The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) has held that no penalty can be initiated against the assessee under section 271(1)(c) of the Income Tax Act, 1961 for a bonafide mistake committed on the part of the Chartered Accountant.
The sole grievance of the assessee was that the Assessing Officer imposed a penalty of Rs.1,77,000/- under section 271(1)(c) of the Act on account of failure to voluntarily add back provision of gratuity in the computation of income, holding this mistake as mala fide even though all facts were disclosed.
The first appellate authority confirmed the order and refused to grant relief to the assessee.
Before the Tribunal, the Revenue argued that penalty was rightly imposed on the assessee u for filing inaccurate particulars of income. It was also submitted that if reassessment proceedings had not been taken up, the assessee would have escaped levy of tax.
The bench noted that though the provision for gratuity was not added back while computing the income of the assessee, but in the balance sheet, the assessee had disclosed it, as provision for gratuity. While preparing the IT return of the assessee, the Chartered Accountant did not add back it as income due to bona fide mistake.
“We further observe from the computation of income submitted by the assessee for preceding and subsequent assessment years that the assessee has correctly added back the provision for gratuity and it was offered as income. Therefore, it appears that there was no malafide intention of the assessee for filing inaccurate particulars of income. It is observed that the case was originally assessed u/s. 143(3) of the IT Act and all the information including the provision for gratuity were available with the Assessing Officer, as the provision for gratuity stood added back as income of the assessee in the balance sheet filed with the return of income,” the bench said.
It was also said that the disclosure of provision for gratuity as income in the balance sheet of the current year filed with the return of income and offering such provision for gratuity as income in preceding year’s computation of income, inspire confidence on the submission of the assessee that it was due to the mistake of Chartered Accountant not to add back such provision in the computation of income of the year under consideration.
The bench relied on the decision of the Punjab & Haryana High Court in the case of CIT vs. Rice Mills, where it has been held that the fault of Chartered Accountant cannot be visited on the assessee, in our considered opinion, no adverse inference can be drawn against the assessee.
“This being a bona fide mistake, the assessee did not challenge the quantum addition made by the Assessing Officer. This, however, would not be proper in the interest of justice to saddle penalty against the assessee in the peculiar facts and circumstances of the case and the circumstantial evidences available to prove the bona fide mistake with no ulterior motive on the part of assessee, as assessment proceedings and penalty proceedings are two separate and distinct proceedings,” the bench said.
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