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Income not offered to taxation due to an inadvertent mistake does not attract a penalty under section 271(1)(c)

CLR Editorial Note: The case involved an assessee who had claimed deduction/ exemption of interest on tax-free bonds of a certain  amount. The assessee had inadvertently treated taxable interest of Rs. 75 lakhs as being tax-free and offered the said sum to tax.  The Assessing Officer levied a penalty u/s 271(1)(c) for concealment of income/ filing inaccurate particulars of income.

This decision was upheld by the CIT(A). Later the Tribunal the grounds of concealment and said that there was actually an inadvertent mistake in classifiying the  taxable bonds as tax-free and that there in fact was no desire on the part of the assessee to hide or conceal this income so as to avoid payment of tax on interest from the bonds.

The Department appealed against this decision but the Hon’ble HC dismissed the appeal on the following grounds:

“The decision of the Tribunal is based on finding of fact that there was an inadvertent mistake on the part of the assessee in including the interest received of 6% on the GOI Capital Index Bonds as interest received on tax free bonds. It is not contended by the Revenue that above finding of fact by the Tribunal is perverse. In these circumstances, there is no reason to entertain the proposed question”

Note: It was also decided that offering income under the wrong head (capital gains instead of other sources) does not attract s. 271(1)(c) penalty

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Case Details

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

INCOME TAX APPEAL (LOD) NO.2117 OF 2012

Commissioner of Income Tax-I, Mumbai               ..Appellant.

V/s.

M/s. Bennett Coleman & Co. Ltd.             ..Respondent.

Mr. Suresh Kumar for the appellant.       Court

Mr. Jas Sanghavi i/b. PDS Legal for the respondent.

CORAM :  J.P. DEVADHAR AND

M.S. SANKLECHA, JJ.

DATED  : 26TH FEBRUARY, 2013

P.C.   :-

1. In  this  appeal  by  the  revenue  for  the  assessment  year 1999-2000,   following   questions   of   law   have   been   raised   for   our consideration :-

(i)      Whether on the facts and in the circumstances of the case and in law,  the  ITAT  was  justified  in  cancelling  the  penalty  levied  of Bombay Rs.26,25,000/- u/s.271(1)(c) in the light of decision of Supreme Court  in  the  case  of  Goetzd  India  Ltd.  (284  ITR  323)  (SC)  in respect  of  addition  of  Rs.75,00,000/-  on  account  of  interest received  on  6%  Government  of  India  Capital  Index  tax  free   bonds which was accepted by the assessee during the  course of assessment  proceedings  vide  reply  dated  28/2/2002  and  not offered voluntarily ?

(ii)      Whether on the facts and in the circumstances of the case and in law,  the  ITAT  was  justified  in  cancelling  the  penalty  levied  of Rs.35,64,000/-  u/s.271(1)(c)  in  respect  of  addition  made  on account   of   treating   premium   received   on   redemption  of debentures  as  income  from  other  sources  against  claim  of Court assessee as capital gain ?

2. So  far  as  question  (i)  is  concerned,  the  respondent-assessee  has  claimed  deduction  of  interest  on  tax  free  bonds  of Rs.5,60,11,644/-. During  the  course  of  the  assessment  proceedings, High the assessee was asked to give details of interest on tax free bonds.

While preparing the said details, it was noticed that 6% Government of India Capital Index Bonds purchased during the year had inadvertently been categorized as   tax   free   bonds   and,   therefore,   interest   of Bombay the Assessing Officer. On further appeal, the Tribunal in the impugned order records a finding of fact that by inadvertent mistake interest @ 6% on the Government of India Capital Index Bonds was shown as tax free bonds. The Tribunal concluded that there was no desire on the Rs.75,00,000/- earned on such bonds had also inadvertently escaped tax. The assessing officer levied penalty under Section 271(1)(c) of the Income Tax Act, 1961 (the Act).     The CIT(A) upheld the order of part of the respondent-assessee to hide or conceal the income so as to avoid payment of tax on interest from the bonds. Court In that view of the matter, the Tribunal deleted the penalty imposed upon the respondent-assessee under Section 271(1)(c) of the Act. In view of the fact that the decision of the Tribunal is based on finding of fact that there was an inadvertent mistake on the part of the assessee in including the interest received of 6% on the Government of India Capital Index Bonds as interest received on tax High free bonds. It is not contended by the Revenue that above finding of fact by the Tribunal is perverse. In these circumstances, we see no reason to entertain the proposed question (i).

So far as question (ii) is concerned, the respondent-assessee had claimed premium on redemption of debentures as income from capital gains. Whereas the assessing officer held that the redemption of debentures is revenue receipt assessable to tax under the head income from other sources. The CIT(A) confirmed the order of the assessing officer. The respondent-assessee did not file any further appeal on the quantum proceedings. Thereafter, the assessing officer levied penalty under Section 271(1)(c) of the Act on the respondent-assessee. The CIT(A) also confirmed the levy of penalty upon the respondent-assessee. On further appeal, the Tribunal held that there is no dispute with regard to the fact that the respondent-assessee had disclosed that the amount received Court as premium on redemption of debentures in its computation of income. Further, the Tribunal records that it is not the case of the department that the respondent-assessee had concealed any particulars of income or furnished inaccurate particulars of income by stating incorrect facts. The assessing officer considered the said premium received on redemption of debentures High to be taxable under the head income from other sources while the respondent-assessee considered the same to be taxable under the head capital gains. In view of the fact that there is only a change of head of income and in the absence of any facts that the claim of the  assessee was not bonafide, the Tribunal deleted the Bombay penalty imposed under Section 271(1)(c) of the Act. The revenue has not been able to point out that the finding of the Tribunal is perverse.

In these circumstances, we see no reason to entertain the proposed question (ii).

4. Accordingly, the appeal is dismissed with no order as to costs.

(M.S. SANKLECHA, J.)     (J.P. DEVADHAR, J.)

Tags: AppealCITIncome taxIncome Tax Act 1961IndiaMumbaiSupreme Court

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