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Facts
The assessee, Otsuka Chemical India Pvt. Ltd., filed its return of income for AY 2017-18. During assessment, it was found that due to a technical software error, there was an incorrect opening Written Down Value (WDV) of fixed assets, leading to an excess depreciation claim of Rs. 81,84,410/-. The assessee voluntarily corrected the mistake and paid the balance tax of Rs. 29,31,140/- with interest during the assessment proceedings, although the time limit for filing a revised return had expired. The Assessing Officer levied a penalty under section 270A, which the CIT(A) subsequently deleted, leading the Revenue to appeal to the Tribunal.
Held
The Tribunal, relying on precedents from the Hon'ble High Courts of Delhi and Mumbai, held that penalty under section 270A is not warranted when an assessee voluntarily corrects a bona fide mistake and pays the due taxes and interest before the conclusion of assessment proceedings. The Tribunal emphasized that such actions align with the legislative intent of encouraging fast-track settlement and reducing litigation, and there was no misreporting of income. Therefore, the Tribunal upheld the CIT(A)'s order deleting the penalty.
Key Issues
Whether a penalty under section 270A of the Income Tax Act, 1961, is leviable when the assessee voluntarily corrects a bona fide mistake in claiming depreciation and pays the resultant tax liability and interest during the assessment proceedings, prior to the conclusion of the assessment.
Sections Cited
Section 270A, Section 270AA, Section 271(1)(c)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
Before: Dr. B. R. R. Kumar,
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘E’, NEW DELHI Before Dr. B. R. R. Kumar, Accountant Member, Ms. Madhumita Roy, Judicial Member ITA No. 2501/Del/2023 : Asstt. Year: 2017-18 DCIT, Vs Otsuka Chemical India Pvt. Ltd., 1st Floor, Joshin Road, Karol Bagh, Central Circle-02, New Delhi0110055 New Delhi-110005 (APPELLANT) (RESPONDENT) PAN No. AAACO8042K Assessee by : Sh. Anup Mehta, CA & Sh. Nirbhey Mehta, Adv. Revenue by : Sh. Anshul, Sr. DR Date of Hearing: 15.05.2024 Date of Pronouncement: 24.05.2024
ORDER Per Dr. B. R. R. Kumar, Accountant Member: This appeal has been filed by the Revenue against the order of ld. CIT(A)-23, New Delhi dated 26.06.2023.
The only issue involved in the appeal filed by the revenue pertains to deletion of penalty levied u/s 270A of the Income Tax Act, 1961.
The assessee filed return of income declaring total income of Rs.34,10,12,520/-. The penalty u/s 270A of the Income Tax Act, 1961 has been levied by the Assessing Officer after observing that the assessee has filed wrong details with regard to the opening written down value (WDV) of fixed asset as per ITR of current year and closing WDV of the fixed assets as per the ITR of the preceding year. During the assessment
2 ITA No. 2501/Del/2023 Otsuka Chemical India Pvt. Ltd. proceedings, the assessee has submitted that it was a mistake in filing of the return and the same has been corrected and due taxes have been paid. The submission of the assessee before the Assessing Officer is as under:
“Regarding difference between opening WDV of fixed assets as per ITR of current year and closing written down value of fixed assets as per ITR of the preceding year, it is submitted that closing WDV of fixed assets as per return form of A.Y. 2016-17 was Rs.913681910/- (return form enclosed at Annexure E) and opening WDV of fixed asset as on 01.04.2017 was Rs 959889103/- (return form enclosed at Annexure-B). The reason for difference in both the figures was technical error in the software due to which opening WDV of fixed asset as on 01.04.2016 of Rs. 95,98,89,103/- (return form enclosed at Annexure B) was taken as opening WDV of fixed assets as on 01.04.2017. The assessee had claimed depreciation of Rs.18,70,89,443/- whereas the actual depreciation allowable after rectifying the error comes to Rs 17,89,05,033/. This had resulted in excess claim of depreciation of Rs.81,84,410/-, This error came to the notice of assessee and the assessee paid the balance tax amounting to Rs.29,31,140/- on 29.11.2019 along with interest. Copy of revised depreciation schedule correcting the opening WDV is being enclosed at Annexure-F. Copy of the original and revised computation statement is enclosed at Annexure-G. Copy of challan of Rs. 29,31,140/- deposited on 29.11.2019 on account of correction of WDV of fixed asset is also enclosed at Annexure H. In view of the same the tax due was duly deposited with the government account as soon the discrepancy came to notice. However, the return could not be revised as the time limit for filing revised return was expired.”
3 ITA No. 2501/Del/2023 Otsuka Chemical India Pvt. Ltd.
The relevant part of the order of the Assessing Officer is as under:
“5.2. The reply of the assessee has been gone through and found acceptable as the assessee has disclosed the excess depreciation claimed of Rs.81,84,410/- treating it its total income u/s 28 of the I.T. Act, 1961 and paid due taxes of Rs.29,31,140/- thereon during the assessment proceedings. Hence, the excess depreciation claimed by the assessee in the P & L account is disallowed and added back to the total income of the assessee.”
The amount disallowed by the Assessing Officer stands offered to tax even before the conclusion of the assessment proceedings and the fact was duly appraised to the Assessing Officer. However, the Assessing Officer levied penalty u/s 270A of the Act which has been deleted by the ld. CIT(A). Aggrieved, the Revenue filed appeal before the Tribunal.
Heard the arguments of both the parties and perused the material available on record.
The facts and the reasons led to levy of penalty u/s 270A have been enumerated above.
On this issue, we are guided by the judgment of Hon’ble High Courts of Delhi and Bombay.
Schinder Electric South East Asia (HQ) Pte. Ltd. Vs. ACIT, International Taxation, Circle-3(1)(2) in W.P.(C) 5111/2022 wherein it was held that in the absence of
4 ITA No. 2501/Del/2023 Otsuka Chemical India Pvt. Ltd. provision of sub-section 9 of section 270A and only mere reference to the word mis-reporting of income in the Assessment order to deny immunity from imposition of penalty makes the impugned order manifestly arbitrary. Hence the order passed by the respondent under section 270AA(4) of the Act is set aside. For the sake of ready reference, the relevant portion of the Hon’ble High Court is reproduced as under:
“8. This Court is of the opinion that the entire edifice of the assessment order framed by Respondent No.1 was actually voluntary computation of income filed by the Petitioner to buy peace and avoid litigation, which fact has been duly noted and accepted in the assessment order as well and consequently, there is no question of any misreporting.
This Court is further of the view that the impugned action of Respondent No.1 is contrary to the avowed Legislative intent of Section 270AA of the Act to encourage/incentivize a taxpayer to (i) fast-track settlement of issue, (ii) recover tax demand; and (iii) reduce protracted litigation.”
We find that the facts of the case before us are similar wherein the assessee has revised the computation of income and due taxes have been paid even before the computation of assessment proceedings.
In the case of CIT, Mumbai Vs. Somany Evergree Knits Ltd. 35 Taxmann.com 529) (HC, Mumbai), the facts reveal that the appellant wrongly claimed depreciation of Rs.1.70 Crore instead of Rs.1.05 Crore due to mistake in calculation i.e. instead of
5 ITA No. 2501/Del/2023 Otsuka Chemical India Pvt. Ltd. reducing amount of Rs.32.51 Lacs from Rs.1.38 Crores it was added. The AO levied penalty under section 271(1)(c) as the AO did not accept that it was a bonafide mistake and held that the mistake ought to have been rectified by filing a revised return of income. The CIT(A) confirmed the penalty. While adjudicating the issue the Hon’ble High Court held that the excess depreciation originally claimed was on account of bonafide and inadvertent mistake on the part of the respondent-assessee. In any case, during the course of the assessment proceedings, the assessee realized its mistake and pointed out the same. The Tribunal further held that that the time to file a revised return had expired. In any event, it is not disputed that it was a bonafide mistake on the part of the respondent-assessee. In that view of the matter, imposition of penalty was not warranted. The Hon'ble High Court affirmed the finding of the ITAT in deleting the penalty. For the sake of ready reference, the relevant portion of the Hon’ble High Court is as under:
Question B
“(1) The respondent-assessee had during the assessment year sold its garment manufacturing machine and claimed a loss of Rs.21.68 lakhs thereon as a revenue expenditure in its return of income. In the course of the assessment proceedings, the respondent -assessee realised its mistake and withdrew the above loss shown as revenue expenditure in its profit and loss account and in the consequent return of income. The Assessing Officer accepted the above withdrawal and completed the assessment. However, he imposed penalty under Section 271(1)(c) of the Act.
6 ITA No. 2501/Del/2023 Otsuka Chemical India Pvt. Ltd. (ii) In appeal, the CIT(A) upheld the order of the Assessing Officer. On further appeal, the Tribunal by the impugned order records a finding that in the profit and loss account filed along with the return of income, the respondent-assessee has clearly described the loss as the loss on sale of its garment unit assets. This loss was added to the net loss in the computation of the total income. Thus, there was complete disclosure. The Tribunal further records that the above loss was claimed by the respondent-assessee as a revenue expenditure as the Chartered Accountant did not advice them correctly as to the legal position. However, during the assessment proceedings, the mistake was noticed and corrected by the respondent- assessee. On the above facts, the Tribunal concluded the claim for deduction made by the respondent-assessee was on account of a bonafide mistake and in such circumstances, the levying of penalty was not justified.
(iii) The grievance of the revenue is that penalty is justified in view of the fact that the respondent-assessee had not filed a revised return of income. However, the Tribunal noted that the time to file revised return had expired. In any event, even the revenue does not dispute that it was a bonafide mistake on the part of the respondent-assessee. In the above view, imposition of penalty upon the respondent-assessee is not warranted.
(v) Since the decision of the Tribunal is based on finding of fact, we see no reason to entertain question B.”
Hence, keeping in view the facts of the case, provisions of the Income Tax Act and the judicial pronouncements, we decline to interfere with the order of the ld. CIT(A).
7 ITA No. 2501/Del/2023 Otsuka Chemical India Pvt. Ltd. 12. In the result, the appeal of the Revenue is dismissed. Order Pronounced in the Open Court on 24/05/2024.
Sd/- Sd/- (Madhumita Roy) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 24/05/2024 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR