Partnership Firm Faced Rs. 3.10 Lakh Penalty After Switching from Mercantile to Cash Accounting; ITAT Condones Delay and Restores Appeal

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) has provided relief to Pune-based partnership firm Sharad Shah & Co. by condoning the delay in filing its appeal and sending the matter back for fresh consideration. The dispute relates to AY 2016-17. The firm had originally filed its income tax return declaring an income of Rs. 34,10,720.

During scrutiny assessment, AO found that the firm has changed its accounting system from mercantile system to cash system. The AO was of the view that by this change the taxable income was reduced and income of the firm was enhanced by Rs. 9,85,658. Thus the total assessed income was raised to Rs.43,96,380.

The AO also initiated penalty proceedings under section 271(1)(c) of the Income Tax Act, for concealment of income or furnishing of incorrect particulars. The AO after considering the submissions made by the firm imposed a penalty of Rs 3.10 lakh in June 2019.

Aggrieved by the penalty order, the assessee filed an appeal before the CIT(A). However, there was a delay in filing the appeal and, according to the CIT(A), the assessee failed to provide satisfactory reasons for the delay. Therefore, the appeal was dismissed in limine without going into the merit of the case.

Before the ITAT, the assessee submitted that the delay was unintentional and occurred due to inadvertent mistake in filing the appeal. The assessee also submitted that it had a strong case on merits and it should be provided an opportunity to present the evidence and explanation in relation to the change of accounting method and penalty proceedings.

After hearing both the sides, the Tribunal noted that there was no apparent benefit to the assessee in delaying the appeal intentionally. The Bench noted that the courts should take a liberal and justice-oriented approach while considering the applications for condonation of delay especially when sufficient cause is shown.

The Tribunal relied on the judgments of the Supreme Court in B. Madhuri Goud v. B. Damodar Reddy and Collector, Land Acquisition v. Mst. Katiji wherein the Supreme Court has laid emphasis on the fact that substantial justice should prevail over technicalities and delays should be condoned if there are reasonable explanations.

The ITAT held that the assessee had shown sufficient cause for the delay. Accordingly, the Tribunal condoned the delay and set aside the order of the CIT(A).

The tribunal further directed that the assessee be given one more opportunity to present its case, including filing a revised Form No. 35 and supporting evidence.

As a result, the appeal was allowed for statistical purposes.