Section 271(1)(c) – Penalty imposed on account of omission to offer correct income and the wrongful deduction deleted on the ground that auditors also failed to report.

9.  Wadhwa Estate &
Developers India Pvt. Ltd. vs.  Asstt.
Commissioner of Income Tax (Mumbai)

Members: Saktijit Dey (J. M.) and Rajesh Kumar (A. M.)

ITA no.: 2158/Mum./2016

A.Y.: 2011–12. Date of Order: 24^th February, 2017

Counsel for Assessee / Revenue:  Jitendra Jain /  Pooja Swaroop

FACTS

In respect of the year under appeal, the assessee had filed
return of income declaring loss of Rs. 2.49 lakh. On the basis of AIR
information available on record, the AO found mismatch in the interest income
as per books of account and as per Form–26AS. The assessee submitted that due
to over sight the assessee had offered interest income on fixed deposit at Rs.
18.90 lakh (on the basis of audited accounts) as against actual interest
received of Rs. 24.83 lakh. Further, the AO noticed that the assessee had
debited the sum of Rs. 1.82 lakh on account of fixed asset written–off. Since
the same was of capital in nature, it was disallowed u/s. 37(1) of the Act. The
assessee accepted the aforesaid decision of the AO and did not contest the
additions. On the basis of these two additions, the AO initiated proceedings
for imposition of penalty u/s. 271(1)(c). Rejecting the explanation of the
assessee, the AO imposed the penalty which was confirmed by the CIT(A). 

Before the Tribunal, the assessee contended that the lapse
was due to oversight on the part of the accountant.  It was also submitted that, though the
assessee’s accounts were subjected to tax audit as well as statutory audit, the
mistake was not pointed out by either of the auditors. Further, it was pointed
out that the AO, in the order passed, had not recorded his satisfaction whether
the assessee had concealed the particulars of its income or had furnished
inaccurate particulars of income. Also, in the notice issued u/s. 274 r/w
271(1)(c), the AO had not specified which limb of section 271(1)(c) was attracted
by striking–off one of them.

HELD

According to the Tribunal, the assessee’s explanation that
non–disclosure of two items of income was on account of omission due to
oversight was believable since the auditors had also failed to detect such
omission in their audit reports. 
Therefore, relying on the ratio laid down by the Supreme Court in Price
Water House Coopers Pvt. Ltd. vs. CIT (348 ITR 306), it was held that
imposition of penalty u/s. 271(1)(c) was not justified.

The Tribunal also agreed
with the assessee that neither the assessment order nor the notice issued u/s.
274 indicated the exact charge on the basis of which the AO intended to impose
penalty u/s. 271(1)(c). Therefore, in the light of the principles laid down by
the Supreme Court in Dilip N. Shroff vs. JCIT (291 ITR 519), the
Tribunal held that the AO having failed to record his satisfaction, while
initiating proceedings for imposition of penalty u/s. 271(1)(c) as to which
limb of the provisions of section 271(1)(c) is attracted, the order imposing
penalty was invalid.