No penalty u/s 271(1)(c) if the mistake was bonafide

Central News Agency Pvt. Ltd. Vs DCIT (ITAT Delhi)

Conclusion: Penalty was not leviable as assessee made a computational error in not disallowing 1/6^th out of expenses on car amounting to aforesaid Rs.1,63,263/- being 1/6^th out of motor car expenses however assessee’s claim was accepted that this computational error was due to oversight and inadvertent mistake, and that the error was a bonafide one.

Held: In the instant case, assessee’s total income/loss was determined at (48,71,176)/-; as against the returned loss of Rs.50,39,439/- by the assessment order where the addition of Rs.1,68,263/- was made on account of personal expenses of the Directors. Assessee accepted the addition of Rs.1,68,263/- and did not appeal against the assessment order. Subsequently, order u/s 271(1)(c) of the Income Tax Act was passed by AO levying a penalty amounting to Rs.51,993/-  in respect of the aforesaid addition of  Rs.1,68,463/-.  CIT(A) confirmed the penalty. On appeal before Tribunal. It was held that assessee made a computational error in its return on income, but the error was bonafide/inadvertent and further stated that it was a human error without any intention to furnish inaccurate particulars or to conceal income. The addition of Rs.1,68,263/- was based on ad hoc estimation of personal use of car by the Directors of the company. The personal use of the car was estimated in ad hoc manner at the rate of 1/6 of the claim. In the computation of income filed with return of income (loss); the assessee suo motu disallowed 1/6t^h out of claim of depreciation on car. Thus, Rs.3,07,651/- out of total depreciation claim of Rs.18,45,904/- was suo motu disallowed by the assessee. Further, 1/6^th out of interest on car loan, and 1/3 out of telephone expenses were also suo motu disallowed by the assessee in computation of income filed with return of income (loss). The total amount of suo motu disallowance made by the assessee in computation of income filed with return of income, on account of personal use of the Directors of the assessee company was, Rs.4,40,942/- (including the aforesaid amount of Rs.3,07,651/-). However, the assessee made a computational error in not disallowing 1/6^th out of expenses on car amounting to aforesaid Rs.1,63,263/- being 1/6^th out of motor car expenses. Assessee’s claim was accepted that this computational error was due to oversight and inadvertent mistake, and that the error was a bonafide one.

FULL TEXT OF THE ORDER OF ITAT DELHI

(A) This appeal by Assessee is filed against the order of Learned Commissioner of Income Tax (Appeals)-2, New Delhi [“Ld. CIT(A)”, for short], dated 30/07/2020 for Assessment Year 2016-17. Grounds taken in this appeal are as under:

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