2014 (3) TMI 952 - AT - Income Tax

Penalty u/s 271(1)(c) - ssessee has set off the unabsorbed depreciation and business losses against the income under the head Capital gains - Held that - since Shri Krishan Kumar Mangal died may be his young son was not fully conversant with the affairs of the firm and in the absence of tax consultant who also died he was perhaps wrongly advised to make a claim for set off of brought forward unabsorbed depreciation. It is a settled law that a person cannot be punished for the mistakes committed by counsel for the assessee or his advisors. On the overall circumstances of the case we are of the opinion that this is not a fit case for levy of penalty and accordingly we set aside the order of the learned Commissioner of Income-tax (Appeals) and delete the penalty. - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) of the Income-tax Act, 1961 - Whether penalty justified for setting off unabsorbed depreciation and business losses against capital gains - Whether penalty should be levied for a bona fide mistake made by counsel/advisor of the assessee.

Analysis:

Issue 1: Penalty under section 271(1)(c) of the Income-tax Act, 1961
The appeal challenged the penalty of Rs. 3,08,000 levied under section 271(1)(c) by the Assessing Officer, which was confirmed by the Commissioner of Income-tax (Appeals). The assessee had set off unabsorbed depreciation and business losses against income from capital gains, which was disallowed during assessment. The Assessing Officer imposed the penalty citing that the set off was against the provisions of the Act. The Commissioner upheld the penalty, stating that section 72 specifically prohibits such set off. However, the Tribunal found that the mistake was due to advice from the deceased tax consultant's son, who was not fully conversant with the firm's affairs. The Tribunal held that the penalty was not justified as the mistake was made by the counsel/advisor and not the assessee, thereby deleting the penalty.

Issue 2: Bona fide mistake made by counsel/advisor
The Tribunal considered the circumstances where the mistake of setting off unabsorbed depreciation and business losses against capital gains was due to advice from the deceased tax consultant's son, who was not fully aware of the firm's affairs. The Tribunal noted that a person cannot be penalized for mistakes made by their counsel or advisors. Relying on the principle that a bona fide mistake should not attract penalty, the Tribunal concluded that the penalty should be deleted in this case. The Tribunal emphasized that the assessee did not conceal any income and referred to relevant case law to support their decision.

In conclusion, the Tribunal allowed the appeal, setting aside the order of the Commissioner of Income-tax (Appeals) and deleting the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961.