Inadvertent Claims in ITR – Whether a Hard Nut To Crack
Introduction
“It is high time that the public servants should be held personally responsible for their mala-fide acts in the discharge of their functions as public servants”
– Hon’ble Justice Kuldip Singh in Common Cause vs. Union of India (1996) 6 SCC 530, Para 26
As and when the subject of `Mistake/ inaccuracy/ omission/ error is undertaken for consideration, a popular belief and adhesion stands attached to the very notion that there appears to be coherent negligence, inattention, heedlessness and injudicious frame of mind portraying the subject in poor light thereby raising a ground for imposition of punishment and a recurring action for chastisement. At this very juncture a very predominant and significant quote travels to mind from one of the greatest authors in the history of America, the stupendous Napoleon Hill who authoritatively and assertively laid down, `Whatever human mind can conceive and believe, it can achieve’. Perhaps travelling from years and years after witnessing a massive treasure and stock of success stories, the very conception and belief of mind tend to drag the subject to the mechanics sepulture leaving the subject in a lurch and standstill. Of the numerous depositions stated in the documents filed with the authorities, it continues to achieve grave and tumulus proportions. Sometimes there appears to be a mistaken genesis arising in the statistics, data and reports (by whatever name called) whether advertently or inadvertently when filed with the authorities thereby leading to a dark and black room for the assertions of the subject which are made to die. Mistake as the expression is most commonly understood in the portrayal and depiction of the statistics filed with the revenue authorities attain serious proportions as and when they are detected, diagnosed and scrutinized thereby leaving a virtually zero room for pleading the claim for clemency and leniency before them.
MAIN BODY
Income Tax law provides an exhaustive, encyclopedic and compendious machinery to deal with the issues of what can be conceived and what can be believed with regard to the jurisprudence of taxing the subject as a whole. In this profitable and solvent venture of taxing the subject through the route of his due filings with the respective authorities and agencies designated and deputed by the government, there always arises chances pertaining to advertent or inadvertent claims deposed by the assesses in the Income Tax Returns in short referred to as the ITRs which are considered to be sacrosanct and unimpeachable. Though the advertent, calculated, wanton and preconceived claims certainly aim at suspecting the very act of the assessee, thereby moving him towards the show cause operation but in case of every inadvertent claim, do the things required to be channelized in the same fashion as in the case of advertent claims thereby tightening the noose of penalty accompanied by prosecutions as prescribed under the enactment. In a very recent pronouncement falling under the Mumbai seat of the Income Tax Appellate Tribunal `E’ Bench in the case of Sujata Trading Private Limited vs. Income Tax Officer, 8(3)(2), Mumbai [2015] 152 ITD 492 (Mumbai – Trib), the critical and decisive question that arose for consideration before the authority was where the assessee company has inadvertently through the gateways of filing its Income Tax Return as required by the statute, filled the column regarding the details of audit under section 44AB wrongly as `NO’, can assessee be burdened with the penalty prescribed under section 271B of the Income Tax Act, 1961 i.e. for not getting the accounts audited from an auditor. The Hon’ble Income Tax Appellate Tribunal while answering the claim before it for the purposes of adjudication and in furtherance thereof upholding the appeal of the assessee held, `Where assessee company at time of filing its return of income electronically had inadvertently filled column regarding details of audit under section 44AB wrongly as `NO’, Penalty under section 271B of the Income Tax Act, 1961 would not be leviable. It was further held that on a holistic consideration of the facts neighbouring the issue, it is viewed that the assesse could have obtained the audit report under section 44AB before filing the return of income in its case and had inadvertently filled the apposite and the germane column wrongly as `NO’ so there is no justification for levying penalty under section 271B of the statute.’
In another path breaking and pioneering judgement by the Income Tax Appellate Tribunal, Mumbai Bench in a
lis titled
Shrikant Real Estates Private Limited vs. Income Tax Officer – 4(3)(4), Mumbai [2013] 140 ITD 155 (Munbai – Trib) adjudicating and sitting over the claim `
Whether clerical errors in returns of income filed electronically are condonable or not’, the bench held in its wisdom and erudition while upholding the claim of the assessee company settled that
clerical mistakes/errors in E-returns are condonable. The encompassing facts surrounding the dispute was the filing of return of income electronically by the assessee company duly supported by the subsumed claim of taxing the Short Term Capital Gain at Special rate instead of claiming the same under the Capital Gains. As a consequent measure of filing the said return which got processed under section 143(1) of the Income Tax Act, 1961, it was traced that the Short Term Capital Gain was taxed at 30 percent rate instead of the admissible and applicable rate of 10 percent. The assessee company moved an application under section 154 (
Rectification of Mistake) of the Income Tax Act, 1961 with a view to rectify the said inadvertent claim before the revenue authority totally unaware that its claim would meeting failing and unsuccessful fate. The Assessing Officer rejected the application and went by the ailing conclusion that since the impugned and erring Short Term Capital Gain is not shown under section 111A of the Schedule CG of the E-Return, its application is liable for rejection. The next appellate authority i.e. Commissioner of Income Tax (Appeals) upheld the rejection order passed by the assessing authority before whom an application under section 154 of the Income Tax Act, 1961 stood moved. In appeal before the Tribunal, the assessee built up its case on the strongest footing that
Although at Item No.6, total Short Term Capital Gain had been shown but due to inadvertence and clerical error – `Short Term Capital Gain’ under section 111A included in 6’ shown as Nil. Reversing the findings of the Appellate Commissioner, the Bench noticed that the assessee company has claimed Short Term Capital Gain and has shown it in the revised e-return but the same figure did not appear under the item where the Short Term Capital Gain is to be taxed as special rate u/s 111A of the Statute. i.e. Internal page 19 of the return under Schedule CG – Capital Gains under Item No.7. However at the same time, it was found that under Schedule SI- income chargeable to income tax at special rates IB which is at internal P-24 of the return, the assessee has shown Short Term Capital Gains (iiia) special rate of 10% Rs.265853, i.e. tax thereon Rs.26585/- which clearly established that the assessee has shown Short Term Capital Gains liable to be taxed at special rate of 10%. While annotating and elucidating the disputed issue under consideration, the Bench in paragraph No.7 of the said judgement held, `
In the present system of e-filing of return which is totally dependent upon the usage of software, it is possible that some clerical errors may occur at the time of entering the data in the electronic form. The return is prepared electronically which is converted into an XML file either through the free downloaded software provided by the CBDT or by the softwares available in the market. In either of the case, there is every possibility of entering incorrect data without having the expert knowledge of preparing an XML file. Thereby reversing the findings of the learned appellate commissioner, the Tribunal directed AO to allow credit of the Short Term Capital Gains subject to special rate of tax as per provisions of section 111A of the Act and rectify the intimation u/s 143(1) accordingly.
In another very recent judgement by the Seat of the Hon’ble Rajasthan High Court in the case titledPunsumi Engineers Limited vs. Commissioner of Income Tax [2015] 58 Taxman.com 10 (Rajasthan), the claim that where assessee knowingly, calculatedly and willingly claimed depreciation over the plant and machinery which it got imported from Germany without getting the dues in respect of the same cleared from the port authorities and as a consequent measure of which it was sold off by the port authorities, whether the claim fits within the four corners of an advertent claim liable for penalties prescribed under the Statute. The Hon’ble Court while upholding the stand of the revenue authorities giving way to imposition of penalty under section 271(1)(c) of the statute held in Paragraph No.4, Paragraph No.8 and Paragraph No.14 of the said judgement, the verbatim goes:-
Para No.4:- The salient features of the case are that the appellant-assessee is a 100 per cent. subsidiary of M/s. Punsumi India Ltd. The appellant-assessee was formed for manufacturing of disc covers which were being used in aluminum electrolytic capacitors. The appellant-assessee though imported plant and machinery from Germany and such plant and machinery though reached Mumbai but was lying with the Customs Department at Mumbai and it is a finding of fact that such plant and machinery never reached the site/workshop/head office of the appellant-assessee and finding no other alternative to recover the customs duty, demurrage and other charges, the Mumbai port authorities sold/auctioned the plant and machinery. It was stated by the appellant-assessee that due to financial problems, it could not clear the dues of port authorities and, thus, the port authorities had to sell the same.
Para No.8:- We have heard both the parties at length and gone through the material available on record from which it appears that M/s. Punsumi India Ltd. has transferred technical know-how to the assessee-company. It does not mean that Punsumi India Ltd. has ceased the technical know-how. It might have also possessed the same technical know-how so there is no question to acquire this technical know-how from this company because this technical know-how was originated by M/s. Punsumi India Ltd. and they were having the monopoly over the technical know-how. It was not patented technical know-how. In other words, Punsumi India Ltd. was having that technical know-how so far as the business interest and they have sold it to the assessee and might be to other legal entities. It was not sold with the patent rights. In fact, this technology was not patented as the same was simple technology which is very common. No special significance or patent material was ever submitted or claimed by the assessee. In these circumstances, it is surprising how and why the so-called technology again was taken on royalty basis which was earlier sold. This is nothing. This is merely a paper transaction. In fact, no technical know-how was acquired by the assessee in the absence of the plant and machinery. No resolution was passed by the Board of Directors. No document has been executed except the Memorandum of Understanding. This shows that there was colourable device. In plant and machinery, the technical know-how was of no use. It may be mentioned that the assessee has not fully co-operated with the lower authorities so they issued the summons under section 131 to the employees of M/s. Punsumi India Ltd., who were also looking the interest of both the companies. The brains of both the companies are common. In these circumstances, we find no merit in the claim of the assessee. Without repeating, we uphold the order of the lower authorities, who have rightly denied depreciation amounting to Rs.1,22,50,341 for technical know-how. The orders of the lower authorities are hereby sustained along with the reasons mentioned therein.”
Para No.14:- So long as the assessee has not concealed any material fact or the factual information given by him, has not been found to be incorrect, he will not be liable for imposition of penalty under section 271(1)(c) of the Act even if the claim made by him is unsustainable in law provided that he either substantiates the explanation offered by him or the explanation is found to be bona fide. If the explanation is neither substantiated nor shown to be bona fide, the explanation under section 271(1)(c) would come into play and the assessee would be liable for the prescribed penalty. A claim made by the assessee needs to be bona fide and if the claim, besides being incorrect in law, is mala fide, explanation 1 to Sec. 271(1)(c) would come into play and work to the disadvantage of the assessee. We have already observed hereinabove and the finding of the Income-tax Appellate Tribunal, which is a final fact finding authority that the assessee claimed depreciation which was never allowable and the assessee was aware of the true nature of the transaction despite which the claim for depreciation was made. Its claim was rejected by the Tribunal in the quantum proceedings and that order has attained finality. The explanation given by the assessee for the claim of depreciation is neither bona fide nor substantiated. All these are on the basis of appreciation of evidence on record found by the lower authorities and thus, the impugned order is based on appreciation of evidence and has been reached on a finding of fact. Thereby affirming, reinforcing and cementing the claim of the revenue authorities, the advertent, malafide, studied and preconceived claim of the assessee was put to nullity and hence was made prone to face the stringent measures governing the filing of incorrect, wrong, erroneous and weak claim of the assessee company as stipulated for under the statutory corridors.
Hon’ble Punjab & Haryana High Court in a case titled Commissioner of Income Tax, Faridabad vs. SSP Limited, Income Tax Appeal No. 450 of 2009 [2010] 189 Taxman 282 (Punj & Har) has settled that where by filing an erroneous claim in absence of any concealed or inaccurate claim, can the assessee be burdened with the tribulation of penalty prescribed under section 271(1)(c) of the Income Tax Act, 1961? While answering the above said substantial question of law the Hon’ble High Court discarding the version put forward by the revenue authorities accompanied by upholding the claim of the assessee company held in Paragraph Nos.4 and 5 of the said judgement:-
Para No.4:- `A concurrent finding had been recorded on facts that there was valid explanation and the assessee had raised debatable issue for claiming the expenditure and disallowance was no ground for levying penalty. Mere erroneous claim in absence of any concealment or giving of inaccurate particulars is no ground for levying penalty’.
Para No.5:- Assuming the assessee was not justified in delaying the deposit and was liable to pay tax on the said amount, this could not be conclusive to infer deliberateness of default on the part of the assessee. Issue of penalty has to be decided on the facts of each case.
Law Laid Down:- Mere support of erroneous claim in absence of any concealed or furnishing of inaccurate particulars cannot be a ground for levying penalty under section 271(1)(c) of the Income Tax Act, 1961.
The issue of inadvertent claims did not remained an alien to the sight of the Hon’ble Supreme Court of India as the Hon’ble Court got multiple occasions to settled down that merely because a claim is raised by the assessee which appears to be bad, inferior, erroneous and unacceptable in root and branch to the revenue authorities, it will not lead to the inference and consequences that pushes the conduct of the subject liable for taxation towards a coherent austere, stringent, serious and punitive measures. The Hon’ble Highest Court in an civil appeal No.2463 of 2010 titled
Commissioner of Income Tax, Ahmedabad vs. Reliance Petroproducts Private Limited [2010] 189 Taxman 322 (SC) resolved in Paragraph Nos.7, 8, 9 and 10 of the said judgement, where the revenue contended that since the assessee had claimed excessive deductions knowing that they were incorrect, it amounted to concealment of income. While dismissing the claim of the revenue authorities, it was held as under:-
Para No. 7:- A glance of provision of Section 271(1)(c) would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That was not the case of the Revenue either. It was an admitted position in the instant case that no information given in the return was found to be incorrect or inaccurate. It was not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee could not be held guilty of furnishing inaccurate particulars. The revenue argued that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. Such cannot be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars.
Para No.8:- Therefore, it must be shown that the conditions under section 271(1)(c) exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise.
Para No.9:- The word `particulars’ must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. In the instant case, there was no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous of false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c). A mere making of the claim, which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars.
Para No. 10:- It was argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one’s income as well as furnishing of inaccurate particulars of income. Such contention could not be accepted as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature.
In another golden law settled and framed by the Hon’ble Supreme Court of India in Civil Appeal No.6924 of 2011 in a case titled Price Water House Coopers Private Limited vs. Commissioner of Income Tax, Kolkatta – I, [2012] 211 Taxman 40 (SC), the purposive question before the Highest Court of Appeal was whether Bonafide, Inadvertent mistakes lead to the inference of penalty under the garb and umbrella of concealment or furnishing of inaccurate particulars of income. For the sake of brevity the facts of the case were:- The assessee filed a Return of Income accompanied with the Tax Audit Report. In the Tax Audit Report, it was disclosed that an amount of Rs.23,70,306/- lakhs towards provision for gratuity was not allowable u/s 40A(7) as apparent from Clause No. 17(i) of the Tax Audit Report (TAR). However, in the computation of income, the said amount was not disallowed. The AO also overlooked the item and omitted to make a disallowance. Subsequently, he reopened the assessment u/s 147, disallowed the expenditure and levied penalty u/s 271(1)(c). The assessee filed an affidavit in which it stated that the assessee is engaged in Multidisciplinary Management Consultancy Services in the relevant year and employ around 1,000 employees. It has a separate account department which maintains day to day accounts, payrolls etc. It was also deposed in the affidavit that perhaps there was some confusion because the person preparing the return was unaware of the fact that the services of some employees had been taken over upon acquisition of a business, but they were not members of an approved gratuity fund unlike other employees of the assessee. Under these circumstances, the tax return was finalized and filled in by a named person who was not a Chartered Accountant and was a common resource. It was further stated in the affidavit that the return was signed by a director of the assessee who proceeded on the basis that the return was correctly formulated and so did not notice the discrepancy and aberration between the Tax Audit Report and the Return of Income filed with the Revenue authorities. Accepting the contention of the assessee company, the Hon’ble Court held in Para No.17, 18, 19, 20 of the said judgement:-
Para No17:- Having heard learned counsel for the parties, we are of the view that the facts of the case are rather peculiar and somewhat unique. The assessee is undoubtedly a reputed firm and has great expertise available with it. Notwithstanding this, it is possible that even the assessee could make a “silly” mistake and, indeed this has been acknowledged both by the Tribunal as well as by the High Court.
Para No. 18:- The fact that the Tax Audit Report was filed along with the return and that it unequivocally stated that the provision for payment was not allowable under section 40A(7) of the Act indicates that the assessee made a computation error in its return of income. Apart from the fact that the assessee did not notice the error, it was not even noticed even by the Assessing Officer who framed the assessment order. In that sense, even the Assessing Officer seems to have made a mistake in overlooking the contents of the Tax Audit Report.
Para No.19:- The contents of the Tax Audit Report suggest that there is no question of the assessee concealing its income. There is also no question of the assessee furnishing any inaccurate particulars. It appears to us that all that has happened in the present case is that through a bona fide and inadvertent error, the assessee while submitting its return, failed to add the provision for gratuity to its total income. This can only be described as a human error which we are all prone to make. The calibre and expertise of the assessee has little or nothing to do with the inadvertent error. That the assessee should have been careful cannot be doubted, but the absence of due care, in a case such as the present does not mean that the assessee is guilty of either furnishing inaccurate particulars or attempting to conceal its income.
Para No.20:- We are of the opinion, given the peculiar facts of this case, that the imposition of penalty on the assessee is not justified. We are satisfied that the assessee had committed an inadvertent and bona fide error and had not intended to or attempted to either conceal its income or furnish inaccurate particulars.
Law Laid Down:- The Hon’ble Court allowing the appeal of the assessee company has established that it was a case of bona fide and inadvertent error and hence the burden of penalty could not fastened upon the company as it was not guilty of furnishing inaccurate particulars or attempting to conceal its income thereby concluding that imposition of penalty was unjustified and unwarranted by the revenue authorities.
CONCLUSION
To build any issue paving way for a rising and ever ascending conflict has now become the order of the day. Though it can be inferred with utmost certainty and incontestable hypothesis that it has now become a duck soup to procure relief and consolation by contesting issues at the highest level of judiciary but the major question arises for consideration is that whether it is everybody’s cup of tea? In umpteen cases, the Income Tax Department is guided by the myopic, jerkwater and parochial approaches and their conduct stood admonished and castigated by the authorities acting in the justice delivery system, but the major cause of concern arises what can be easily accepted and admitted at the highest level of judicature is discarded, abandoned, relinquished, dumped and trashed at the drop of a hat by the authorities working at the lowest level of order thereby giving way to massive unwanted, avoidable and preventable litigations so that the most constructive, productive, profitable and advantageous matters are put before the lens of the Hon’ble Courts and Tribunals acting in the aid of the Constitution of India which can be designated as the quality and precedential litigation matters rather than being reduced to a residue of unmerited, unwanted, pointless, redundant, superfluous expedition running and ruining the precious tax payers money.
