M/S. FIXOPAN MACHINES (P) LTD.,NEW DELHI vs. ACIT, NEW DELHI

Briefly the facts of the case are that search and seizure operation u/s 132 of the I.T. Act was conducted on the person of Shri L.K. Singh and Shri S. Rawat on 11.07.2007 at “Arrival Lounge of Raja Bhoj Air port at Bhopal” by investigation team of Bhopal. During the search a sum of Rs. 40,12,580/- was found out of which Rs. 40 lakhs was seized. The statement u/s 132(4) was recorded of Shri L.K. Singh in which he has stated that money was withdrawn from the bank account of Oriental Bank of Commerce, New Delhi belonging to assessee company of which Shri L.K. Singh was the Managing Director. Notice u/s 153C was issued to the assessee company and assessment was finalized u/s 153C read with section 143(3) of the Act dated 15.12.2009. The AO in the assessment order made an addition of Rs. 9,85,108/-. The AO on an examination of a return of income and submission of the assessee found that above amount was carried forward by the assessee in the return filed u/s 139 of the Act for AY 2005-06 as the income shown by the assessee u/s 115B for that assessment year was not adequate enough to absorb the entire depreciation claimed. However, in the return filed u/s 153C the assessee has already taken the claim of entire depreciation in AY 2005-06 itself, meaning thereby there is no claim of depreciation left which was to be carried forward to the next year. In the return filed u/s 153C for assessment year under appeal assessee has set off claim of Rs. 9,85,108/- again for the second time which is not as per law. The AO, therefore, made the above addition.

The assessee at the penalty stage filed the reply before the AO which reads as under: “While preparing the computation of total income on the computer system during the previous year i.e. AY 2005-06 there was unobserved depreciation which was carried forward to the succeeding year in the original return which was filed u/s 139(1) of the I.T. Act. However, while preparing the computation for the AY 2006-07 in respect of return to be filed u/s 153 the same brought forward balance of Rs. 9,85,108/- was picked up by the system and this error was not noticed at the time of filing of return. This is the error occurred because of the figure automatically picked up by the system itself and there was no any intention of the assessee to claim such deduction out of income declared for the year. The assessee has inadvertently claimed the excess amount without any melafied intention.”

The AO was however, not satisfied with the explanation of the assessee and levied the penalty on the above addition. The Ld. CIT(A) dismissed the appeal of assessee.

After considering the rival submissions, we are of the view that penalty is not leviable in the matter. The assessee submitted before AO at the penalty stage that while preparing the computation of total income on the computer system during the AY 2005-06, there was unabsorbed depreciation which was carried forward to the succeeding year i.e. AY 2006-07 in the original return which was filed u/s 139(1) of the Act. It was also explained that while preparing computation of income for AY 2006-07 in appeal in respect of the return to be filed u/s 153C, the same brought forward balance of Rs. 9,85,108/- was picked up by the system and this error was not noticed at the time of filing of the return. It was an error occurred because of figures automatically picked up by the system itself. Thus, the assessee disclosed all the facts in the computation. It, therefore, appears that it was an inadvertent mistake. The explanation of assessee shows that there was unabsorbed depreciation in preceding AY 2005-06 which was claimed in assessment year under appeal i.e. 2006-07 u/s 139(1) of the Act. However, while filing the return of income for assessment year under appeal i.e. 2006-07 u/s 153C, the same figure of unabsorbed depreciation has been picked up by the system. Therefore, it is a mistake on the part of the assessee in taking the same figure while filing the return of income u/s 153C of the Act. However, all the facts relating to unabsorbed depreciation were available to the AO in the return filed u/s 139(1) of the Act and return filed u/s 153C of the Act. The Hon’ble Supreme Court in the case of Price Water House Coopers Pvt. Ltd. Vs. CIT 348 ITR 306 cancelled the penalty because the claim of gratuity was not allowable deduction which was inadvertent silly mistake on the part of the assessee. Considering the facts and circumstances of the case and the nature of addition made by the authorities below, we are of the view that it is not a fit case for levy of penalty u/s 271(1)(c) of the Act. We, accordingly, set aside the orders of the authorities below and cancel the penalty.

In the result, the appeal of assessee is allowed.