CIT vs. Somany Evergreen Knits Ltd (Bombay High Court)

No S. 271(1)(c) penalty if wrong claim due to mistake/ wrong advice of CA

The assessee filed a return of income in which it committed two mistakes (i) Depreciation was claimed at Rs.1.70 crores instead of at Rs. 1.05 crores due to a mistake in calculation, (ii) the assessee sold its garment manufacturing machine and suffered a loss of Rs.21.68 lakhs thereon. Though the loss was on capital account, it was claimed as a revenue deduction. In the course of the assessment proceedings, the assessee realised its mistake and withdrew the claim for excess depreciation and the claim for the loss. The AO levied penalty u/s 271(1)(c) on both issues which was confirmed by the CIT(A). However, the Tribunal held that both mistakes had occurred due to a mistake/ wrong advice given by the Chartered Accountant and that there was a “bona fide mistake”. It was also held that “the bonafide of the assessee is established from the fact that the assessee accepted the mistake and did not prefer any appeal against the order of the AO”. On appeal by the department to the High Court, HELD dismissing the appeal:

The grievance of the revenue is that penalty is justifed in view of the fact that the assessee had not filed a revised return of income. However, the Tribunal noted that the time to file revised return had expired. In any event, even the revenue does not dispute that it was a bonafiide mistake on the part of the assessee. In the above view, imposition of penalty upon the assessee is not warranted.