‘Bonafide- Silly Mistakes’ in Tax Audit Report would not attract Income Tax penalty: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench has held that bonafide and silly mistakes in the tax audit report would not result into imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961.

The assessee, M/s. Deco Mica Limited, is a company which is engaged in the business of manufacturing and trading in laminated sheets. The Assessing Officer, during the relevant year, rejected the return filed by the assessee and determined a total income of the assessee at Rs.1,21,41,220/- after making inter alia an addition of Rs.3,25,499/- on account of loss on sale of assets debited by the assessee-company in the profit and loss account. Penalty proceedings under Section 271(1)(c) of the Act were also initiated by the Assessing Officer.

The assessee contended that the loss on sale of assets amounting to Rs.3,35,499/- debited in the profit and loss account was not added back while computing the income from business due to an inadvertent error.

After hearing contentions from both sides, the bench comprising Shri P.M. Jagtap, Vice-President and Ms. Suchitra R. Kamble, Judicial Member observed that the mistake in not adding back the loss on sale of fixed assets in computation of income was a bona fide mistake inadvertently committed by the assessee.

“In the case of Price Waterhouse Coopers Pvt Ltd (supra) relied upon by the learned Counsel for the assessee, the Hon’ble Supreme Court held that even if the assessee was a reputed firm and had great expertise available with it, it was possible that it could make a “silly” mistake. In this regard, the Hon’ble Supreme Court took note of the fact that the Tax Audit Report filed by the assessee along with return of income unequivocally stated that the provision for payment was not allowable under Section 40A(7) of the Act and held that the contents of the Tax Audit Report suggested that there was no question of the assessee concealing its income or furnishing any inaccurate particulars of its income. Hon’ble Apex Court held that it was through a bona fide and inadvertent mistake, the assessee while submitting its return, failed to add the provision for gratuity to its total income. It was held that the imposition of penalty on the assessee, therefore, was not justifiable. In our opinion, the decision of the Hon’ble Supreme Court in the case of Price Waterhouse Coopers Pvt Ltd (supra) is squarely applicable in the facts of the present case as discussed above and respectfully following the same, we cancel the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Act and confirmed by the learned CIT(A),” the Tribunal observed.

Shri Parimalsinh B. Parmar appeared for the assessee.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates