Case Law Details
Dharmendrakumar B Mehta Vs ITO (ITAT Ahmedabad)
The Income Tax Appellate Tribunal (ITAT) of Ahmedabad recently ruled in favor of the appellant, Dharmendrakumar B Mehta, deleting the penalty imposed under Section 271(1)(c) of the Income Tax Act. The case revolved around an accountant’s error leading to the non-disclosure of income in the appellant’s Income Tax Return (ITR), which resulted in the imposition of penalties.
This case brought to light the fact that mistakes by a third party such as an accountant could lead to severe penalties for the assessee, despite the non-deliberate nature of the error. The appellant had failed to disclose certain elements of income, leading to the imposition of a penalty under Section 271(1)(c). The ITAT considered the extenuating circumstances surrounding the case, particularly the ill-health of the accountant responsible for preparing the ITR. Citing the Supreme Court’s decision in the Price Waterhouse Cooper Pvt. Ltd. case, the ITAT ruled that a mistake by the accountant should not be treated as the mistake of the assessee.
This ruling by ITAT Ahmedabad sets an important precedent for future cases involving errors by third parties during the preparation of income tax returns. It underlines the importance of understanding the circumstances surrounding errors or omissions in tax filings and raises questions about accountability when such errors occur.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The appeal filed by the assessee is against the order passed by the Ld. Commissioner of Income Tax (Appeals)-5, (in short “Ld. CIT(A)”), Ahmedabad on 21.06.2017 for A.Y. 2013-14.
2. The grounds of appeal raised by the assessee are as under:
“1.1 The order passed u/s. 250 on 21.6.2017 for A.Y.2013-14 by CIT(A)-(5),A’bad, confirming penalty of Rs.48,435/- imposed towards addition of Rs.13,091/- for interest income and towards addition of Rs.2,15,471/- for LTCG is wholly illegal, unlawful and against the principles of natural justice.
1.2 The Ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the explanations furnished and the evidence produced by the appellant.
2.1 The Ld. CIT(A) has grievously erred in law and or on facts in confirming the penalty of Rs.10,95,120/- levied u/s.271(1)(c) in respect of addition towards addition of Rs.13,091/- for interest income and towards addition of Rs.2,15,471/- for LTCG.
2.2 That in the facts and circumstances of the case as well as in law, the Ld. CIT(A) has grievously erred law and or in facts in confirming that the appellant had failed to rebut satisfactorily the alleged detection by AO.
It is therefore prayed that the penalty of Rs.48,435/- imposed by AO and upheld by CIT(A) deserves to be deleted.”
3. The return of income was filed on 30.09.2013 declaring total income at Rs. 10,81,480/- alongwith tax audit report under Section 44AB of the Income Tax Act, 1961. The return was processed under Section 143(1) of the Act. The case was selected for scrutiny and statutory notices were issued. The Assessing Officer made addition of Rs. 2,15,471/- as Long Term Capital Gain and 13,091/- as interest income. The Assessing Officer initiated penalty proceedings and issued show cause notice under Section 274 r.w.s. 271(1)(c) on 21.02.2016. The assessee filed reply which was taken into account. The Assessing Officer imposed penalty of Rs. 48,435/- in respect of furnishing inaccurate particulars / concealment of income.
4. Being aggrieved by the penalty order the assessee filed appeal before the CIT(A). The CIT(A) dismiss the appeal of the assessee.
5. The Ld. A.R. submitted that there is a delay of 513 days for which the assessee has filed the condonation of delay alongwith the affidavit stating therein the reason as the assessee in the quantum matter did not prefer the appeal due to smallness of amount and therefore, after receiving the order of the CIT(A) the assessee was not aware the penalty order has to be challenged within the stipulated time and therefore, the assessee at that particular juncture did not file the appeal but on 24.01.2019 show cause notice for launching prosecution under Section 276C(1) was issued alleging the default of willfully attempting to evade taxes in respect of capital gain. Therefore, the delay may be condoned as prayed by the Ld. A.R. The Ld. D.R. vehemently oppose the delay. The explanation given by the assessee for condoning the delay appears to be genuine and therefore, the delay is condoned.
6. The Ld. A.R. submitted that the accountant of the assessee was unwell during the period of 2013 and therefore, the accountant of the firm had to finalize the particulars of income of the assessee. The assessee further submitted that the said accountant was admitted to the hospital during the subsequent period and therefore, the correct return of income was not filed stating therein the Long Term Capital Gain. The assessee has filed the revised return of income before the Assessing Officer thereby disclosing all the relevant income including the long term capital income and interest income. Thus, the Ld. A.R. submitted that the mistake on the part of the accountant cannot be held as a mistake of the assessee and the same should not be treated as furnishing inaccurate particulars of income / concealment of income as the assessee has filed revised return of income with the correct quantification of LTCG and interest income. The Ld. A.R. relied upon the decision of Hon’ble Apex Court in case of Price Waterhouse Cooper Pvt. Ltd. vs. CIT 348 ITR 306 (SC).
7. The Ld. D.R. submitted that the assessee has filed inaccurate particulars of income as the assessee has not disclosed Long Term Capital Gain as well as the interest income. If the Assessing Officer has not pointed during the assessment proceedings the assessee might have not furnished the revised return of income. Therefore, this is a fit case for imposing the penalty and the order of the CIT(A) sustained.
8. Heard both the parties and perused all the relevant material available on record. It is an admitted position that there was a mistake on part of the accountant for which the assessee has filed the affidavit of the accountant as well. From the perusal of the affidavit it appears that during the preparation of the particulars of return of income for A.Y. 2013-14 the said accountant was unwell and the subordinate accountant being ignorant above the actual quantification has filed incorrect return of income. The mistake on part of the accountant cannot be treated as mistake of the assessee and therefore, the decision of Hon’ble Supreme Court in case of Price Waterhouse Cooper Pvt. Ltd. (supra) is squarely applicable in the present case. The Assessing Officer as well as the CIT(A) was not right in imposing the penalty under Section 271(1)(c) of the Act. The appeal of the assessee is allowed.
9. In result, the appeal of the assessee is allowed.
This Order pronounced in Open Court on 21/07/2023
