Mere making of Incorrect Claim does not Tantamount to furnishing of inaccurate particular: ITAT deletes Penalty u/s 27(1)(c) of Income Tax Act [Read Order]

In a recent decision the Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that the mere making of an incorrect claim does not tantamount to furnishing of inaccurate particular, leading to the deletion of penalty under Section 27(1)(c) of the Income Tax Act, 1961

An assessment was conducted on a company operating in the call center industry, which had reported a total loss of Rs. 21,07,072/- in its income tax return filed on 29.09.2015. The scrutiny, initiated under the Computer Assisted Scrutiny Selection ( CASS ), aimed to investigate various discrepancies including high refund-to-TDS ratio, certificates under section 197 indicating 'nil' or lower TDS deductions, claims of depreciation at inflated rates, low income reported by significant contractors, inconsistencies in sales turnover between audit reports and income tax returns, and discrepancies in payments to related parties under Section 40A(2)(b) ) of the Income Tax Act, 1961.

The assessing officer ( A.O. ) determined the total loss to be Rs. (-)10,07,990/- in an order dated 06.12.2017, after disallowing an amount for lease equalization due to the assessee's accounting error in rent calculation. The A.O. noted that the assessee incorrectly applied the straight-line method for rent accounting, instead of adjusting for yearly rent increases as specified in the rent agreements. Consequently, a disallowance of Rs. 2,97,436/- was made by the assessee, contrary to the correct amount of Rs. 13,96,517/-. Additionally, the A.O. initiated penalty proceedings against the company for providing inaccurate income particulars. Hence penalty  was imposed under Section 271(1)(c) of the Income Tax Act, 1961

The counsel  for the assessee Vijaykumar S. Biyani argued that the discrepancy in rent accounting arose inadvertently due to the method used by the assessee for premises leased long-term, which included a clause for periodic rent increases. The rent was accounted for using the straight-line method, whereas the rent agreements stipulated yearly increments. The counsel asserted that the difference in lease equalization, amounting to Rs.2,97,436/- instead of Rs.13,96,517/-, was not a deliberate act but an oversight.

Furthermore, the counsel highlighted that the assessee had voluntarily requested a revision of the computation during the assessment proceedings, acknowledging the bona fide mistake. Citing legal precedents, the counsel referenced the judgment of the Supreme Court in CIT vs. Reliance Petro Products Pvt. Ltd. and the decision of the Bombay High Court in CIT vs. Somany Evergreen Knits Ltd. to support the contention.

The counsel for the revenue P. D. Choughule presented a contrasting view, disputing the facts put forward. In addition argued that the assessee deliberately concealed the actual disallowance and only disclosed the discrepancy during the assessment proceedings. Referring to legal precedent, the counsel cited the decision of the Kerala High Court in CIT vs. Sreenivasa Pai, which held that any amount added or disallowed in computing total income is considered income and could constitute concealment.

The bench noted that the assessee inadvertently disallowed a lesser amount of Rs.2,97,436/- instead of Rs.13,96,517/-, representing the difference in lease equalization. The assessee maintains that this discrepancy arose due to mistakenly accounting for rent using the straight-line method, whereas the rent agreements stipulated yearly rent increases. The assessee asserts that this was an inadvertent and bona fide error, with no intention to conceal

The two member bench of the tribunal comprising S.Rifafur Rahman ( Accountant member) and Kavitha Rajagopal ( Judicial member)  found no justification in the penalty levied by the lower authorities considering the factual aspect of the present case and,

Therefore, the bench further deemed it fit to direct the A.O. to delete the impugned penalty levied. Hence, the grounds raised by the assessee are allowed.

To Read the full text of the Order CLICK HERE

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