By TIOL News Service

MUMBAI, SEPT 04, 2018: THE ISSUE BEFORE THE BENCH IS - Whether the assessee can shift the blame on its Chartered Accountant for claiming an inadmissible expenditure such as 'Tax paid' in contravention of provisions of section 40(ii), to duck the penalty u/s 271(1)(c). AND THE VERDICT IS NO.

Facts of the case

A penalty was imposed on the assessee u/s 271(1)(c) and the same was upheld by both the appellate authorities. Therefore, the assessee filed present appeal contending that there were no malafides and the error of the CA led to the assessee not complying with the law.

The High Court held that,

++ the assessee firm was throughout being advised and represented by a Chartered Accountant. The Tribunal rightly proceeded on the basis that a Chartered Accountant is deemed to be aware of the law and its intricacies. Being a professional, he could not have committed a mistake as was attributed to him. The tax paid is undisputedly an inadmissible expenditure from the profits of the business. Hence this amount should have been statutorily added back. Further, from the computation of income, the assessee added back certain inadmissible expenditure. However, he excluded the amount of income tax paid to the extent of Rs.48,90,114/-. Thus, the addition was only partial and not full;

++ unless and until the legal provision then in force permitted exclusion of the amount of income tax already paid, the Chartered Accountant could not have done this. The Chartered Accountant cannot feign ignorance of Section 40(ii) of the Income Tax Act as he is well trained and well versed in law representing not only the assessee, but various other clients. As far as the assessee's malafide intention is concerned, the burden was entirely on the assessee to then show in terms of Explanation-I to the provision permitting imposition of penalty that such intention never existed when such act was committed;

++ there was no material either in the form of evidence of the assessee or the affidavit of the Chartered Accountant. Hence the Commissioner was right, according to the Tribunal, in imposing this penalty. The attempt to blame the Chartered Accountant cannot result in the assessee's exoneration and claimed in absolute terms. In the circumstances, the penalty was rightly imposed. Such a view of the Tribunal can never be termed as perverse or vitiated by an error of law apparent on the face of the record. It is a possible view and could have been taken in the given facts and circumstances. That does not result into substantial question of law.

(See 2018-TIOL-1794-HC-MUM-IT)