Penalty cannot be imposed bonafide and inadvertent error

The issue in this appeal of the assessee is regard to the addition in respect of wrong claim of deduction u/s 24(a) of the Income Tax Act, 1961 (the Act).

In this matter, the assessee made a wrong claim of deduction u/s 24(a) of Rs. 34,93,054/-. The assessee did not file an appeal against the order of Ld.CIT(A). Subsequently, the Assessing Officer (“AO”) issued a notice u/s 271(1)(c) of the Act to show cause why the penalty should not be levied. In response thereto, the assessee stated that claim u/s 24(a) of the act was made under the bonafide belief that such deduction was available. It was contended that the assessee disclosed and furnished the correct particulars of his income. However, the AO did not accept this contention of the assessee and he proceeded to levy the impugned penalty u/s 271(1)(c) of the Act.

Aggrieved against this, the assessee preferred to appeal before Ld.CIT(A) who also sustained the penalty. Aggrieved by the order, the assessee filed appeal before the tribunal.

On hearing both the parties, ITAT was of the view that the plea of the bonafide and inadvertent error is to be tested on the facts of each case.

Moreover, there is no straight-jacket formula to say that a particular act was a bonafide error or another deliberate act. The assessee is required to demonstrate from the records that such error occurred due to inadvertent and was not deliberate to avoid tax liability.

In the case in hand, the assessee has successfully demonstrated that claim of deduction u/s 24(a) of the Act, was made as the rent was offered for tax under the income from house property. Therefore, the penalty imposed by the AO on this issue cannot be sustained.

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