ENEFPY FASHIONS P.LTD,NEW DELHI vs. DCIT, CIRCLE-8(1), NEW DELHI

Levy of penalty of Rs.4,33,050/- u/s 271(1)(c) of the IT Act by the Assessing Officer which has been partially reduced by the CIT(A) is the only issue raised by the assessee in the grounds of appeal.

Facts of the case, in brief, are that the assessee is a private limited company and filed its return of income on 30.11.2014 declaring the total income at Rs.46,96,240/-. The Assessing Officer completed the assessment u/s 143(3) on 29.11.2016 determining the total income at Rs.47,70,210/- wherein he made certain additions on account of delayed payment of employees contribution to PF, disallowance u/s 40A(3), disallowance of long-term capital loss, etc. In appeal, the ld.CIT(A) gave part relief to the assessee. The Assessing Officer, thereafter, initiated penalty proceedings u/s 271(1)(c) of the IT Act and levied a penalty of Rs.4,33,050/- on account of addition sustained by the CIT(A) on account of long-term capital loss declared by the assessee. In appeal, the ld.CIT(A) upheld the action of the Assessing Officer.

Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal.

The ld. counsel for the assessee, at the outset, made two fold arguments. So far as the validity of penalty is concerned, the ld. counsel drew the attention of the Bench to page 6 and page 23 of the paper book and drew the attention of the Bench to the computation of the indexed cost of acquisition. He submitted that while filing the return, there was an inadvertent error in mentioning the value for which all these mistakes occurred and the mistake was not deliberate. Further, the returned income was accepted as such. Referring to the decision of the Hon'ble Supreme Court in the case of Price Waterhouse Coopers (P) Ltd. vs. CIT, 348 ITR 306, he submitted that the Hon'ble Supreme Court in the said decision has held 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 which can only be described as a human error which we are all prone to make. Caliber 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 does not mean that the assessee is guilty of either furnishing inaccurate particulars or attempting to conceal its income.

The ld. DR, on the other hand, heavily relied on the order of the Assessing Officer and the CIT(A) and submitted that they have given justifiable reasons as to why penalty u/s 271(1)(c) of the IT Act is leviable.

I have considered the rival arguments made by both the sides and perused the orders of the authorities below. I find the penalty in the instant case has been levied by the Assessing Officer u/s 271(1)(c) of the IT Act on the ground that the assessee has deliberately concealed the particulars of income to the extent of Rs.14,43,477/- by claiming higher indexed cost of acquisition while computing the long-term capital gain. I find the Assessing Officer computed the penalty @ 100% of the tax sought to be evaded on the long-term capital gain by applying the tax rate of 30% whereas the ld.CIT(A) while confirming the levy of penalty has directed the Assessing Officer to compute the tax sought to be evaded by computing the same @ 20% which is applicable to long-term capital gains. It is the submission of the ld. counsel for the assessee that due to inadvertent error while computing the indexed cost of acquisition and improvement of the said property, the assessee inadvertently took the cost inflation index for the financial year 2008-09 for the entire amount of cost incurred of Rs.3,58,28,614/- instead of taking the cost inflation index of the respective years in which cost was incurred i.e., assessment years 2009-10, 2011-12 and 2012-13.

I find some force in the above argument of the ld. counsel for the assessee.

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 assessee is guilty of either furnishing inaccurate particulars or attempting to conceal its income. 20. 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.

Respectfully following the above decision and considering the peculiar circumstances of the case, I am of the considered opinion that it is not a fit case for levy of penalty u/s 271(1)(c) of the IT Act. I, therefore, set aside the order of the CIT(A) and cancel the penalty so levied.

Even otherwise also from a perusal of the notice issued by the Assessing Officer for levying penalty u/s 271(1)(c) of the Act it is seen that the inappropriate words have not been struck off. I find recently the Hon'ble Delhi High Court in the case of PCIT vs. Sahara India Life Insurance Co. Ltd., vide order dated 2nd August, 2019, has observed as under:-

On this issue again this Court is unable to find any error having been committed by the ITAT. No substantial question of law arises."

Therefore, on this account also i.e., for non-striking off of the inappropriate words in the penalty notice, the penalty levied by the Assessing Officer and sustained by the CIT(A) is not justified. In view of the above discussion, the penalty levied by the Assessing Officer and sustained by the CIT(A) is deleted and the grounds raised by the assessee are allowed.

In the result, the appeal filed by the assessee is allowed.