Assessee Appeals and Succeeds: Penalty Revoked for Inadvertent Errors in Income Tax Assessment

• The recent appeal lodged by the assessee challenges the order dated 31/07/2023, issued under section 250 of the Income Tax Act, 1961, by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi. This order stems from the assessment year 2011–12 and arose from a prior order passed under section 271(1)(c) of the Act.

• In the appeal, the assessee contests the levy of a penalty amounting to Rs. 17,81,066 under section 271(1)(c) of the Income Tax Act. The grounds raised primarily highlight discrepancies in the computation of income and seek the cancellation of the penalty.

• The crux of the case lies in the assessment proceedings where the Assessing Officer (AO) identified certain irregularities in the assessee's profit and loss account. Notably, the assessee had debited amounts towards donation and charity, as well as losses on the sale of assets, without including them in the computation of income. Subsequently, the AO made additions to the total income after disallowing these amounts.

• Penalty proceedings were initiated concurrently, and a penalty of Rs. 17,81,066 was levied by the AO under section 271(1)(c) of the Act. The AO justified the penalty on the grounds that these discrepancies would not have come to light had the case not been selected for scrutiny.

• However, upon appeal, the learned Commissioner of Income Tax (Appeals) upheld the penalty, emphasizing that the issues were identified during the assessment proceedings and thus did not constitute bona fide mistakes.

• The appellate authority, after considering submissions from both sides and examining the evidence, reached a different conclusion. It noted that the assessee acknowledged the errors pointed out during the scrutiny proceedings and promptly rectified them by filing revised computations of income. Moreover, the assessee paid the differential tax amount without contesting the additions made by the AO.

• The appellate authority also highlighted the inadvertent nature of the mistakes, supported by the fact that the donation was disclosed in the Tax Audit Report, yet the deduction under section 80G of the Act was not claimed. This aligns with the precedent set forth by the Hon’ble Supreme Court in Price Waterhouse Coopers (P.) Ltd. v/s CIT, [2012] 348 ITR 306 (SC).

• In light of these findings, the appellate authority concluded that the levy of penalty under section 271(1)(c) of the Act was unwarranted. It deemed the mistakes made by the assessee as bona fide errors, which were promptly rectified during the assessment proceedings.

• Consequently, the appellate authority allowed the assessee's appeal and directed the AO to delete the penalty. Additionally, as the relief was granted on merits, any additional grounds raised by the assessee were kept open for further consideration.

• In summary, the recent appeal underscores the importance of diligently rectifying inadvertent errors during assessment proceedings and highlights the necessity for a fair assessment of penalties under the Income Tax Act, 1961.

Topic- Meyer Organics Pvt. Ltd. Versus Deputy Commissioner of Income Tax

Court-ITAT-Mumbai

Date-12/02/2024

Team Taxonation

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