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Facts
The assessee filed its return of income for AY 2015-16 declaring NIL income and a loss. The Assessing Officer (AO) completed the assessment making certain disallowances. Subsequently, penalty proceedings were initiated under Section 271(1)(c) of the Income Tax Act, 1961.
Held
The Tribunal held that the assessee's claim, which was not sustainable in law, did not amount to furnishing inaccurate particulars. The Tribunal also condoned the delay in filing the appeal before the CIT(A) and set aside the penalty order.
Key Issues
Whether the levy of penalty under Section 271(1)(c) is sustainable when the assessee suo motu accepted disallowances due to inadvertent mistakes and there was no mens rea or intention to evade tax?
Sections Cited
271(1)(c), 274, 143(3), 14A, 270(1)(c), 254(1)
AI-generated summary — verify with the full judgment below
Order under section 254(1) of Income Tax Act PER ARUN KHODPIA, ACCOUNTANT MEMBER: The captioned appeal is filed by the assessee against the orders of CIT(A)/NFAC – 47, Mumbai dated 27.05.2025 for the Assessment Year 2015-16, which in term arises from the order u/s 270(1) (c) of the Income Tax Act, 1961 (in short ‘the Act’) dated 23.03.2022, passed by DCIT, Centre Circle - 1(4), Mumbai (in short ‘the Ld. CIT(A)’). The grounds of the appeal raised by the assessee are reads as under: “The following grounds of appeal are without prejudice to one another: -
1. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals) 47, Mumbai Conwood Construction and Developers P. Ltd. erred in confirming penalty of Rs 4,00,000/- levied by the Assessing Officer u/s 271(1)(c) of the Income Tax Act, 1961 on 23.03.2022, despite the fact that the appellant has neither furnished inaccurate particulars of its income nor concealed its particulars of income.
2. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals) - 47, Mumbai ought to have condoned the delay in filing appeal in the interest of justice and ought to have proceeded to adjudicate the matter on merits and therefore, failure to do so has rendered the impugned appellate order unjust, in gross violation to the principles of natural justice, and bad-in-law.
3. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals), erred in confirming levy of penalty despite the fact that the Assessing Officer failed to arrive at satisfaction during the course of assessment proceedings whether the levy of penalty u/s 271(1)(c) was for furnishing inaccurate particulars of income or for concealment of income, which constitutes the basis and foundation of the proceedings for levy of penalty, thereby making the notice dated 19.12.2017 levying penalty u/s 274 r.w.s 271 of the Income Tax Act, 1961 not in accordance with the provisions of law and without application of mind on the part of the assessing officer and penalty proceedings ought to be unstainable, illegal, invalid, bad-in-law, incorrect and in gross violation of principles of natural justice.
4. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals), erred in confirming levy of penalty disregarding the well settled position in law including by the judgement of Hon'ble Supreme Court of India in the matter of Principal Commissioner of Income-tax v. Unitech Reliable Projects (P.) Ltd. [2024] 166 taxmann.com 135 2 Conwood Construction and Developers P. Ltd. (SC)[14-08-2024] wherein the Tribunal, having found that notice issued under section 274 did not specify as to limb under which penalty was sought to be imposed, i.e., notice did not indicate as to whether penalty was to be levied on account of concealment of income or for reason that assessee had furnished inaccurate particulars quashed the penalty proceedings and High Court, on appeal, concluded that no substantial question of law arose for consideration as it was necessary for the Assessing Officer to indicate broadly as to limb under which penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961 against assessee were triggered and the Special Leave Petition filed against the said order of High Court was dismissed.
5. On the facts and in the circumstances of the appellant company's case and in law, the ld. Commissioner of Income Tax (Appeals), failed to consider the fact there was no mens rea or intention of the appellant to evade tax as during the course of assessment proceedings, the appellant company vide letter dated 03.11.2017 had suo-moto brought to the notice of the Assessing Officer to disallow certain provisions which had remained to be disallowed due to inadvertent and bonafide mistake on the part of the company and thereafter, noticing the same, the appellant itself offered the same for disallowance during the assessment proceedings. Reliance is placed on the decision of the Hon'ble Jurisdictional High Court in case of CIT vs. Dalmia Dyechem Industries in and in the case of Commissioner of Income-tax - I, Mumbai v. Somany Evergreen Knits Ltd [2013] IT Appeal No. 1332 of 2011(Bombay).
The appellant craves leave to add to, alter, amend, modify and/or delete all or any of the foregoing grounds of appeal
. The appellant prays before the Hon'ble Tribunal to delete the penalty levied by the Ld. Assessing Officer
3. Conwood Construction and Developers P. Ltd. and confirmed by the Ld. Commissioner of Income Tax (Appeals) and / or any other relief as the Hon'ble Tribunal may deem fit.”
2. The brief facts of the case are that the assessee has engaged in the business of construction and development of real estate projects. The assessee has e-filed its return of income for A.Y. 2015-16 on 29.09.2015 declaring total income at Rs. NIL and had claiming a loss of Rs. 1,17,48,709/-. The scrutiny assessment was completed u/s. 143(3) of the Act on 19.12.2017 making certain disallowances on account of (i) provision made for diminution of investment, (ii) disallowances of donation, (iii) disallowances of provision for gratuity and (iv) disallowances u/s 14A of the Act. The assessment came to be completed with total disallowance or addition of Rs. 1,01,99,488/-. Further the book profit of the assessee company was computed at Rs. 1,74,73,374/-. Subsequently the penalty proceedings u/s 271(1) (c) of the Act were initiated on the assessee qua the first three issues of disallowances except disallowance u/s 14A. During the penalty proceedings, it is observed by the Ld. AO that the assessee company had requested the assessing officer to make disallowances in respect of inadvertence of provision and have accepted the view of assessing officer to disallowed the said provision which are only effected due to inadvertent and bonafide mistake on the part of the assessee. After considering the assessee’s submission made before the Ld. AO, he did not find the same acceptable and accordingly had imposed the penalty u/s. 271(1) (c) of the Act on account of furnishing of inaccurate particulars of income to the tune of Rs. 12,63,882/-, falls within
3. Aggrieved with the aforesaid penalty order the assessee preferred the appeal before the first appellate authority, however Ld. CIT(A) dismissed the appeal of the assessee being barred by limitation without dealing with the merits of the case, treating the same as not maintainable.
4. Dissatisfied with the order of the first appellate authority assessee preferred an appeal before us, which is under consideration in the present matter.
5. At the outset Ld. AR representing the assessee submitted that provision made by assessee and claimed as expense to reduce the assessable Income were proposed to disallow by the Ld. AO during the assessment proceeding, which has been accepted by the assessee stating that the same was due to inadvertent mistake on its part. Therefore, the allegation in penalty order that the assessee had furnished inaccurate particulars was a wrong finding and accordingly the penalty imposed on the 271(1) (c) of the Act was under misinterpretation of law, illegal and bad in law. It is also submitted by the Ld.AR that the assessee had accepted the mistake and offered the income during the assessment proceeding itself, so no penalty u/s 271(1) (c) of the Act can be levied. It is further argued that the ld. CIT(A), failed to consider the fact there was no mens rea or intention of the appellant to evade tax as during the course of Conwood Construction and Developers P. Ltd. assessment proceedings, the appellant company vide letter dated 03.11.2017 had suo-moto brought to the notice of the Assessing Officer to disallow certain provisions which had remained to be disallowed due to inadvertent and bonafide mistake on the part of the company and thereafter, noticing the same, the appellant itself offered the same for disallowance during the assessment proceedings. Reliance is placed on the decision of the Hon'ble Jurisdictional High Court in case of CIT vs. Dalmia Dyechem Industries in and in the case of Commissioner of Income-tax - I, Mumbai v. Somany Evergreen Knits Ltd [2013] IT Appeal No. 1332 of 2011(Bombay).
6. Per contra Ld. Sr. DR representing the Revenue submitted that the assessee committed mistake in offering the income, if the Ld. AO during the assessment proceedings would have not pointed out the same, the assessee had not suo-moto offered such income for taxation. Therefore, there was intentional escapement by the assessee on account of inaccurate furnishing of information, which calls for the penalty u/s 271(1)(c) and thus was rightly levied. Ld. Sr. DR strongly supported the orders of Ld. AO and had requested the confirm the amount of penalty imposed by him.
7. We have considered the rival submission and perused the material available on record and have given a thoughtful consideration of the submission of both the parties. Firstly, we shall be dealing with the decision of Ld. CIT(A) in the impugned Conwood Construction and Developers P. Ltd. order, wherein the appeal of assessee is dismissed on account of delay in filing of appeal by 251 days. The assessee had responded before the first appellate authority with the reasons for delay stating that directors of the assessee company were out of station and after coming back to Mumbai have downloaded the copy of assessment order and forwarded the same to their counsel to file an appeal before Ld. CIT(A). Meanwhile the delay in filing of the appeal before the Ld. CIT(A) was occurred which was unintentional and due to reason beyond the control of the appellant. Ld. CIT(A) had not believed the claim of the assessee that the directors were out of station for more than 8 months and accordingly had rejected the appeal of the assessee, as not maintainable. Be that as it may following the settled judicial principle as there was no adjudication by the first appellate authority on merits also. As held by Hon’ble Apex Court that while dealing with the situation of delay in filing of appeal a liberal and justice-oriented approach should be adopted by the adjudicating authorities. Respectfully following the analogy drawn by Hon’ble Apex Court, we condone the delay in filing of appeal before the first appellate authority. However, we are not remitting the matter back to the file of the Ld. CIT(A) for fresh adjudication as the facts are amply clearly before us to decide the issue.
8. On the issue of self-acceptance and suo moto accepting the disallowances at assessment stage itself, we find substance in the contention raised by Ld. AR that there was no mens rea or intention of the assessee to evade the taxes, it was just a mistake Conwood Construction and Developers P. Ltd. due to inadvertence which is rectified by the assessee at assessment stage itself. That a mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars. In view of such observations, in the facts and circumstances of the present case, penalty u/s 271(1)(c) is uncalled for and does not hold good in the eyes of law.
9. We place reliance on the decision of CIT v. Reliance Petroproducts (P) Ltd. (2010) 322 ITR 158/36 DTR 449/189 Taxman 322/230 CTR 320 (2011) 220 Taxation 278 (SC), wherein the relevant part of the decision of Hon’ble Apex Court is culled out as under: “9. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as:- "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript". “We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return 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. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars. (Emphasis supplied by us) 11. In this behalf the observations of this Court made in Sree Krishna Electricals v. State of Tamil Nadu & Anr. [(2009) 23VST 249 (SC)] as regards the penalty are apposite. In the aforementioned decision which pertained to the penalty proceedings in Tamil Nadu General Sales Tax Act, the Court had found that the authorities below had found that there were some incorrect 8 Conwood Construction and Developers P. Ltd. statements made in the Return. However, the said transactions were reflected in the accounts of the assessee. This Court, therefore, observed: "So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's account books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside." The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its Return.”
10. Hon’ble Mumbai High Court also in a recent matter, while deciding a similar issue in the case of M/s. Carona Limited Vs. Deputy Commissioner of Income Tax and Anr vide Income Tax Appeal No. 512 OF 2003, dated 20th June, 2025, has held that the penalty cannot be levied if the essential ingredients of Sec 271(1)(c) of the Act are not met. Hon’ble Court had approved the findings of Ld. CIT(A), with following observations:
“We are in agreement with the above findings recorded by the CIT(A) as the case involves raising of a bonafide claim by the Assessee that the crystallised liability towards additional bonus could have been claimed as deduction during the relevant year. Whether such claim is tenable in law or not is an altogether different issue. However, by no stretch of imagination it can be held that the claim was raised with malafide intention of concealing the income.”
Following the principal laid down in the aforesaid decisions by Hon’ble Apex Court and Hon’ble Mumbai High Court, we are of the considered opinion that in present case the pre-conditions mandatory to apply the provisions of section 271(1)(c) are missing, as mere making an unsustainable claim cannot be treated as furnishing of inaccurate particulars, thus in the facts of present case, since there was no furnishing of inaccurate Conwood Construction and Developers P. Ltd. particulars by the assessee, the allegation which became the basis for levying of penalty by the Ld. AO found to be misconceived and unsustainable. Accordingly, we set aside the impugned order of Ld. CIT(A) and the penalty-imposed u/s 217(1)(c) vide order dated 23/03/2022 is directed to be deleted.
The appeal of assessee, therefore, stands allowed in terms of our aforesaid observations.
Order pronounced in open court on 25.09.2025.