The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has recently, while deleting the penalty u/s 271(1)(c) in an appeal filed before it, held that omission of income due to human error committed by accountant, is not “willful attempt to conceal income.”
The aforesaid observation was made by the Ahmedabad ITAT, when an appeal was preferred before it by the assessee, as against the order of the Commissioner of Income Tax (Appeals), Ahmedabad, dated 27/02/2018, arising in the matter of penalty order passed under s. 271(1)(c) of the Income Tax Act, 1961, relevant to the Assessment Year 2015-16.
The only issue raised by the assessee being that the CIT(A) has erred in confirming the levy of penalty under section 271(1)(c) of the Income Tax Act, the facts in brief pertaining to the issue were that the assessee was an individual engaged in the profession of advocacy, who was practicing in the Supreme as well as various other courts of India.
It so happened that in the return filed under section 139 of the Income Tax Act for the year, the assesse declared income at Rs. 4,03,78,080/- under the head income from profession, STCG and other income, and the case of assessee was selected under limited scrutiny under section 143(2) of the Income Tax Act. And, during the assessment, the assessee vide letter dated 18-08-2017, submitted that due to oversight by the accountant, an amount of Rs. 5 lakhs being professional receipt form M/s Health Secure (India) Pvt. Ltd, was not included in income but that the credit of TDS on the same was claimed.
The mistake being identified while preparing the data for assessment, on realization of mistake, the assessee immediately deposited the due taxes, and the AO accordingly completed the assessment, after making an addition of Rs. 5 lakhs as mentioned above. However, the AO also initiated penalty proceedings under section 271(1)(c) of the Income Tax Act, for furnishing inaccurate particular of income.
The assessee during the penalty proceedings submitted that there was
bona-fide mistake committed by his accountant, that on realization of the said mistake he had deposited the due tax amount on such receipt, and hence that there was no concealment of income or furnishing of inaccurate particular of income which was done with deliberate, wilful or malafide intention. The assessee also contended that he has shown/ declared such huge income for Rs. 4,03,78,080/, and therefore that there was no reason to evade taxes on such small receipt of Rs. 5 Lakhs.
The assessee in support of his contention, that his accountant Shri Yogesh M shah committed error due to oversight, thereby filed the affidavit of his accountant. And, accordingly, it was contended that in such facts & circumstances, the penalty under the provision of section 271(1)(c) of the Act should not be levied.
However, the AO, having found that the assessee had offered the undisclosed income only after once it was detected by the department, he was of the opinion that it was the duty of the assessee to disclose true income, and further that assessee did not disclose the income on account of impugned professional receipt but claimed the credit of tax deducted by the payee.
The AO also found that the assessee emphasized on mens rea, however that, the element of means rea has been done away by inserting the explanation to the provision of section 271(1)(c) of the Income Tax Act, as the explanation to section 271(1)(c) provides that, any addition made to the total income shall be deemed as concealment of income unless the assessee furnishes explanation and proves that such explanation is bona fide.
However, the assessee having failed to substantiate the explanation furnished by him and to prove such explanation to be bona-fide, the AO in holding so, referred the CBDT circular no. 486 dated 23-09-1986 and several judicial pronouncements. And, accordingly, he levied the penalty of Rs. 1,54,500/- being 100% of tax sought to be evaded.
On appeal by the assessee, the CIT (A) also confirmed the levy of penalty imposed by the AO, and it is being aggrieved by the order of the AO, that the assessee is presently in appeal before the Ahmedabad ITAT.
Hearing the opposing contentions of either sides as submitted by Shri S.N. Soparkar, Sr. Advocate with Shri Parin Shah, the A.R, on behalf of the assessee, and by Shri Purushottam Kumar, the Sr. D.R, on behalf of the revenue, as well as by perusing the materials available on record, the Ahmedabad ITAT observed:
“I have heard the rival contentions of both the parties and perused the
materials available on record. Admittedly, the assessee not offered income on professional receipt of Rs. 5 lakhs in the original return filed under section 139 of the Act. The income was offered during the assessment proceedings by filing a letter in response to notice issued under section 142(1) of the Act and assessment was accordingly completed by the AO after making addition of impugned amount. Subsequently, the AO initiated penalty proceedings under section 271(1)(c) of the Act for furnishing inaccurate particulars income and finally levied the penalty which was also confirmed by the learned CIT(A).”
“It is a settled position of law that the penalty proceedings are different from assessment proceedings. In the penalty proceeding, the burden lies on the revenue to prove that the assessee has concealed income or furnished inaccurate particular of income. In holding so, I find support and guidance from the judgment of Hon’ble Madhya Pradesh High Court in case of CIT vs. Suresh Chandra Mittal. On further appeal by the department, the Hon’ble supreme court also confirmed the finding of the Hon’ble High court which is reported in 251 ITR 9.”, the ITAT further added.
“Coming to the case on hand, it is undisputed fact that assessee deposited
tax on impugned professional receipt of Rs. 5 Lakh dated 17-08-2017 i.e., after issuance of notice under section 142(1) of the Act dated 09-06-2017 where explanation with regard to difference in the amount of professional income declared viz-a-viz income reported in Form-26AS was sought. The assessee in reply explained that the amount was omitted to be included in the computation of income by the accountant due to oversight. However, such human error was rectified on realization of mistake by depositing due taxes. The explanation of the assessee was nowhere found to be incorrect by the AO. The AO also has not brought any evidences on record that the assessee willfully not offered the income from impugned professional receipt of Rs. 5 Lakh. At this point it is also important to highlight that during the year the assessee has offered taxable income of Rs. 4,03,78,080/- on account of professional receipt, STCG and other receipts. Thus, considering the same, we find force in the contention of the assessee that the impugned receipt of Rs 5 lakh was omitted due to oversight without being any mala fide intention.”, the ITAT Panel comprising of Waseem Ahmed, the Accountant Member added.
“Therefore, in this fact and circumstances, it cannot be held that the assessee has concealed or furnished inaccurate particulars of his income and liable to penalty under section 271(1)(c) of the Act. In holding so, I also fine support and guidance from the judgment of Hon’ble Gujarat High Court in case of PCIT vs. Gujarat State Electricity Corporation Ltd. reported in 144 taxmann.com 165 where the Hon’ble court held that in no penalty can be imposed where the assessee made bona fide mistake and corrected the same on realization of mistake.”, he further noted
Thus, allowing the assessee’s appeal the Ahmedabad ITAT held:
“In view of the above and considering the facts in totality, I find that there was human error committed by the accountant of the assessee due to which impugned professional receipt of Rs. 5 lakhs omitted to be included in the total income. Thus, there was no willful attempt from the assessee to conceal his income. The explanation furnished by the assessee in this regard is bona fide and duly substantiated by the affidavit of the accountant. Therefore, I hereby set aside the finding of the learned CIT(A) and direct the AO to delete the penalty imposed by him. Hence the ground of appeal of the assessee is hereby allowed.”
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