SHETH & CO,MUMBAI vs. ASST CIT 20(3), MUMBAI

In this appeal, the solitary grievance of the assessee is against the levy of penalty u/s 271(1)(c) of the Act amounting to Rs.3,38,002/-.

In brief, the relevant facts are that the appellant is a Partnership firm carrying on the business of import and export of plastic extruded and moulded goods. For the Assessment Year 2010-11, it filed a return of income declaring an income of Rs.68,24,455/-, which was subject to a scrutiny assessment u/s 143(3) of the Act dated 22.01.2013 whereby the total income was assessed at Rs.78,18,870/- after making three additions/disallowances, namely, (i) disallowance of depreciation – Rs.3,11,600/-; (ii) Short Term Capital Gain – Rs.5,89,000/-; and (iii) difference as per 26AS and computation of income – Rs.93,815/-. Subsequently, the Assessing Officer has levied penalty with respect to the tax sought to be evaded on such additions in terms of Sec. 271(1)(c) of the Act. The CIT(A) has also affirmed the levy, against which assessee is in appeal before us.

We have heard the rival stands and perused the relevant material. Insofar as the disallowance of depreciation of Rs.3,11,600/- is concerned, the same related to the property which was found not to be registered in the name of the assessee-firm. The Assessing Officer noted that the property stood in the names of the two Partners and, therefore, the assessee-firm was not entitled to depreciation on the cost of the property. The assessee justified it by pointing out that the purchase of the office premises was substantively made by the assessee-firm as the required fund was provided by it, but as the property could not be registered in the name of the assessee-firm, and the same was registered in the names of the individual Partners and, in any case, it was the assessee-firm which had utilised the property. Be that as it may, in our considered opinion, at best it is a case of making of an incorrect claim in law, which ostensibly cannot tantamount to furnishing of inaccurate particulars of income within the meaning of Sec. 271(1)(c) of the Act. Neither can it be considered as a concealment of income inasmuch as there is no charge made out that any of the particulars were concealed or were found untrue. Therefore, applying the ratio of the judgment of the Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd., (2010) 322 ITR 158 (SC), no penalty is exigible with respect to the disallowance of depreciation.

The second element of the levy relates to an addition made on account of Short Term Capital Gain on sale of units of Mutual Fund of Rs.5,89,000/-. In this regard, the fact-situation is that the relevant profit on the sale of units of Mutual Fund was credited in the Profit & Loss Account and the business profits were reduced on account of this profit on sale of units of Mutual Fund, but while compiling the computation of income annexed to the return of income, the Capital Gains was not included. In this context, during the course of assessment proceedings itself, assessee contended that it was an inadvertent error inasmuch as the Short Term Capital Gain on sale of shares, which was also credited in the Profit & Loss Account alongwith the profit on sale of units of Mutual Fund, was considered separately and declared in the computation of income. The non-inclusion of the income from Short Term Capital Gain on the sale of units of Mutual Fund was an inadvertent error and a mistake. On this aspect also, we find that following the ratio of the judgment of the Hon'ble Supreme Court in the case of Price Waterhouse Coopers Pvt. Ltd. vs. CIT, (2012) 348 ITR 306 (SC), this being a case of bona fide and an inadvertent mistake, which does not call for levy of penalty u/s 271(1)(c) of the Act and the same is hereby directed to be deleted.

The last element of the levy of penalty is with respect to difference of Rs.93,815/- between the amount shown in 26AS and the computation of income. In this context, the relevant facts are that the assessee pointed out that its turnover amounted to Rs.14,30,13,934/- and the profit as per the Profit & Loss Account was Rs.97,33,717/-. On this basis, it was sought to be pointed out that the difference of the income shown in 26AS form of Rs.93,815/- was on account of unreconcilable position on account of clerical shortage and not a case of any deliberate omission of income. We find that the explanation rendered by the assessee is cogent and merely because there is a difference between the income shown in AS26 and the amount reflected in the computation of income, cannot ipso facto reflect either concealment of income or furnishing of inaccurate particulars of income unless any falsity is proved. We have perused the relevant discussion in the assessment order and find that on being show-caused, assessee accepted the addition on the ground that due to the volume of transactions, the reconciliation may not be possible. Thus, it is not a case where the claim has been found to be untrue or false, but a case where the amounts are merely unreconcilable. Thus, no penalty u/s 271(1)(c) is attracted on the said addition.

In the result, the order of the CIT(A) is set-aside and the Assessing Officer is directed to delete the penalty levied u/s 271(1)(c) of the Act.

In the result, appeal of the assessee is allowed.