ASHWIN VAGHASIA,SURAT vs. INCOME TAX OFFICER, WARD -3(1)(1), SURAT

The solitary grievance of the assessee in this appeal is that learned CIT(Appeals) has erred in confirming the action of assessing officer in levying penalty of Rs.4,07,023/- under section 271(1) (c ) of the Income Tax Act, 1961.

On verification of the reply of the assessee, it was observed by the assessing officer that assessee has given incorrect and false information, as such the action of the assessee is nothing but a feigned story to maneuver the revenue by furnishing illogical and incorrect information and therefore such difference of opening capital of Rs. 4,68,322/- ( Rs. 25,85,939- Rs. 21,17,617) was added to the total income of the assessee. The assessing officer also initiated penalty proceedings under section 271(1) (c ) of the Act on account of furnishing the inaccurate particulars of income.

During the penalty proceedings, the assessing officer observed that assessee has not submitted any proper explanation. The assessing officer also noted that during the course of assessment proceedings, assessee has not submitted any written submission, with respect to addition of Rs.4,68,322/-,(Rs. 25,85,939- Rs. 21,17,617) being difference in opening capital. Therefore, assessing officer was

Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the CIT(A) who has confirmed the penalty imposed by the Assessing Officer.

Shri Mehul Shah, Learned Counsel for the assessee, relied on the submissions made before the learned CIT(A) during the appellate proceedings.

On the other hand, Learned DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer in the penalty proceedings, which we have already noted in our earlier para, therefore the same is not being repeated for the sake of brevity.

We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. The contention of ld Counsel is that difference in opening balance of capital account is added by the assessing officer, because of agricultural income of assessment year 2005-06, which was not taken into capital account. That is, difference in opening balance of capital account has arisen mainly on the reason that agricultural income of assessment year 2005- 06, by mistake, was not taken into capital account, by the assessee, which is an unintentional mistake. We note that difference in closing capital of Rs. 4,68,322/-, pertaining to Financial Year 2004-05 of Rs. 21,17,617/- and Opening capital of Financial Year 2005-06 of 25,85,939/-, is on account of the reason that while finalising the capital account of earlier year, the assessee forgot to incorporate the earlier year's net agriculture income of Rs. 4,68,322/- in the capital account due to inadvertent mistake for the reason that the said income was not liable to tax under the Act.

We note that assessee is an individual and deriving income from Salary, House property and other sources and hence as per Income Tax Act, 1961, assessee is not liable to maintain any books of accounts under section 44AA of the Act. Thus, the books of accounts are only voluntarily maintained by the assessee and the assessee does not have any business income. Apart from salary, the only source of income of the assessee is agriculture income. Further Assessing Officer has not brought anything on record to prove that the difference in capital account represents any unaccounted investment or any unaccounted taxable income. Further, this is not the case where assessee has concealed any particulars of income because the capital account from the books of accounts maintained voluntarily was furnished to the Assessing Officer, though the assessee was not liable to maintain any books of accounts under Income Tax Act, 1961. Further the difference is also explained to the Assessing Officer which is a bonafide explanation by the assessee. Just because assessee has committed an inadvertent and bona fide error, does not mean that penalty should be imposed on him.

We must hasten to add here that in assessee`s case, there is no finding that any details supplied by the assessee in its Return of income were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c) of the Act. Thus, making unintended mistake in the capital account does not mean that assessee has concealed the particulars of income or furnished inaccurate particulars of income. We are very much conscious of Hon'ble Apex Court’s landmark decision in case of Price

Considering the peculiar facts of the assessee`s case, as narrated above, the imposition of penalty on the assessee is not justified. The assessee had committed an inadvertent and bona fide error and had not intended to or attempted to either conceal its income or furnish inaccurate particulars of income. Therefore, we are of the view that in the assessee’s case the imposition of penalty is not justified and therefore, we delete the penalty of Rs. Rs.4,07,023/-.

Before parting, we would like to clarify the mistake committed by the assessing officer while imposing penalty under section 271(1) (c ) of the Act. The Assessing Officer has erred in calculating penalty of Rs. 4,07,023/- on the total addition of Rs. 4,68,322/-. Even, if maximum marginal rate is considered, the penalty shall be Rs.1,12,053/-. The ld Counsel submits before us that computation of penalty made by the AO at Rs.4,07,023/- is not correct and he has submitted before us computation of penalty under section 271(1)(c) of the Act, which is placed at paper book page no.14 and the same is reproduced below:

The judicial propriety and fairness demands that assessee`s facts should be considered in right perspective. Therefore, we note that instead of penalty amount to the tune of Rs.4,07,023/- the penalty under section 271(1)(c) of the Act should be Rs.1,12,053/-. Since, we have deleted the entire penalty imposed by the Assessing Officer, therefore, the error so committed by the Assessing Officer in computing the penalty under section 271(1)(c) of the Act does not have any impact on our instant adjudication. This is only a passing reference, just to highlight the mistake committed by the assessing officer.