By TIOL News Service

MUMBAI, MAR 11, 2019: THE ISSUE IS - Whether when the assessee has filed revised computation of income immediately upon noticing defect in his return and before the detection by the AO, then his act is not contumacious, warranting any levy of penalty. YES IS THE ANSWER.

Facts of the case

The assessee, an individual, had filed his return declaring a total income of Rs.19,59,090/-. Thereafter, the case was selected for scrutiny wherein, the AO received AIR information that the assessee had sold property for Rs.48,95,000/- during the relevant AY. However, no capital gain was offered by assessee. In response to same, the AR submitted revised computation of income and offered sale proceeds of Rs.48,95,000/- for taxation. Regarding disallowance u/s 57(iii), the AO observed that the assessee had offered interest income of Rs.5,33,875/- and other income of Rs.155,368/- under the head 'Income from other sources'. The assessee stated that he had taken unsecured loan from Union Bank of India during the year and had paid Rs.801,454/- towards interest. The amount of loan was given to his daughter for purchase of flat. The AO stated that the interest claimed by assessee was not laid out for purpose of earning any income and so, was not eligible for deduction as per section 57(iii). The assessee had also filed revised computation and offered income from Mutual Fund Investment of Rs.100,000/- and income from investment in shares of Rs.292,000/- under the head "Income from other source' which were not earlier disclosed in the return. The AO therefore, added all these to the total income of assessee.

Further, the AO also initiated penalty proceedings u/s 271(1)(c) on the additions for concealment and furnishing inaccurate particulars of income. This was objected by pointing that the assessee had voluntarily revised the computation of income before the AO could detect the error in the return. The AO rejected this contention and levied penalty of Rs.13,83,007/- u/s 271(1)(c). On appeal, the CIT(A) upheld the penalty.

On appeal, the ITAT held that,

++ it is found that in this case the assessee has filed a revised return during the course of assessment, pursuant to which additions have been made. Explanation of the assessee is that the assessee has noted certain mistakes in the computation of income in the return filed and since the return was belated one, it could not file the revised return. During the course of assessment in the first submission before the detection by the AO, the assessee submitted the revised return. These submissions have not been disputed by the AO, rather he has said that the assessee could have submitted the revised return at the TAPAL of the AO;

++ the facts of the case clearly indicate the bonafide of the assessee. It is settled that unless the conduct of the assessee is contumacious, penalty cannot be levied. Penalty will not also be imposed merely because it is lawful to do so. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act, or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute.

(See 2019-TIOL-617-ITAT-MUM)