In a recent judgement, the Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the penalty under Section 270A of the Income Tax Act, 1961, citing that the income discrepancy was due to the auditor’s incorrect recording of the written down value ( WDV ) in the tax audit report, and observed that “to err is human,” asserting that a bona fide error should not serve as grounds for imposing a penalty.
The respondent/ assessee, Mahashian Di Hatti Pvt. Ltd, filed an income return declaring a total income of ₹383,45,50,210/-. The case was selected for scrutiny under the Computer-Assisted Scrutiny Selection (CASS). During the assessment proceedings, the Assessing Officer (AO) identified a discrepancy of ₹1, 63,21,921/- between the opening written down value (WDV) reported in the Income Tax Return (ITR) for the Assessment Year (AY) 2017-18 and the closing WDV for AY 2016-17. The AO confronted the assessee with this discrepancy under Section 142(1) of the Income Tax Act. In response, the assessee acknowledged the mistake, stating that the opening WDV for AY 2017-18 had inadvertently been recorded based on the book value of the asset rather than the closing WDV for AY 2016-17.
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The assessee subsequently offered the excess depreciation claimed for taxation. As a result, the assessment was completed under Section 143(3) on 12/12/2019, with a total income assessment of ₹385, 08,72,140/- after adding ₹1,63,21,921/- to the returned income. The AO also initiated penalty proceedings under Section 271A of the Act for underreporting income due to the misreporting of ₹1,63,21,921/-. During the penalty proceedings, the AO rejected the explanation provided by the assessee and, by order dated 02.09.2021, imposed a penalty of ₹1, 13,76,592/-, equivalent to 200% of the tax payable on ₹56,88,296/-.
The assessee appealed the penalty before the First Appellate Authority, which, by order dated 29.01.2024, deleted the penalty. Consequently, the Revenue appealed the decision before the Tribunal.
Mr. Vinod Kumar Bindal, representing the assessee, reiterated the submissions made before the lower authorities. He explained that the difference between the assessed and returned income arose due to a clerical error in recording the opening WDV of the assets. The error occurred because the WDV was mistakenly taken from the book value in the audited annual accounts prepared under the Companies Act, rather than the WDV under the Income-tax Act, as stated in the tax audit report under Section 44AB.
Both the accounts and the tax audit report had been submitted with the return of income. Upon noticing the error, the assessee promptly informed the AO of the correction via a letter dated 29/11/2019, well before the assessment proceedings were completed. Bindal emphasized that there was no change in the value of assets purchased during the year, and the error was purely a clerical oversight. He also pointed out that the assessee had already deposited advance income tax on the assessed income, even after the addition. The assessment order granted the assessee a refund of ₹1.88 crores, indicating no malintent in underreporting income under Section 270A of the Act. The penalty was levied solely on the grounds that the assessee did not file a revised return under Section 139(4) of the Income Tax Act. Bindal supported the First Appellate Authority’s decision to delete the penalty.
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The Tribunal, comprising Judicial Member Kul Bharat and Accountant Member Brajesh Kumar Singh, reviewed the case. The bench noted that the difference between the assessed and returned income was due to a bona fide clerical error in recording the WDV.
They observed that the First Appellate Authority had thoroughly discussed the issue in the impugned order and had relied on the decision of the Jurisdictional High Court in the case of Prem Brothers Infrastructure LLP vs. NFAC to justify the deletion of the penalty. The bench concluded that “to err is human” and that a bona fide error should not be the basis for imposing a penalty. Given the specific facts of the case, the Tribunal affirmed the decision of the First Appellate Authority to delete the penalty, and the evenue’s grounds for appeal were dismissed.
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