Bonafide Human Errors should be demonstrated with Circumstantial Evidence: ITAT upholds Penalty [Read Order]

While dismissing an appeal filed by Swift Knit Pvt.Ltd, the Income Tax Appellate Tribunal (ITAT) Ahmedabad bench has held that in order to avoid penalty under section 271(1)(c) of the Income Tax Act, the assessee should prove the defense of bonafide mistake/ errors with circumstantial evidence.

 “The only statement made is that it was a bona fide human error. This is a very general and sweeping statement. It should be demonstrated with circumstantial evidence as to how this error has happened; what is operating force in the mind of person who has prepared the return, and how he failed to comprehend a particular item. Even the affidavit of that person has not been filed,” the Tribunal said.

In the present case, it was revealed on the scrutiny of the returns that the Company has not offered capital gain to taxation. The Company pleaded that it was an inadvertent and bona fide mistake while filing the return. They further relied on the Apex Court decision in Price Waterhouse Coopers Pvt. Ltd vs. CIT.

Rejecting the contentions of the assessee, the Tribunal noted that in the case of Price Waterhouse Coopers Pvt. Ltd vs. CIT a provision for gratuity etc. was made for the regular and adhoc employees. In the audit report, it was pointed by the auditor that provision for adhoc employees was required to be written back. But somehow, while filing the return, accountant failed to add back that amount. An affidavit of the concerned person was filed and it was pointed out that more than thousands of employees were working in that concern.

“In that background, it was construed as bona fide human error i.e. failure to add back a particular provision. In the present case, no such circumstances have been pointed out by the assessee either before the AO or before the ld.CIT(A),” the Tribunal observed.