Penalty u/s 271(1)(c) for inadvertent error of accountant deleted as conduct not found contumacious

Penalty u/s 271(1)(c) for inadvertent error of accountant deleted as assessee revised belated return and his conduct was not contumacious

ABCAUS Case Law Citation:
ABCAUS 3252 (2020) (02) ITAT

Important case law relied upon by the parties:
CIT vs Fortune Hotels and Estates (P.) Ltd., [2014] 52 330 (Bombay)
Price Waterhouse Coopers (P.) Ltd. vs CIT 348 ITR 306 (SC)
Hindustan Steel Ltd. vs State of Orissa, 83 ITR 26 (SC)

In the instant case, the appellant assessee had challenged the order of the CIT(A) in sustaining the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 (‘the Act’).

The appellant assessee had filed a belated return. The Assessing Officer (AO) issued notice under Section 143(2) of the Act. Subsequently, the assessee filed a revised return declaring Capital Gains.

The Assessing Officer invoked the provision of Section 50C of the Act and Capital Gain was levied.

The matter travelled to the CIT(A). Thereafter the matter was referred to the DVO. Subsequently, on assessee’s share of the Capital Gain, penalty was levied under Section 271(1)(c) of the Act.

The assessee’s explanation was that it was a bona fide mistake. That the mistake was on the part of assessee’s Accountant was not accepted by the authorities below. It was further held that a belated return cannot be revised. Hence, it was held that assessee could not be exonerated of its liability by claiming that it had filed an invalid revised return.

Before the Tribunal, the assessee submitted that he had suo moto filed a revised return without any query or action by the Assessing Officer. He submitted that there was no contumacious conduct on the part of the assessee and that the amount of capital gain was inadvertently shown in unsecured loan. Hence the assessee could not be visited with the rigours of penalty under section 271(1)(c) of the Act.

Also, the assessee submitted that penalty had been initiated on the ground that there was filing of inaccurate particulars of income. However, the final penalty had been levied on concealment of income.

It was submitted that also there was no striking off of the particular limb specifying the charges on the assessee in the penalty notice issued u/s 274 of the Act. Hence, the penalty may kindly be deleted.

The tribunal observed that the assessee had filed a revised returned before the detection or any query on the impugned subject by the revenue authorities.  The assessee’s claim of filing the revised returned had been negatived on the ground that at the extant pointed of time there was no provision for revising a belated returned. 

The Tribunal also observed that undisputedly, subsequently the Act was amended and revision of belated returned was also permitted.  Furthermore, the impugned amount was shown in unsecured loan. The assessee had submitted that this was an inadvertent mistake on the part of the accountant of the assessee which had not been accepted by the authorities below. 

The Tribunal noted that Honourable jurisdictional High Court had expounded that when in respect of sale of property, matter was referred to DVO to determine sale consideration at a higher amount, that by itself would not amount to furnishing inaccurate particulars of income so as to levy penalty under section 271(1)(c) of the Act. 

Again, the Tribunal found that the Hon’ble Supreme Court had held that an inadvertent error cannot lead to rigours of penalty.  A larger bench of the Honourable Court had expounded that when the conduct of the assessee was not contumacious, the authority may not levy the penalty. That technical and venial breach may not lead to levy of penalty.

The Tribunal opined that the conduct of the assessee in this case was not contumacious to warrant levy of penalty and assessee’s plea that there was an inadvertent error on the part of the accountant deserves to be accepted.  When the Act was subsequently amended to provide for revision of the belated returned, hence the assessee could at best be held for a technical and venial breach not liable for penalty.

Accordingly, the Tribunal set-aside the orders of authorities below and deleted the levy of penalty.

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