Merely Making Incorrect Claim Does Not Tantamount To Furnishing Inaccurate Particulars: Mumbai ITAT Deletes Penalty U/s 271(1)(C)

Referring to the decision of Apex Court in the case of CIT vs. Reliance Petro Products Pvt Ltd, the Mumbai ITAT reiterated that for the purpose of levying penalty, the provisions of the Income tax Act to be strictly covered and that merely making an incorrect claim does not tantamount to furnishing of inaccurate particulars.

The Bench of S Rifaur Rahman (Accountant Member) & Kavitha Rajagopal (Judicial Member) observed that “even in the present case, the assessee was not queried about the provisions of lease equalization but had voluntarily by written submission stated to the AO that the disallowance of Rs.10,99,081/- was the difference between the actual amount and the disallowance made by the assessee which was claimed to be a bona fide error on the part of the assessee. The above action of the assessee evidences that the assessee has not malafidely made a lesser disallowance in the return of income filed by it”. (Para 13)

As per the brief facts of the case, the assessee company, engaged in the business of call centre had filed its return declaring total loss of Rs.21,07,072/-. The assessee's case was selected for scrutiny under the CASS for verifying “high ratio of refund to TDS, certificate u/s. 197 for 'nil' or lower deduction of TDS, depreciation claimed at higher rate/higher additional depreciation claimed, low income shown by large contractors, mismatch in sales turnover reported in audit report and ITR and mismatch in amount paid to related persons u/s. 40A(2)(b) reported in the audit report and ITR”. The AO made disallowance on the difference amount as lease equalization where the assessee has inadvertently accounted the rent on straight line method as against the regular practice where rent agreements have clause for yearly increase in rent after considering the disallowance of Rs.2,97,436/- made by the assessee instead of Rs.13,96,517/-. The AO also initiated the penalty proceedings for furnishing inaccurate particulars and levied penalty amounting to Rs.3,39,616/- u/s. 271(1)(c) of the Act.

The Bench observed that the assessee has disallowed a lesser amount of Rs.2,97,436/- instead of Rs.13,96,517/- being the difference in the lease equalization which the assessee contends that has been inadvertently accounted the rent on straight line method where the rent agreements have clause for yearly increase in rent.

The Bench noted that the assessee's contention is that the said mistake is inadvertent and bona fide without any intention on the part of the assessee to suppress the same, whereas the Revenue's contention is that the assessee had not voluntarily disclosed the same and during the assessment proceeding it had come forward to revise the computation in view of the said mistake.

Therefore, finding no justification in the penalty levied by the lower authorities considering the factual aspect of the present case, the ITAT allowed the assessee's appeal and directed the AO to delete the penalty.

Counsel for the Appellant/ Taxpayer: Vijaykumar S. Biyani

Counsel for the Respondent/ Department: P. D. Choughule

Case Title: Eureka Outsourcing Solutions Pvt Ltd verses Dy CIT

Case Number: ITA No. 2845/Mum/2023

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