J.M.C JEWELS,MUMBAI vs. WARD 23(2)(6), MUMBAI

This appeal by the assessee is directed against the order dated 05.01.2026 passed by the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [“the learned CIT(A)”], under section 250 of the Income-tax Act, 1961 [“the Act”], for the assessment year 2021–22, arising out of the penalty order dated 23.06.2023 passed under section 270A of the Act.

The assessee has raised the following grounds of appeal:

Briefly stated, the assessee is a partnership firm engaged in the business of trading in jewellery. It filed its return of income on 20.12.2021 declaring a business loss of ₹16,70,72,866. During scrutiny assessment, the Assessing Officer noticed that the audited Trading Account and Profit and Loss Account reflected business income of ₹1,03,538. The assessee furnished a computation accepting the said income. The assessment was completed under section 143(3) read with section 144B of the Act on 14.12.2022 determining the total income at ₹1,03,538 and denying carry forward of the returned loss. Treating the difference of ₹16,71,76,404 as under-reported income, the Assessing Officer thereafter levied penalty of ₹2,92,09,061 under section 270A of the Act.

Before the learned CIT(A), the assessee explained that, while uploading the return, the figures of opening stock, purchases, direct expenses and closing stock were inadvertently captured twice on account of a technical or system error. It was submitted that the audited accounts and the tax audit report correctly disclosed net profit of ₹1,03,538 and that the error was merely clerical. The learned CIT(A), however, held that the explanation was unsupported by contemporaneous or independent evidence, such as a system-generated error report or audit trail, and that 2 the correct income was accepted only after the case was selected for scrutiny. He therefore held that the case did not fall within section 270A(6) and confirmed the penalty.

Before us, the learned Authorised Representative reiterated that the loss arose only because the figures of opening stock, purchases, direct expenses and closing stock were punched twice while uploading the return. He submitted that the audited financial statements and the tax audit report, both available from the outset, correctly reflected income of ₹1,03,538. He further submitted that the alleged loss was not claimed or set off in the return for the subsequent assessment year. In support of the explanation, the assessee filed, as additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, an affidavit of the Chartered Accountant explaining the technical glitch/system error and the punching mistake. Reliance was placed on the judgment of the Hon’ble Supreme Court in Price Waterhouse Coopers (P.) Ltd. v. CIT, (2012) 348 ITR 306 (SC), for the proposition that an inadvertent and bona fide error, where the correct particulars were otherwise disclosed in the audit report, would not by itself justify penalty.

The learned Departmental Representative relied upon the orders of the authorities below. He submitted that the substantial loss was claimed in the return and that the correct income was accepted only when the discrepancy was noticed in scrutiny.

We have considered the rival submissions and perused the material placed before us. The learned CIT(A) rejected the assessee’s explanation principally for want of any contemporaneous or independent evidence supporting the alleged software or technical error. The affidavit of the Chartered Accountant now filed before us seeks to explain the precise manner in which the duplication occurred. Thus, the additional evidence 3 has a direct bearing on the reason for which the explanation was rejected by the learned CIT(A). In these circumstances, and in order to enable a proper adjudication of whether the explanation is bona fide within the meaning of section 270A(6)(a), we admit the affidavit as additional evidence under Rule 29. Its admission, however, does not amount to acceptance of the contents of the affidavit or of the assessee’s explanation on merits.

In Price Waterhouse Coopers (P.) Ltd. (supra), the Hon’ble Supreme Court noticed that the tax audit report filed with the return itself unequivocally disclosed that the provision in question was not allowable, but the assessee had failed to add it back in the computation. The Hon’ble Supreme Court, in substance, held that the contents of the audit report had apparently been overlooked by the assessee as well as the Assessing Officer; that the lapse was a human error which even a competent professional organisation could commit; and that absence of due care, by itself, did not establish furnishing of inaccurate particulars or concealment of income. The applicability of this principle to the present case necessarily depends upon factual verification of the alleged duplication and of the disclosures contained in the contemporaneous audit records.

Since the additional evidence was not before the learned CIT(A), we deem it appropriate to restore the matter to his file for fresh adjudication. The learned CIT(A) shall examine the affidavit and, if considered necessary, permit the Assessing Officer to cross-examine the deponent or obtain a remand report. He shall verify the original return- upload data and schedules, the audited financial statements, the tax audit report, the reconciliation of the duplicated entries and the return of income for the subsequent assessment year to ascertain whether the disputed loss was carried forward, claimed or set off. After affording adequate opportunity of being heard to the assessee and the Assessing Officer, the learned CIT(A) shall decide the appeal afresh by a speaking order in accordance with law, including section 270A(6)(a), uninfluenced by any observation in this order. All contentions on merits are left open. The assessee shall furnish the necessary records and extend full cooperation in the remand proceedings.

Accordingly, the grounds raised by the assessee are allowed for statistical purposes.

In the result, the appeal of the assessee is allowed for statistical purposes.