Income Tax Authorities should charge Legitimate Taxes from Assessee, Penalty cannot be Imposed for Bonafide Mistakes: ITAT [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), Chandigarh Bench, has recently, in an appeal filed before it, held that the income tax authorities should charge legitimate taxes from the assessee and that penalty cannot be imposed for bonafide mistakes.

The aforesaid observation was made by the Chandigarh ITAT, when an appeal was preferred before it by an assessee, as against the order dated 16.07.2019 of the Commissioner of Income Tax (Appeals), Ludhiana, passed u/s 250 of the Income Tax Act, 1961.

The grounds of the assessee’s appeal being that the Commissioner of Income Tax (Appeals), has erred in confirming the action of the Assessing Officer by assessing the income at Rs. 1,24,53,530/- against the declared total loss of Rs. 54,02,028/, that the CIT(A) has ignored the documentary evidences and submissions as made by the assessee during the remand proceedings and submission as already made before him, and further that the CIT(A)/Assessing Officer, ought to have allowed the assessed brought forward losses of Asstt. Year 2012-13 & 2013-14 to the tune of Rs. 78,354/- and Rs. 45,66,708/-respectively to be set off against current year’s income, the relevant facts of the case were that assessee in its profit and loss account, claimed a business loss of Rs. 10,34,164/-., which the Assessing Officer disallowed on the ground of non-production of relevant supporting documents.

However, during the appellate proceedings before the CIT(A), the assessee furnished certain additional evidences in support of its claim, which the CIT (A) sent to the Assessing officer for verification and remand report thereof. And, in response, the Assessing officer submitted his remand report dated 18.1.2019, wherein, he recommended to the CIT(A) not to admit the additional evidences as the same were not furnished by the assessee during the assessment proceedings.

The CIT(A) accordingly refused to consider the evidences submitted by the assessee in support of the above claim, thus upholding the disallowance so made by the Assessing officer.

With Shri Sudhir Sehgal, the counsel for the assessee, relying on the copies of the various documents placed on file, wherein, the details of various expenses had been mentioned along with copy of the ledger account etc., it was submitted by him that the assessee’s concern had been declared as non-performing assets (NPA) and that the bank had taken control over its properties.

He added that due to it is due to the aforesaid reasons, that the assessee could not furnish the relevant evidences before the Assessing officer, and that the relevant evidences were furnished before the CIT(A) whereupon, the remand report was also called upon but that theCIT(A) failed to take note of the aforesaid evidences.

With the assessee’s counsel further submitting that since the business of the assessee had been closed down and the expenses claimed by the assessee are petty expenses in the shape of salary and day today expenses, the issue may be decided after considering the evidences placed on file. However, on the other hand,Shri Akashdeep, JCIT, Sr. DR,  on behalf of the Revenue, relied on the findings of the lower authorities.

Hearing the opposing contentions of either sides and perusing the materials available on record, the ITAT Bench comprising of Shri Vikram Singh Yadav, the Accountant Member and Sanjay Garg,the Judicial Member, observed :

“We find that the expenditure claimed by the assessee are petty expenses, out of which, the major expenses are in respect of salary to staff of Rs. 1,65,500/-. Once the assessee has furnished the relevant documents before the Ld. CIT(A) and after admitting the same, the Ld. CIT(A) has called for remand report from the Assessing officer, therefore, the Ld. CIT(A), in our view, ought to have looked into these documents.”

“After considering the facts and circumstances of the case and going through the evidences furnished, we do not find any justification on the part of the lower authorities for disallowing the business loss to the tune of Rs. 10,34,134/- to the assessee. The disallowance made by the Assessing officer in this respect is, therefore, ordered to be deleted.”, the ITAT Bench added.

Thus, allowing the assessee’s appeal the Chandigarh ITAT commented:

“It has been time and again held that the Income Tax Authorities should charge legitimate taxes from the assessee. An assessee should not be punished for his/ her bonafide mistake. The Instructions in this respect have also been issued by the CBDT from time to time that the Income Tax Authorities should assist the assessee in correctly making their claim in the return.”

“In view of this, we direct the Assessing officer to verify the claim of the assessee regarding the brought forward losses of the previous years i.e., AYs 2012-13 and 2013-14 and if the claim of the assessee is found correct, then to give set off adjustments of the same in the current year under considerations”, the ITAT concluded.

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