Consultant Fraud May Protect Bona Fide Assessee From Penalty: ITAT Bangalore

Ravikiran Netla Vs ITO (ITAT Bangalore)

Summary: ITAT Bangalore considered the assessee’s appeal against confirmation of penalty of Rs.3,45,400 under section 271(1)(c) of the Income-tax Act, 1961 for assessment year 2014-15. The assessee had originally returned income of Rs.27,79,800 with a TDS claim of Rs.6,83,858 and subsequently a revised return was filed declaring income of Rs.16,62,000 and claiming refund of Rs.3,45,400. The Assessing Officer found that housing-loan interest and other deductions claimed under Chapter VIA were unsupported by proper evidence, disallowed the claims and consequently imposed penalty. Before the Tribunal, the assessee contended that the revised return and fictitious deduction claims were made by Mr. Nagesh Shastry, an Income Tax Practitioner, without the assessee’s knowledge. It was argued that the practitioner retained the requisite passwords, used his own mobile details, and was allegedly involved in fraudulent refund claims discovered by the Investigation Wing.

The assessee further submitted that the entire refund had subsequently been recovered through attachment of his bank account. The Revenue maintained that the fraudulent refund could not have been claimed without the assessee’s knowledge. The Tribunal noted that, in the quantum appeal order dated 19.02.2018, the CIT(Appeals) had recorded that Mr. Nagesh Shastry was instrumental in filing the revised return, but this factual aspect and the related arguments had not been considered in the penalty proceedings. It held that the crucial question was whether the practitioner was solely responsible for claiming the fraudulent refund and whether the assessee had acted bona fide. If those facts were established, penalty could not be levied on the assessee. The matter was therefore remanded to the CIT(Appeals) for fresh consideration of all relevant facts after giving the assessee an opportunity of hearing. The appeal was allowed for statistical purposes.