LATE PURNIMA BHANDARI THROUGH L/H SHRI N.K. DEWAN,NEW DELHI vs. DCIT, NEW DELHI

We have heard the rival submissions and perused the relevant material on record, including the order of the lower authorities. We find that penalty has been sustained in respect of the two additions/disallowances.

The first addition in respect of which penalty has been sustained is of Rs.66,94,673/-. The Assessing Officer observed from the profit and loss account that the assessee has debited an amount of Rs.66,94,673/-on account of the long-term capital loss, however while calculating the taxable income, the assessee was required to add back same in the computation of income, but it was left to be added in the computation of income and hence the income was calculated less by way of the amount of Rs.66,94,673/-. Accordingly, he made the addition. Before us, the Ld. counsel has filed copy of the profit and loss account along with relevant schedules of the profit and loss account. We find that the assessee has debited long-term capital losses (equity), amounting to Rs.66,94,673/-under Schedules – VII (selling and administrate expenses) of profit and loss account. Before the Ld. CIT(A), it was contended on behalf of the assessee that she had engaged services of a firm of chartered accountants for preparing and filing her return through e-filing services. It was further submitted that this mistake was admitted by the assessee and no appeal was filed against the addition made in the assessment order. It was further contended that the mistake was committed at the office of the Chartered Accountants, who were engaged for filing tax return and on being pointed out by the Assessing Officer, the Chartered Accountants accepted this mistake. This was accepted as a bonafide mistake by the accountant and it was submitted that there was no intention on the part of the assessee to file inaccurate particulars of her income. In support of the contention, reliance was placed on the order of the ITAT, Mumbai bench in in the case of Shri Suresh Kumar Gulati, wherein relying on the judgement of the Hon’ble Supreme Court in the case of Price Waterhouse Coopers Private Limited, 348 ITR 306 (SC), it was held that penalty under section 271(1)(c) of the Act need not be levied where there has been some mistake in computation of the total income, merely as a technical fault. 4.1 The Ld. CIT(A), however, was of the view that it was not a technical or clerical mistake or it is not the case of any ad-hoc addition made or any claim of expenditure was disallowed. According to the Ld. CIT(A), it was a deliberate attempt on the part of the assessee not to show the correct income. The Ld. CIT(A) referred to the decision of the Hon’ble Supreme Court in the case of Union of India Vs. Dharmendra Textile Processors, 295 ITR 244(SC) to emphasize that Explanation-1, appended to section 271(1)(c) indicate element of strict liability on the assessee for concealment or furnishing inaccurate particulars of income while filing return of income. Further, he referred to the decision in the case of ACIT Vs Jasubhai Business Service Private Limited, (2006) 5 SOT 36 Mum, wherein it is held that any fact material for determination of an item as income or material for correct computation is not filed or that fileed is not correct, then the assessee would be liable for penalty under section 271(1)(c) of the act. The Ld. CIT(A) also referred to the other decisions mentioned in the impugned order including the decision of the Hon’ble Delhi High Court in the case of CIT Escort Finance Ltd (183 Taxman 453) (del) 292 ITR 658, wherein it is observed that if claim made in return appears to be ex facie bogus, it would be treated as case of concealment or furnishing of inaccurate particulars of income particularly when the department is accepting the return of income in 95% of the cases without subjecting them to scrutiny/verification. 4.2 Before us, the Ld. counsel reiterated the submissions made before the Ld. CIT(A), whereas the Ld. DR relied on the finding of the Ld. CIT(A). 4.3 In the instant case, the assessee has furnished all information related to the long-term capital loss including the copy of profit and loss account and relevant schedule of selling and administrative expenses. In the selling and administrative expenses, the item of long-term capital loss (equity) has been clearly mentioned. The long-term capital loss not being part of the business income, the assessee was required to add back the same for the purpose of computing income under the head “profit and gains of business”. There is no dispute on the fact that this item has not been added back to the profit in case of the business under the computation of income, which resulted in understatement of income in the return of income filed. In view of Explanation-1 below the section 271(1)(c) of the Act, the penalty is leviable where the assessee offers an Explanation which is not able to substantiate or fails to prove that such Explanation is bonafide and all the facts relating to the same and material to the computation of his total income have been disclosed by him. In the instant case, assessee has furnished explanation thus we have to examine, whether the explanation furnished is bonafide and the assessee has disclosed all material facts to the computation of his total income. We note that all the facts in respect of long-term capital loss of Rs.66,94,673/-was available before the Assessing Officer in the profit and loss account and schedule of selling and administrative expenses. Only mistake was made on the part of the accountant who prepared the computation of the income. But the material facts about the long-term capital loss was fully disclosed in the profit and loss account. On being pointed out this mistake, the assessee has admitted and even did not file any further appeal on the addition. This shows bonafide on the part of the assessee and we do not find any deliberate attempt on the part of the assessee for not offering the income in the return of income, particularly when said item has already been disclosed in the profit and loss account. In view of above facts and circumstances and the Explanation-1 to section 271(1)(c) of the Act, we do not find any merit in sustaining the penalty by the Ld. CIT(A) and accordingly, we delete the same.

Similarly, in respect of the second addition of disallowance of entertainment expenses of Rs.2,99,122/- is concerned, the assessee explained that expenses were incurred on arranging parties and get together in relation to design consultancy business of the assessee. The contention of the Assessing Officer is that the assessee failed to substantiate her claim and according to him that expenses were of personal nature. Thus, the claim has not been found acceptable by the Assessing Officer. We note that Hon’ble Supreme Court in the case of Reliance Petro products Private Limited (2010) 189 Taxman 322 (SC) has held that merely because assessee had claimed Revenue, that by itself would not attract the penalty under section 27(1)(c) of the Act. Thus, respectfully, following the above decision of the Hon’ble Supreme Court, the penalty in respect of the rejection of the claim of entertainment expenses amounting to Rs.2,99,122/- cannot be levied. Accordingly, we set aside the finding of the Ld. CIT(A) and the Assessing Officer on the issue in dispute and direct the Assessing Officer to cancel the corresponding penalty.

The grounds No. 1 to 3 of the appeal are accordingly allowed.

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