Mere absence of revised return not justify penalty when mistake admitted suo moto

When assessee during assessment proceedings voluntarily admitted mistake then mere absence of revised return would not justify penalty u/s 271(1)(c)

ABCAUS Case Law Citation:
ABCAUS 2738 (2019) (01) ITAT

Important Case Laws Cited/relied upon:
CIT Vs. Man Industries Ltd.(2018) 164 DTR (Bom) 165

CIT Vs. Somany Evergreen Knits Ltd. (2013) 352 ITR 592 (Bom),

The instant appeal was filed by the assessee against the order passed by the CIT(A) arising from the order passed by the Assessing Officer (AO) under Sec. 271(1)(c) of the Income Tax Act, 1961 (the Act).

The assessee had filed her return of income claiming deduction of interest expenditure in respect of borrowed capital which was stated to have been utilised towards property.

Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. During the course of the assessment proceedings the AO issued a notice under Section 142(1) of the Act and called upon the assessee to furnish necessary details.

The assessee stated that she had acquired a property with ½ share by raising interest bearing borrowed funds. However, while computing her entitlement towards ½ claim of deduction in respect of the interest on borrowed capital as against the ‘rental income’ the same inadvertently on account of a bonafide mistake was wrongly claimed in the ‘return of income’ for the year under consideration.

The assessee also explained the reason leading to the aforesaid bonafide mistake on her part. It was stated by the assessee that the said mistake had arisen for the reason that the one other interest expenditure pertaining to her another loan account which was utilized for making of investments in other concerns, was inadvertently included by her accountant while raising the aforesaid claim of interest expenditure in respect of loan raised against property.

It was submitted by the assessee that the aforesaid mistake had emerged on the part of her accountant, who while preparing the return of income had jumbled the aforesaid interest expenses.

In the backdrop of the aforesaid facts, it was submitted by the assessee that the excess claim of deduction of interest expenditure which had resulted on account of an inadvertent bonafide mistake on the part of her accountant, be added back to her returned income.

The AO after deliberating on the aforesaid contention advanced by the assessee made a disallowance of the excess claim of the interest expenditure.

The AO while culminating the assessment also initiated penalty proceedings under Section 271(1)(c) in respect of the aforesaid disallowance on the ground that the assessee had furnished inaccurate particulars of income. Ultimately, the AO imposed the impugned penalty.

Aggrieved, the assessee assailed the penalty imposed by the AO under Sec. 271(1)(c) in appeal before the CIT(A). However, the CIT(A) upheld the order of the A.O and dismissed the appeal.  

Before the Tribunal the assessee submitted that the AO in notice issued u/s 142(1) had only called upon the assessee to furnish details of rental income with complete address of the rental building and names and addresses of the tenants, alongwith the bifurcated details of the household expenses. However, the assessee had voluntarily admitted the inadvertent mistake as regards raising of an excess claim of interest expenditure in respect of borrowed funds raised towards property.

On a query by the bench as to why a ‘revised’ return of income was not filed by the assessee, it was submitted that as the ‘Original’ return of income was filed beyond the stipulated time period envisaged under Section 139(1) of the Act, the assessee stood divested of her right to revise her return of income, and therein rectify/undo the mistake in raising of the excess claim of deduction towards interest expenditure in the original return of income filed by her.

The Tribunal observed that it was not the case of the revenue, nor was it a fact that the excess claim of interest expenditure had not been incurred in respect of another loan account of the assessee, or that the raising of the claim towards excess amount of interest expenditure was merely a bogus claim of deduction raised by the assessee.

The Tribunal rather found that the fact was that the excess interest expenditure pertained to another loan account and had wrongly been claimed as a deduction as being in the nature of interest on loan raised against property.

The Tribunal opined that the claim of deduction for excess interest expenditure, though not allowable, the same, in the totality of the facts of the case would not justify imposition of penalty under Sec. 271(1)(c) in the hands of the assessee.

The Tribunal pointed out that the assessee prior to having been confronted with the aforesaid infirmity in her claim, had voluntarily on her own, vide a letter filed with the AO, admitted the aforesaid mistake and had requested that the excess claim of deduction of interest expenditure be added to her returned income.

Also, it was noted that the assessee had failed to file her ‘Original’ return of income within the “due date” hence she could not undo/rectify her aforesaid mistake by filing a ‘revised’ return of income.

The Tribunal opined that when the assessee in the course of the assessment proceedings had voluntarily admitted the mistake that had crept in her ‘return of income’, then merely for the reason that she could not undo/rectify the mistake in her ‘Original’ return of income by filing a ‘revised’ return of income would not justify levy of penalty under Sec. 271(1)(c) in her hands.

Accordingly, the Tribunal set aside the order of the CIT(A) and deleted the penalty imposed by the AO under Sec.271(1)(c) of the Act.

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