Income Tax Deduction cannot be Disallowed due to Bonafide Mistake or Error on the part of the Taxpayer: ITAT [Read Order]

The Chandigarh Bench of Income Tax Appellate Tribunal (ITAT) ruled that Income Tax Deduction under section 80IC of Income Tax Act, 1961 cannot be disallowed due to the bonafide mistake or error on the part of the taxpayer or assessee.

Further the ITAT quashed the order issued by the Principal Commissioner of Income Tax (PCIT) under the section 263 of Income Tax Act.

The appeal was preferred by the assessee against the order of the PCIT agitating against the exercise of revision jurisdiction under section 263 of the Income Tax Act.

The fact is that assessee, Virgo Aluminium Ltd, engaged in the manufacturing of aluminium rolled products, such as aluminium sheets. The assessee had e-filed its return of total income of Rs.11,21,66,380. Further claimed deduction under section 80IC amounting  Rs.3,24,45,802.

The PCIT noted that the Assessing Officer (AO) had accepted the assessee's claim of deduction under section 80IC without the audit report having been filed in time, and the claim of write off of Rs.1,66,70,246 without conducting any enquiries whatsoever. The order passed under section 143(3) of the Income Tax Act, therefore, appeared to be erroneous, and thus prejudicial to the interest to the revenue.” 

The PCIT mentioned in the show cause notice that since the assessee had not furnished the audit report in Form 10CCB alongwith the ITR, the claim of deduction under section 80IC of the Act is not allowable in this case. However, the deduction of Rs.3,24,45,802 as claimed by the assessee under section 80IC of the Income Tax act has been allowed by the AO, without paying adequate attention to the facts and relevant legal provisions.

Further the PCIT observed that the excess deduction of Rs.3,24,45,802 has been wrongly allowed by the AO to the assessee.

In the show cause notice issued by the PCIT, the assessee replied that the assessee company mistakenly omitted to fill the amount under the bad debt column of ITR form. Further the PCIT issued an order under section 263 of Income Tax Act.

However even otherwise, assessee company has given the due disclosure of the amount written-off of Rs. 1,66,70,246 in the audited profit & loss account, so it is not the case that the assessee company has concealed/hide any information or material fact from the department.

In response to the PCIT's claim that the assessee had not even reflected under the head "bad debts" in the pertinent column of the Income Tax Return (ITR) is concerned, the bench of Vikram Singh Yadav and Sanjay Garg noted that the assessee had duly responded to the PCIT, stating that although it was unintentionally omitted, the assessee company had provided the proper disclosure of the amount written off in the audited profit and loss account.

Moreover, the issue has not only been brought to the notice of the AO, but the same has also been examined and verified by the AO and under the circumstances there remains no prejudice to the revenue of not reflecting the aforesaid amount of bad debt under the relevant column of the online ITR form.

The tribunal viewed that the action of the PCIT in holding the assessment order is erroneous and thereby setting aside the order for de-novo assessment cannot be held to be justified. Hence the order passed under section 263 of the Income Tax Act is quashed.

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