disallowance had been mentioned but inadvertently the amount was omitted. We further note that in the balance sheet at col. No.18 of Other Expenses, Rs.5,79,374/- was shown as Loss on sale of fixed assets (page 19 of the paper book), however, in the computation in the head ‘Loss on sale / discard of assets, the amount was not reflected (page 6 of the paper book). We also find that even during the course of assessment proceedings, all the information relating to the sale of asset had been furnished and the bonafide mistake that was made was accepted and the said amount was offered for taxation. We note that it is also not a case wherein the said amount was reflected under wrong head or concealed but the same was duly reflected in the audited accounts. We find that there is no deliberate attempt on the part of the assessee either to conceal income or to file inaccurate particulars of income. The assessee at the time of assessment proceedings has given all the details before the completion of the assessment proceedings. His explanation given to the AO has not been found to be false. 

Cases referred to

Price Waterhouse Coopers (P) Ltd. vs. CIT – 348 ITR 306 (SC)

Additional Info

Read 5132 times Last modified on Wednesday, 04 May 2016 12:13
Amit

Amit is a Chartered Accountant and a part of Taxpundit's Support Team. He has experience in various industry sectors including manufacturing, power and utilities, financial services, alternative investments etc. He is a passionate blogger and keep writing articles on Income Tax for various publications.

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1 comment

  • Comment Link ashwani Tuesday, 08 March 2016 12:25 posted by ashwani

    After supreme court decision of pricewaterhouse concealment penalty for inadvertent mistakes are difficult to impose.

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