Section 271(1)(c) – Penalty – Filing inaccurate particulars of income – Revised income filed voluntarily – before detection – Reason stated: accountant error – Human error – Bona fide mistake – penalty not leviable

8

Pr. CIT-18 vs. Padmini Trust [ITA No.
424 of 2017; (Bombay High Court) Dated 30^th April, 2019]

[Padmini Trust vs.
ITO-14(1)(4); Bench: C; Mum TAT ITA No. 5188/Mum/2013]

Dated 28^th
January, 2016;

A.Y. 2009-10.

Section
271(1)(c) – Penalty – Filing inaccurate particulars of income – Revised income
filed voluntarily – before detection – Reason stated: accountant error –  Human error – Bona fide mistake –
penalty not leviable

The assessee
is a Trust. The assessee had filed a return of income for the A.Y. 2009-10. The
return was taken for scrutiny by the A.O. by issuing notice of scrutiny
assessment on 27.09.2010. When the assessment proceedings were pending, the
assessee tried to rectify the return by making a declaration and enlarging
certain liability. Commensurate additional income tax of Rs. 99,05,738 was also
paid on 26.09.2011. This was conveyed to the A.O. by letter dated 15.11.2011.
While completing the assessment, the A.O. held that the revised return was not
acceptable since it was filed after the last day for filing such a revised
return. He, however, made no further additions over and above the declaration
made by the assessee in the return. On the ground that the assessee had not
disclosed the income in the original return, he initiated the penalty
proceedings. He imposed a penalty which was confirmed by the CIT(A).

Being
aggrieved with the CIT(A) order, the assessee filed an appeal to the ITAT. The
Tribunal held that there is wrong categorisation of capital gains and loss and
the same are evident from the papers filed. It is a case of wrong
categorisation of the income under the wrong head. The revised computation of
income basically corrects the mistake in such wrong categorisation. It is a
case where the assessee paid taxes on the extra income computed by virtue of
the revised computation along with the statutory interest u/s. 234A, 234B and
234C as the case may be. It is a settled issue that penalty cannot be excisable
in a case where the income was disclosed but under the wrong head of income.
Accordingly, levy of penalty u/s. 271(1)(c) of the Act was deleted.

The Revenue was aggrieved with the ITAT order and
hence filed an appeal to the High Court. The Revenue submitted that the
assessee had filed a false declaration in the original return. But after the
return was taken in scrutiny, he attempted to revise the return. Such attempt
would not give immunity to the assessee from the penalty. The counsel relied on
the decision of the Supreme Court in the case of Union of India and Ors.
vs. Dharmendra Textiles Processors and Ors. (2008) 306 ITR 277 (SC) to
contend that mens rea is not necessary for imposition of the penalty and
the penalty is a civil consequence. He also relied on the decision of the Delhi
High Court in the case of CIT vs. Zoom Communication (P) Limited (2010)
327 ITR 510 (Delhi) in which, highlighting the fact that very few
returns filed by assessees are taken in scrutiny, the Court held that merely
because the assessee had later on surrendered the income to tax would not mean
that the penalty should not be initiated, failing which the deterrent effect of
the penalty would disappear.

The assessee opposed the appeal contending that
there was a bona fide error in claiming short-term capital gain as
dividend income. This error was committed by the accountant of the assessee.
All such errors were corrected, whether the returns were taken in scrutiny or
not, demonstrating bona fide on the part of the assessee. He pointed out
that the tax on the additional income was paid even before the A.O. issued
specific queries in relation to the return filed. He relied on the decision of
the Supreme Court in the case of Price Waterhouse Coopers (P) Ltd. vs.
CIT, Kolkata to contend that mere bona fide error in claiming
reduced tax liability would not give rise to penalty proceedings.

The Court agreed with the submission of Revenue
that once the assessee is served with a notice of scrutiny assessment,
corrections to the declaration of his income would not grant immunity from
penalty. Especially in a case where the assessee during such scrutiny
assessment is confronted with a legally unsustainable claim which he thereafter
forgoes, may not be a ground to delete penalty. However, in the present case
the facts are glaring. The assessee made a fresh declaration of revised income
voluntarily before he was confronted with the incorrect claim. The assessee had
blamed the accountant for an error in filing the return. An affidavit of the accountant
was also filed. As stated by the counsel, such error was committed by other
group assessees also. Some of them corrected the error even before the scrutiny
notices. In view of such facts, the Court agreed with the conclusion of the
Tribunal that the original declaration of income suffered from a bona fide
unintended error. The Income-tax appeal was dismissed.