271(1)(c) Penalty cannot be levied in case of Bonafide Mistake without intention to evade tax

It has been held by the Honorable ITAT Pune in the case of Amruta Organics Pvt. Ltd. Vs DCIT that penalty u/s 271(1)(c) cannot be levied where there is a bonafide mistake made by the assessee without any intention to evade tax. In this case the company was already showing losses for the previous years and years before that. The assessee has incorrectly claimed depreciation which was disallowed by the AO and penalty u/s 2871(1)(c) for concealment was levied which was upheld by the Ld. CIT(A). The assessee’s income even after such disallowance resulted in loss. Therefore, there was no intention of the assessee to conceal income to evade taxes and the excess claim of depreciation was a mistake and not a concealment. The Honorable ITAT therefore set aside the order of Ld. CIT(A) to impose penalty u/s 271(1)(c) and held the appeal in favor of the assessee.

The text of the judgement is given below for your reference:

Before Shri Shailendra Kumar Yadav, Judicial Member,
and Shri G.S.Pannu, Accountant Member.
(Asstt. Year : 2007-08)
Amruta Organics Pvt. Ltd.,
B-24, Stice Ltd.,
Nashik. .. Appellant
DCIT, Circle-1,
Nashik. .. Respondent
Assessee by : Shri M.K.Kulkarni
Department by : Ms.Ann Kapthuama
Date of Hearing : 21.03.2013
Date of Pronouncement : 22.03.2013

This appeal by the assessee is directed against the order of the CIT(A) dated 23.06.2011 and arises from an order passed by the Assessing Officer dated 22.06.2010 levying penalty u/s.271(1)(c) of the Income Tax Act, 1961 (in short ‘the Act’) amounting to Rs.64,320/- in relation to the A.Y. 2007-08.

2. The CIT(A) has since upheld the penalty levied by the Assessing Officer and thus the appeal of the assessee before the Tribunal.

3. In brief, the facts are that the appellant is engaged in the business of manufacturing of Para Cresyl Phenly Accetate, a chemical product. The return of income for the A.Y. 2007-08 was filed declaring a loss of Rs.16,99,348/- which was subject to a scrutiny assessment u/s.143(3) of the Act dated 14.12.2009 whereby the total loss was determined at Rs.10,44,425/-. Subsequently, the Assessing Officer has held the assessee guilty of furnishing inaccurate particulars of income within the meaning of section 271(1)(c) of the Act with respect to the amount of Rs.1,91,085/- disallowed on account of a wrong claim of depreciation. Accordingly, a penalty equivalent to 100% of tax sought to be evaded on such income was levied amounting to Rs.64,320/-. The CIT(A) has also upheld the levy, against which assessee is in appeal before us.

4. The plea of the assessee is that the wrong claim of depreciation was made without any intention of concealment. It was submitted that the Directors of the assessee company are technical persons not knowing the intricate provisions of the Act but are dependent on the advice of professionals for preparing income tax returns. As per the assessee, it was a mistake which was bonafidely made with no intention to evade taxes.

5. On the other hand, the Ld. DR appearing for the Revenue pointed out that the depreciation claimed was clearly a wrong, and therefore, the penalty has been rightly imposed in the present case.

6. Having considered the rival submissions, we find that the mere mistake in making of a claim in the return of income would not ipso facto reflect concealment or furnishing of inaccurate particulars of income in terms of section 271(1)(c) of the Act. The wrong claim of depreciation in the present case cannot be said to be made with an intention to evade taxes in as much as even after the disallowance of depreciation, the resultant income of the assessee remains a loss. In fact, the assessee had pointed out before theAssessing Officer that it has been incurring losses since the year 2003 due to the market forces. Considering the entirety of the circumstances, in our view, the impugned disallowance on account of depreciation is a mistake, and does not invite the provisions of section 271(1)(c) of the Act. 7. In the result we set aside the order of the CIT(A) and direct the Assessing Officer to delete the penalty imposed u/s.271(1)(c) amounting to Rs.64,32/-. 8. In the result, the appeal of the assessee is allowed. Pronounced in the open court on this the 22nd day of March, 2013.

Sd/-                                                           Sd/-
Pune, dated the 22nd March, 2013


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One Comment

  1. My assessment for 2010-11 was reopen in relation with search at some other party and the AO passed the order u/s 143(3) r.w.s. 147 , is it correct ? or the AO should pass order u/s 153 , please share your views with same case example.

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