By TIOL News Service

KOLKATA, MAR 27, 2018: THE issue is - Whether unintentional default merits levy of penalty even if such default is admitted and the amount is offered to tax during assessment proceedings. NO IS THE ANSWER.

Facts of the case:

The Assessee is a franchisee of branded jewellers. During the relevant year, Assessee company had filed its return declaring income of Rs.15,55,40,588/- and its case was selected for scrutiny, wherein the AO observed that the assessee had claimed depreciation in the computation of income for Rs.78,95,954/- on the land for Rs.7,89,59,536/- purchased during the year. On being confronted to the impugned issue, assessee conceded its mistake and offered amount of depreciation to tax. Accordingly, AO disallowed the amount of depreciation claimed by assessee on land and added it to its total income. However, AO in his assessment proceedings initiated penalty proceedings u/s 271(1)(c) and issued penalty notice u/s. 274.

On appeal, the FAA observed that the assessee had claimed depreciation on the land inadvertently and same mistake was rectified by the auditor in writing by filing a letter before AO. Further, the AO had not recorded any dissatisfaction for holding that assessee had furnished inaccurate particulars of income and necessary details for the purchase of land was duly furnished in the audited financial statement. Therefore, there was no misstatement furnished by assessee. Therefore, the FAA deleted the penalty imposed by AO.

Tribunal held that,

++ it is beyond doubt that the assessee has claimed depreciation on the land for which it was not entitled under the provisions of the Act. The mistake committed by the assessee was admitted during assessment proceedings and therefore the income of assessee was enhanced by the amount of depreciation claimed on the land. It is also a fact that the assessee is also a private limited company and assisted by the tax consultants. Therefore such silly mistake cannot be expected by such organized company. However the Supreme Court in such a situation has held that the inadvertent mistakes committed by the assessee do not warrant the imposition of liability u/s 271(1)(c). Besides, it is also found that notice issued by the AO u/s 274 does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notice u/s 274 does not strike out the inappropriate words. In these circumstances, imposition of penalty cannot be sustained.

(See 2018-TIOL-451-ITAT-KOL)