CIT Vs. Zoom Communications Private Limited (Delhi High Court)
ITA 07/2010,(2010) 191 Taxman 179, [2010] 327 ITR 510
Judgement Delivered on: 24.05.2010,
Delhi High Court Ruling: If the assessee makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bonafide, it would be difficult to say that he would still not be liable to penalty under section 271(1)(c) of the Act
Facts:
Zoom Communications Private Limited (the assessee / company) was engaged in the business of hiring of audio and video equipment. The assessee had declared a positive income in its return of income, which was selected for the scrutiny. The Assessing Officer (AO) noticed that the assessee had not made any adjustments to the taxable income on account of expenditure, like, equipment written off and income tax paid, which were debited to Profit & Loss account. The assessee contended that these amounts had not been added back in the computation of income due to oversight. The AO added both the amount pertaining to the equipment written off and income tax paid to the income of the assessee and initiated penalty proceedings under section 271(1 )(c) of the Income Tax Act (Act) against the assessee.
During penalty proceedings, the assessee claimed that it had committed a bona fide mistake and all the facts material to the computation were disclosed. The AO took the view that there was no difference of opinion as regards disallowance of these expenses and the incorrect computation given by the assessee was an act of paying less tax than what was due from it. He was of the view that the asses see was a big company, assisted by a team of Tax Auditors and, therefore, it was a case of concealment of income as well as of furnishing wrong particulars of income.
On appeal, the Commissioner of Income Tax Appeals [CIT(A)] upheld the penalty by holding that the assessee had committed serious laxity, while filing computation of income and the mistake committed by it could not be said to be bona fide.
Aggrieved by the order of the CIT(A), assessee preferred an appeal before the Income Tax Appellate Tribunal (Tribunal). The Tribunal accepted the contention of the assessee that due to oversight and bona fide mistake, the amount of income tax was not added back while filing Return of income and that no person would claim the amount of income tax as deduction, to evade payment of taxes. As regards the amount debited to Profit & Loss Account on account of equipment that had been written off, having become unusable and discarded, the Tribunal held that as per the provisions of section 32(1)(iii) of Income Tax Act, the assessee could have claimed this amount as a deduction and merely because it had claimed the same as revenue deduction, which had been treated to be capital in nature by the AO, could not be a basis to levy penalty under Section 271(1)(c) of Act, when all the relevant materials relating to that issue were duly disclosed by the assessee in the course of the assessment proceedings. The Tribunal accordingly deleted both the penalties.
Aggrieved by the order of the Tribunal , the department filed the appeal in the Delhi High Court. Delhi High Court’s observation and Ruling:
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