Case Law Details
Principal Commissioner of Income Tax Vs Pinstorm Technologies Pvt Ltd. (Bombay High Court)
Introduction: The Bombay High Court recently addressed a critical issue in the case of Principal Commissioner of Income Tax-13 Vs Pinstorm Technologies Pvt Ltd. The court deliberated on whether a penalty should be imposed for an error in uploading the Income Tax Return (ITR), considering the disallowed expenses in the Tax Audit report.
Detailed Analysis: The respondent, Pinstorm Technologies Pvt Ltd, filed its return of income for A.Y. 2010-2011, declaring a loss. However, during assessment, the Assessing Officer (AO) observed that certain expenses disallowed in the Tax Audit report were not added back to the total income. The AO disallowed these expenses, leading to the determination of a loss during scrutiny assessment under section 143(3).
Subsequently, penalty proceedings were initiated, alleging concealment of income. The assessee explained that the error occurred while electronically filing the return, where certain disallowances were not properly entered. The Managing Director affirmed that the CFO, who filed the return, made an inadvertent error by not considering the disallowances mentioned in the tax audit report.
The Commissioner of Income Tax (Appeals) (CIT(A)) made a factual error in stating that the tax audit report was not filed, contrary to the AO’s acceptance of its submission. The Income Tax Appellate Tribunal (ITAT) found no intentional concealment, accepting the CFO’s mistake during return upload. The ITAT’s factual finding led to the dismissal of the appeal.
Conclusion: The Bombay High Court upheld the ITAT’s decision, emphasizing the absence of intent to conceal income. The case underscores the importance of factual considerations in penalty proceedings. The ruling sets a precedent, aligning with earlier decisions, such as the Price Waterhouse Coopers Pvt Ltd. case, where penalty proceedings were annulled based on factual findings.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. The following substantial question of law is proposed:
“Whether on the facts and circumstances and in law, the Hon’ble ITAT erred in appreciating the fact that the error on the part of the assessee was detected during the course of assessment proceeding u/s. 143(3) of the Act on scrutiny by the AO, failing which the error would not had surfaced and therefore, levy of penalty, as a deterrent, was justified and taking any lenient view would encourage the assessee to perpetuate such mistakes?”
2 Respondent (assessee) filed the return of income on 14th February 2012 for A.Y.-2010-2011 declaring loss of Rs.16,10,43,542/- During the course of assessment, the Assessing Officer (AO) observed that certain expenses which were not allowable expenses under the Act were not added back to the total income in the computation of income to the tune of Rs.13,11,45,849/-. The AO also observed that disallowance of such expenses has been mentioned by the auditors in the tax audit report dated 2nd May 2012 furnished by assessee. The AO, therefore, disallowed the said expenses of Rs. 13,11,45,849/- and added the same back to the total income of the assessee. During the scrutiny assessment u/s. 143(3) which was completed on 28th February 2013 a loss of Rs. 1,81,57,433/- was determined.
3 Subsequently, penalty proceeding were initiated and notice was issued u/s. 274 r.w.s 271 of the Act for concealing/ furnishing Inaccurate particulars of income. Assessee responded to the notice and the stand of assessee was that while filing the return electronically, cetain disallowances were not properly entered in the column of disallowances and accordingly it showed a loss. Before the Income Tax Appellate Tribunal (ITAT), affidavit of Managing Director of the assessee was filed stating that return was filed by the then CFO one Mr. Sudesh Vaidya and the said Mr. Vaidya has since left the company and migrated to United Kingdom, it is assessee’s case that the CFO made an inadvertent error of not considering the disallowances which were mentioned in the tax audit report while uploading the return of income. It was also submitted that the return of income was filed belatedly and, therefore, the same cannot be revised. It was further asserted that even after the subject disallowances, the return of income showed a loss of return and due to delay in filing the return, even the loss could not be carried forward. Therefore, the mistake was not intentional or deliberate and the penalty proceedings be dropped.
4 Mr. Sharma pointed out that the Commissioner of Income Tax (Appeals) (CIT(A)), has made a factual finding that the tax audit report was not filed. In our view, there is an error in such a finding because the AO has accepted that the tax audit report was filed. In fact, even in this appeal in the facts of the case narrated, it is admitted in paragraph 3.1 that the tax audit report dated 2nd May 2012 was furnished by assesee.
5 Be that as it may, the ITAT in its order pronounced on 31st March 2017, as impugned in this appeal, has come to a factual finding that there is no intention on the part of assessee to conceal the income or furnish inaccurate particulars of income. It has also accepted the explanation that the CFO was entrusted with the filing of return and the CFO made a mistake in not properly uploading the return by filling up the return with the disallowances which were already reported by the auditors in the tax audit report. The ITAT has come to a factual finding that there was no intention of furnishing any inaccurate particulars or concealment of income as the facts undoubtedly suggest so. In a case that was before the Apex Court in the matter of Price Waterhouse Coopers Pvt Ltd. Vs. Commissioner of Income Tax & Anr (2012) 348 ITR 306(SC) the Apex Court set aside the penalty proceedings in view of the findings of fact that the tax audit report was filed a/w return which would indicate that assessee had made a computation error in its return of income.
6 In the case at hand also, the tax report has been filed alongwith the return of income. Therefore, we would agree with the ITAT that it was only a mistake while uploading the return of income in the given facts and circumstances of the case.
7 Since the order of the ITAT on this issue is based on finding of fact, we see no reason to entertain this appeal.
8 Appeal dismissed.
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