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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’, NEW DELHI
Before: Sh. N. K. Saini
ORDER This is an appeal by the assessee against the order dated 02.08.2017 of ld. CIT(A)-40, Delhi. 2. The only grievance of the assessee in this appeal relates to the sustenance of penalty of Rs.68,598/- levied by the AO u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as the Act).
Facts of the case in brief are that the assessee filed the return of income on 15.10.2010 declaring Nil income. However, the assessment was completed u/s 143(3) of the Act on 25.03.2013 at an income of Rs.6,04,934/-. During the course of assessment proceedings, the AO noticed that the assessee had provided interest free loan and advances of Rs.18.50 lacs to the persons specified u/s 13(3) of the Act. He added notional interest of Rs.2,22,000/- being 12% of Rs.18,50,000/- and also initiated the penalty proceedings u/s 271(1)(c) of the Act. The assessee submitted before the AO that Institute of Haematology it had neither furnished inaccurate particulars nor concealed particulars of its income as the advances given to the specified persons were duly mentioned in the Audit Report. Therefore, the penalty u/s 271(1)(c) of the Act was not leviable. The AO did not find merit in the submissions of the assessee and observed that as per Explanation (1) to Section 271(1)(c) of the Act, there is a presumption that the amount added or disallowed in computing the total income, shall be deemed to be the income in respect of which particulars had been concealed or inaccurate particulars had been filed. He also observed that the assessee’s case was covered within the scope of furnishing inaccurate particulars of its income and thereby concealment of taxable income u/s 271(1)(c) of the Act. He accordingly, levied the penalty of Rs.68,598/-.
Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under: “The levy of penalty u/s 271(1)(c) in the present case hinges on the facts/inference whether the assessee is guilty of furnishing inaccurate particulars in its return of income leading to the addition to the income and subsequent levy of penalty, irrespective of the fact that the addition to the income has been sustained in the appeal. In this connection, attention is invited to the return of income filed by the assessee along with its audited accounts and Audit report u/s 12A(b) of the Income Tax Act, 1961 in the case of Charitable or religious trusts or institutions (copy enclosed PB 1 to 12). In annexure II of the Audit report with the head Application or use of income or property for the benefit Institute of Haematology of persons referred to in section 13(3), the Auditor has mentioned the following facts (PB 10). a) A sum of Rs.16,50,000/- has been advanced to relatives of one of the Managing Trustees Mr. Divya Bhushan Lal on 0.00% interest. b) A sum of Rs.2,00,000/- paid to M/s Albega Biologicals Pvt. Ltd., a company in which Managing Trustees Holds substantial interest. The above facts have also been revealed in the balance sheet of the trust as on 31.3.2010. Kindly refer to the Loans and Advances and sundry debtors shown in Annexure “F” and “G” attached to the balance sheet (PB 7). It is only while computing the income of the trust for the year ended 31.3.2010, the Auditor of the trust inadvertently and through silly mistake failed to charge interest on the loans and advances to Specified persons as per the provisions of section 164(2) of the IT Act, although accurate particulars in this regard have been shown by the assessee and its Auditors in the return of income and Audit report filed by the assessee trust.”
The reliance was placed on the following case laws: � CIT Vs Pricewater House Coopers Pvt. Ltd. (2012) 348 ITR 306 (SC) � Dilip N. Shroff Vs JCIT (2007) ITR 519, 546 (SC) � K. C. Builders Vs ACIT (2004) 265 ITR 562 (SC) � CIT Vs Reliance Petroproducts Pvt. Ltd. 322 ITR 158 (SC) � T. Ashok Pai Vs CIT (2007) 292 ITR 11 (SC) � CIT Vs Brahma Purta Construction Ltd. (2012) 348 ITR 349 (Del.) � CIT Vs Escort Finance Ltd. (2010) 328 ITR 44 (Del.) � CIT Vs Sidhartha Enterprises (2009) 184 Taxman 460 (P&H) � CIT Vs Sania Mirza (2013-ITRV-HC-AP-002) � CIT Vs Balaji Distilleries Ltd. (2003) 126 Taxman 264 (Mad.)
Institute of Haematology � CIT Vs Bennett Coleman & Co. Ltd. (2013-ITRV-HC- Mum-030) 6. It was further submitted that the explanation given by the assessee in the penalty proceedings was that it neither furnished incorrect particulars nor concealed particulars of income and that the advances given to the specified persons were duly mentioned in its Audit Report and that the details of loans and advances given to specified persons had been mentioned in Annexure II of the Audit Report. It was also submitted that the Auditor of the assessee trust inadvertently while computing the income failed to charge interest on the loans and advances to the specified persons as per the provisions of Section 164(2) of the Act, although accurate particulars in this regard had been shown by the assessee and its auditors in the return of income as well as Audit Report which clearly revealed that no deliberate attempt was made to conceal any particulars but it was only a mere omission from the return, of an item of receipt which neither amounts to concealment nor furnishing of inaccurate particulars of income unless and until there was some evidence to show or some circumstances ground from which it could be concluded that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon and hence the provisions of Section 271(1)(c) of the Act would not come into play.
7. The ld. CIT(A) after considering the submissions of the assessee observed that the deeming provisions of Explanation (1) to Institute of Haematology Section 271(1)(c) of the Act comes into play where in respect of any facts material to the computation of the total income of any person under this Act, (i) when the assessee fails to provide an explanation, (ii) when the assessee provides an explanation which is found to be false, and (iii) when the assessee provides an explanation which he fails to substantiate and he fails to prove that the explanation was bona fide and that all the facts necessary for the same and material for computation of income have been duly disclosed by the assessee. The ld. CIT(A) observed that the notes in the documents inter alia stated that the interest @12% per annum was being charged since inception and credited in the Income & Expenditure Account during the year ended on 31.03.2011 and 31.03.3012. He also observed that the loans had been given to the specified persons in the financial year 2009-10 and that there had been an increment in the loan amount to each person for the subsequent 3 years which showed that the assessee had been in continuous practice of applying funds for the benefit of specified persons in all the years and once the case was selected for scrutiny and the query with regard to violation of Section 13(1)(d) r.w.s. 13(3) and 11(5) of the Act was raised, the interest free loan was converted into a loan with 12% interest. Therefore, even though the assessee provided an explanation for the failure to disclose the correct income in the return of income which had been attributed to the mistake on the part of the Auditor, the assessee had failed to substantiate the same and also failed to prove that the explanation was bona fide and that all the facts necessary for the same and material for computation of income had been disclosed by it in the Institute of Haematology return of income filed. Therefore, Explanation (1) to Section 271(1)(c) of the Act was applicable to the facts of the present case and that the assessee was deemed to have concealed particulars of income which was liable for the penalty u/s 271(1)(c) of the Act. The ld. CIT(A) also observed that the decisions relied by the assessee were distinguishable on facts. Accordingly, the penalty levied by the AO was sustained.
Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and submitted that the addition was made by invoking the deeming provisions only but nothing was concealed. It was further submitted that the assessee was disclosing the advances given to the specified persons u/s 13(3) of the Act and there was no intention to conceal the particulars. A reference was made to page no. 15 of the assessee’s paper book which is the copy of the Audit Report u/s 12A(b) of the Act, in Form No. 10B wherein it has clearly been mentioned that a sum of Rs.16,50,000/- had been advanced to the relatives of one of the Managing Trustees Mr. Divya Bhushan Lal and Rs.2,00,000/- was paid to M/s Albega Biological Pvt. Ltd., those figures were also mentioned in Annexure F to the Audit Report. A reference was made to page no. 12 of the assessee’s paper book which is the detail of loan & advances and sundry creditors. It was contended that non- disclosure of income was a mistake of the counsel for the assessee but there was no mala vide intention, therefore, the penalty u/s 271(1)(c) of the Act was not leviable. The reliance was placed on Institute of Haematology the decision of the various Courts which were also quoted before the ld. CIT(A) and mentioned in para 5 of the order.
In her rival submissions, the ld. Sr. DR supported the orders of the authorities below and further submitted that the mistake committed by the assessee was not admitted even when the AO made the addition because the assessee contested this issue before the ld. CIT(A) as well as the ITAT, so it cannot be said that there was no mala fide intention. She further submitted that as per the provisions contained in Explanation (1) to Section 271(1)(c) of the Act, the onus was on the assessee which was not discharged. Therefore, the penalty u/s 271(1)(c) of the Act levied by the AO was rightly sustained by the ld. CIT(A). The reliance was placed on the following case laws: � Union of India (UOI) Vs Dharamendra Textile Processors � CIT Vs Zoom Communication Pvt. Ltd. in ITA 07/2010 order dated 24.05.2010 (Del.) Copies of the aforesaid orders were furnished which are placed on record.
I have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is noticed that the assessee had given the interest free advances to the persons specified u/s 13(3) of the Act and was charging the interest in the earlier years. Therefore, for the year under consideration also AO was fully justified in making the additions. However, it is well settled that the assessment Institute of Haematology proceedings and the penalty proceedings are two different and distinct proceedings. In the present case, the assessee disclosed the particulars of loans and advances given to the persons referred in the Section 13(3) of the Act which is evident from page no. 15 of the assessee’s paper book which is the copy of Audit Report u/s 12A(b) of the Act wherein the assessee has disclosed that a sum of Rs.16,50,000/- had been advanced to the relatives of one of the Managing Trustees and another sum of Rs.2,00,000/- was paid to M/s Albega Biological Pvt. Ltd., a company wherein Managing Trustee held substantial interest, so it cannot be said that particulars were not disclosed to the department, the assessee also had shown the advances to the aforesaid persons in its balance sheet which was furnished alongwith the return of income. The Explanation of the assessee was that a computation error was made in the return of income by the counsel, therefore, the penalty u/s 271(1)(c) of the Act was not levaible.
On a similar issue, the Hon’ble Apex Court in the case of CIT Vs Pricewaterhouse Coopers Pvt. Ltd. (supra) held as under: “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.
Institute of Haematology 19. The contents of the Tax Audit Report suggest that there is no question of the assessee concealing its income. There is also not 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 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 such as the present, does not mean that the assessee 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 the present case also the assessee in the Audit Report furnished u/s 12A(b) of the Act in form No. 10B, clearly mentioned in Annexure II that a sum of Rs.18.50 lacs were advanced to the specified persons referred in Section 13(3) of the Act. This fact was also disclosed in the balance sheet furnished alongwith the return of income. However, due to the mistake of the counsel the interest was not shown in the computation of income which indicated that the assessee made a computation error in its return of income. Therefore, the addition was rightly made, however, contents of the Audit Report suggest that there was no question of the assessee concealing the particulars of its income and there was Institute of Haematology no question of the assessee furnishing any inaccurate particulars so it was a bona fide and inadvertent error, particularly when the assessee was regularly showing the income in the preceding years which is evident from the observations of the ld. CIT(A) in paras 5.5 & 5.6 of the impugned order wherein it has been mentioned that “the notice in the documents inter alia stated that interest @ 12% per annum is being charged since inception and credited in the income and expenditure account, this shows that the assessee had been in continuous practice of applying funds for the benefit of specified persons in all the earlier years and once the case was selected for scrutiny and the query with regard to violation of Section 13(1)(d) r.w.s. 13(3) and 11(5) of the Act was raised, the interest free loan was converted into a loan with 12% interest.” It has also been mentioned by the ld. CIT(A) that “in the present case, even though the assessee provided an explanation for the failure to disclose the correct income in the return of income which had been attributed to the mistake on the part of the Auditor but the same was not supported by the facts as mentioned in the assessment order.” However, it is an admitted fact that the Auditor duly mentioned in the Audit Report u/s 12A(b) of the Act in Form No. 10B that the loans and advances had been provided to the persons referred to in Section 13(3) of the Act, so it was a good case for making the addition particularly when in the preceding year also, the interest was charged but it cannot be said that the assessee did not disclose all the particulars. However, it made a computation error in its return of income. We, therefore, by keeping in view the ratio laid down in the aforesaid referred to case of CIT Vs Pricewaterhouse Institute of Haematology Coopers Pvt. Ltd., deem it appropriate to delete the impugned penalty levied by the AO and sustained by the ld. CIT(A).
In the result, the appeal of the assessee is allowed. (Order Pronounced in the Open Court on 31/08/2018)