RBI penalty for clerical mistakes not disallowable u/s 37 – ITAT

RBI penalty for clerical mistakes not disallowable u/s 37. The genuine clerical mistake cannot be treated as an offense under the Banking Regulations Act – ITAT

ABCAUS Case Law Citation
ABCAUS 2364 (2018) 06 ITAT

The instant appeal was preferred by the assessee against the order of the Commissioner of Income Tax (Appeals) (‘CIT (A)’), inter alia, challenging the confirmation of the order of the Assessing Officer (AO) making disallowance u/s 37 of the Income Tax Act, 1961 (the Act).

The appellant assessee was a private limited company. The return of income of the company was initially was processed U/s 143(1) of the Act and subsequently the case was selected for scrutiny under CASS.

During the course of scrutiny assessment proceedings, it was observed by the AO that in the income tax computation statement, the assessee had claimed deduction towards penalty paid to RBI. On query it was explained that the assessee had committed certain clerical mistakes in the form FCGPR submitted to the RBI and therefore the penalty was levied by the RBI.

Under FEMA Regulations, an Indian company issuing capital instruments to a person resident outside India, where such issue is considered as Foreign Direct Investment (FDI), is required to report such issue in Form FC-GPR to the RBI, not later than thirty days from the date of issue of capital instruments.

The AO opined that the explanation 1 to Section 37 of the Act would be applicable in the case of the assessee and therefore disallowed the same as allowable deduction.

On appeal, the CIT(A) concurred with the view of the AO by observing that the payment was made due to an offense committed by the assessee and thereby confirmed the disallowance.

The Tribunal observed that it was apparent that the penalty was levied due to some clerical mistake

committed by the assessee in the form FCGPR submitted to the RBI. The genuine clerical mistake committed by the assessee cannot be treated as an offense under the Banking Regulations Act. The Tribunal opined that the explanation 1 to Section 37 of the Act will not be attracted in the case of the assessee and accordingly directed the AO to delete the addition made.

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