M/S VANSHEE BUILDERS & DEVELOPERS PVT LTD ,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-12(5), BANGALORE

The assessee has filed this appeal challenging the order dated 18.3.2019 passed by Ld. CIT(A)-7, Bengaluru confirming the penalty levied u/s 271(1)(c) of the Income-tax Act,1961 ['the Act' for short] by the Assessing Officer for the A.Y. 2011-12.

Facts relating to the case are discussed in brief. The assessee is engaged in the business of property development. It filed its return of income for the year under consideration on 30.9.2011 declaring total income of Rs.39,94,510/- under normal provisions of Act and M/s. Vanshee Builders & Developers Pvt. Ltd., Bengaluru

In the penalty proceedings, the assessee submitted that the mistake was committed inadvertently while preparing return of income. It was also submitted that the addition has been made only in the book profit computed u/s 115JB of the Act and hence there is no loss of revenue. The A.O. did not accept the explanations given by the assessee. He took the view that the assessee has intentionally concealed income/furnished inaccurate particulars of income. The A.O. also expressed the view that the assessee had the benefit of audit report obtained in form No.29B of the Act while filing return of income. He noticed that the audit report was obtained on 3.9.2011 and the return of income was filed on 30.9.2011. Accordingly, he took the view that it cannot be a case of mere omission to offer income. He also expressed the view that this suppression of income has arisen on account of selection of the case on scrutiny.

The Ld. A.R. initially advanced his arguments on various legal grounds. On merits, the Ld. A.R. submitted that the profit before tax declared by the assessee in the profit & loss account placed at page 52 of the paper book was Rs.1,52,18,851/-. The above said figure included rental receipt of Rs.3,44,64,027/- and corresponding expenses. In the return of income, the profit and loss account figures are required to be entered at “Part A – P & L”. In this part, the data/details of profit and loss account are required to be entered as it is. The computation of income under the head income from house property is required to be filled in at “Schedule HP” and the computation of income under the head income from business is required to be filled in at “Schedule BP”. The bifurcation of profit and loss account figures into various heads of income is required to be carried out in the above said schedules.

The Ld A.R submitted that the person who filled the return of income has erroneously filled up the details relating to “income from business” in the Profit and Loss account at “Part A – P & L”. Hence the “profit before tax” amount was erroneously reported at Rs.8,49,857/- at item 43 in “Part A – P&L”, instead of the correct amount of Rs.1,52,18,851/-.

The Ld A.R further submitted that the computation of book profit u/s 115JB is to be reported in “Schedule MAT”. The software automatically adopts the “Profit before tax” amount shown in “item 43 in “Part-A – P&L”. Accordingly, the software also adopted the figure of Rs.8,49,857/- as net profit figure and accordingly, the book profit was also arrived at the same figure.

The Ld D.R, on the contrary, submitted that the assessee has obtained audit report in Form no.29B on 03-09-2011 itself and the auditor has computed the book profit u/s 115JB of the Act at Rs.1,52,18,852/-. However, in the return of income filed on 30-09- 2011, the book profit figure was reported at Rs.8,49,857/- despite the availability of the audit report. The assessee did not take effort to rectify the so-called mistake also. The fact of under reporting has surfaced only because the return of income was taken up for scrutiny. Accordingly, he submitted that there was deliberate attempt to under report the book profit, which constituted the total income of the assessee. Accordingly, he submitted that the penalty was rightly confirmed by Ld CIT(A). With regard to the various legal contentions, the Ld D.R placed his reliance on the decision rendered by Ld CIT(A), who had rejected all the legal contentions by a speaking order.

In the return of income, in “Part A-P&L” , the data relating to Profit and Loss account are required to be filled in. A perusal of the details filled therein would show that the assessee has filled in business income details therein, instead of filling up the details of Profit and Loss account. This mistake had the cascading effect and the software has picked up the erroneous figures for computing book profit u/s 115JB of the Act in “Schedule MAT”. It is the submission of the assessee that the book profit computation escaped the attention, since the tax was paid as per normal computation of total income. During the course of assessment proceedings only, the mistake was realised because the book profit turned out to be more than the total income computed under normal provisions of the Act. Accordingly, it was submitted that the mistake has occurred due to erroneous feeding of data while filling up return of income.

We find merits in the submission of the assessee. From the foregoing discussions, it can be noticed that incorrect computation of book profit has happened due to erroneous filling up of data in the return of income. In our view, the same is a bona fide and M/s. Vanshee Builders & Developers Pvt. Ltd., Bengaluru Page 6 of 7 inadvertent error. In the case of Price waterhouse coopers P Ltd (supra), the Hon’ble Supreme Court considered the validity of penalty levied on bona fide mistakes and it was held as under:- “17. Having heard learned counsel for the parties, we are of the view that the facts of the case are rather peculiar and somewhat unique. The assessee is undoubtedly a reputed firm and has great expertise available with it. Notwithstanding this, it is possible that even the assessee could make a "silly" mistake and, indeed this has been acknowledged both by the Tribunal as well as by the High Court 18. The fact that the Tax Audit Report was filed along with the return and that it unequivocally stated that the provision for payment was not allowable under section 40A(7) of the Act indicates that the assessee made a computation error in its return of income. Apart from the fact that the assessee did not notice the error, it was not even noticed even by the Assessing Officer who framed the assessment order. In that sense, even the Assessing Officer seems to have made a mistake in overlooking the contents of the Tax Audit Report.

The contents of the Tax Audit Report suggest that there is no question of the assessee concealing its income. There is also no question of the assessee furnishing any inaccurate particulars. It appears to us that all that has happened in the present case is that through a bona fide and inadvertent error, the assessee while submitting its return, failed to add the provision for gratuity to its total income. This can only be described as a human error which we are all prone to make. The calibre and expertise of the assessee has little or nothing to do with the inadvertent error. That the assessee should have been careful cannot be doubted, but the absence of due care, in a case such as the present does not mean that the assessed is guilty of either furnishing inaccurate particulars or attempting to conceal its income.

We are of the opinion, given the peculiar facts of this case, that the imposition of penalty on the assessee is not justified. We are satisfied that 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.” In our view, the decision of Hon’ble Supreme Court would come to the help of the assessee in the facts and circumstances of the case. Accordingly, we hold that the imposition of penalty on the assessee is not justified.

The assessee has raised many legal contentions before us. Since we have deleted penalty on merits, we do not find it necessary to address those legal contentions.

In the result, the appeal of the assessee is allowed.