Facts of the Case

The assessee, Harish Kumar HUF, filed its return for AY 2015–16 declaring income after adjusting Short Term Capital Loss (STCL) against Long Term Capital Gain (LTCG) and claiming exemption under Section 10.

During scrutiny, the Assessing Officer (AO) examined dividend income and applicability of Section 94(7) relating to dividend stripping. The assessee initially failed to include a portion of dividend income amounting to ₹1,98,51,874.

Upon being queried by the AO, the assessee:

  • Identified the omission
  • Admitted applicability of Section 94(7)
  • Revised computation of income
  • Filed revised return
  • Paid due taxes

However, the AO initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars and imposed penalty of ₹45,52,613.

Issues Involved

  1. Whether omission of dividend income leading to incorrect computation attracts penalty under Section 271(1)(c)?
  2. Whether voluntary revision after detection by AO can still be considered bonafide?
  3. Whether inadvertent accounting errors qualify as “furnishing inaccurate particulars of income”?

Petitioner’s (Revenue’s) Arguments

  • The assessee furnished inaccurate particulars of income.
  • Disclosure was not voluntary but made after detection by AO.
  • If scrutiny had not occurred, tax would have been evaded.
  • Case squarely falls under Explanation 1(B) to Section 271(1)(c).
  • Tribunal erred in deleting penalty despite clear concealment.

 Respondent’s (Assessee’s) Arguments

  • Error occurred due to inadvertent clerical mistake by accounting staff.
  • Huge volume of transactions caused wrong posting of dividend entries.
  • Mistake was identified during assessment proceedings.
  • Assessee voluntarily revised computation at the earliest opportunity.
  • Taxes were promptly paid and no mala fide intention existed.

Court’s Findings

  • The error arose due to bonafide human mistake in accounting entries.
  • Dividend entries were incorrectly posted due to multiple receipts on same security.
  • Assessee voluntarily revised income and paid taxes promptly.
  • No material indicated intent to conceal income or evade tax.
  • Tribunal’s finding was based on proper appreciation of facts and was not perverse.

Court Order / Final Decision

  • Appeal of Revenue dismissed
  • Penalty under Section 271(1)(c) deleted
  • Tribunal’s order upheld

Important Clarification

  • Mere error in computation does not automatically attract penalty.
  • Bonafide mistakes, especially due to accounting errors, are not equivalent to concealment.
  • Voluntary correction, even after notice (if genuine), can still be treated as bonafide.
  • Intention to evade tax is a key factor for penalty under Section 271(1)(c).

Sections Involved

  • Section 260A – Appeal to High Court
  • Section 271(1)(c) – Penalty for concealment of income / furnishing inaccurate particulars
  • Section 274 – Procedure for penalty
  • Section 94(7) – Dividend stripping
  • Section 142(1) – Inquiry before assessment
  • Section 143(3) – Scrutiny assessment
  • Section 139(1) – Filing of return
  • Section 250 – Appeal before CIT(A)

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:2143-DB/MMH25052022ITA642020_112744.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.