Error Occurred Inadvertently and Assessee filed Reversed Return Admitting Demand: Delhi HC upholds decision set aside Penalty Proceedings u/s 271 [Read Order]

The Delhi High Court presided by Mr. Justice Manmohan and Ms. Justice Manmeet Pritam Singh Arora has upholds decision set asiding penalty proceedings u/s 271 since error occurred inadvertently and assessee filed reversed return admitting demand.

The assessee, Harish Kumar, HUF, had adjusted the Short Term Capital Loss (STCL) of Rs.31,15,27,183/- with Long Term Capital Gain (LTCG) to Rs.32,58,81,104/- from the sale of equities and declared income of Rs.1,43,53,921/- under the head ‘Income from Capital Gains’.

During the course of Computer Assisted Scrutiny Selection (CASS) the AO directed the respondent to furnish details of the dividend income earned by it. While complying the directions of AO the respondent acknowledged a sum of Rs.1,98,51,874/- of dividend income was not considered by it. The Respondent admitted that the provisions of Section 94(7) of the Act were duly attracted and revised the computation of income and had increased its LTCG from 1,43,53,921/- to 3,42,05,795/-. The Respondent admitted to the disallowance of Rs.1,98,51,874/- under Section 94(7) of the Act and also paid the tax demanded on account of the revised assessed income promptly after receiving the assessment order.

While concluding the scrutiny assessment the AO concluded that the provisions of Section 271(1)(c) of the Act were attracted as the respondent had furnished inaccurate particulars of income and penalty proceedings were initiated against the respondent and imposed a minimum penalty of Rs.45,52,613/- under Section 271(1)(c) of the Act, being 100% of the tax, sought to be evaded.

Aggrieved assessee filed appeal before first appellate authority, which was dismissed. The assessee filed second appeal before Tribunal allowed the appeal and deleted the imposition of the penalty. Aggrieved, revenue filed appeal before the High Court against the order Tribunal.

The petitioner revenue submitted that the explanation offered by the assessed that the error occurred inadvertently and bonafide mistake cannot be accepted, as if the case of the assessee was not selected for Limited Scrutiny by CASS, the assessee would have gotton away with its wrongful claim of lower LTCG and tax would have been evaded. The revenue further submitted that the disclosure made by the assessee is not voluntary but upon receiving the notice, it was aware that this non-disclosure would be discovered by the AO and therefore, the voluntary disclosure made on by the assessee cannot be considered as bonafide.

The division bench observed that the assessee voluntarily filed the revised return duly disclosing the disallowance of the dividend in terms of Section 94(7). Further the assessee upon receipt of the assessment order issued by the AO deposited the enhanced amount of tax and had not challenged the assessment order. The assessee at the first instance itself, admitted its mistake in computation and filed a revised return.

The High Court while upholding the decision of Tribunal has held “the Tribunal, after appreciating the evidence has found that the Respondent has proven that it was a bonafide mistake and no substantial question of law would arise. It is not possible to accept the submission of counsel for the Appellant that the said finding of the Tribunal is perverse and we, therefore, do not find any merits in this appeal”.

Mr. Sanjay Kumar, Advocate with Ms. Easha Kadian, Advocate appeared on behalf of the revenue.

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