The Pune bench of the Income Tax Appellate Tribunal (ITAT) held that Assessing officer’s failure in proper communication of specific circumstance to the assessee resulted in violation of the Principles of natural justice.
The appellant assessee is a salaried employee, filed his original return of income under section 139(1) of the Income Tax Act, 1961 declaring income of ₹8,82,790/- after claiming deduction under Chapter VI-A for sum of ₹1,65,284/-.
The grounds raised in the appeal are inconsonance with Rule 8 of the Income Tax Appellate Tribunal Rules, 1963.
Subsequently, the assessee revised his Income Tax Returns (ITR)under the Section 139(5) of the Income Tax Act thereby slicing down the total income to ₹4,90,810/-, consequent to higher claim of deduction under Chapter VI-A of ₹3,59,844/- as against original claim of deductions.
A survey action under section 133A of the Income Tax Act was carried out wherein certain information was shared by the Investigation wing to the jurisdiction AO of the assessee. In pursuant to such information, the case of the appellant was subjected for reassessment under the Section 147 of the Income Tax Act.
In response to notice under section 148 of the Act, the appellant filed his ITR correcting spurious claim of deductions and thus restored original state.
The AO underlining the variation between income returned pursuant to notice under section 148 with that of revised ITR filed under section 139(5) of the Act, invoked the penal provision for under-reporting of income holding as it is in the nature of mis-reporting.
The tribunal considered the development of the current penalty legislation, wherein the legislature has introduced a new simplified penalty scheme by adding section 270A. The primary objective of this new provision is to address the contentious issue surrounding section 271(1)(c) of the Income Tax Act and bring about its conclusion.
The tribunal observed that, the AO after having clearly analysed facts and circumstances of the case dejectedly failed to identify or determined and then communicate either through reassessment order or through notice the specific circumstance or incidence.
The appellant’s case falls within the specific clauses (a) to (g) of sub-section (2) of section 270, which define the circumstances under which under-reported income triggers the penalty provision. However, the appellant’s failure persists in identifying, determining, and presenting the specific action in terms of clauses (a) to (f) of subsection (9) of Section 270, which categorizes the under-reported income as a result of misreporting.
The tribunal noted that without adhering to aforestated exercise, the AO precipitately culminated penal proceedings imposing a penalty at 200% of the tax sought to be evaded.
Albeit it is true that present section 270A unlike section 271 does not require the Ld. AO to record satisfaction for invocation of penal provision, but unless the person has been communicated the specific incidence vis-à-vis action triggering the imposition of penalty in his case, he could never be able to refute the charge broughtout against him.
Thus, non-identification or determination vis-à-vis communication of specific clause lineally from sub-section (2) and sub-section (9) would drastically obstruct an assessee from enforcing his right to dismantle the charge alleged against him, thus resulting into violation of principle of natural justice.
Relying on the judgment of CIT Vs Samson Pericherry, PCIT Vs Goa Dorado and ‚PCIT Vs New Era Sova Mine, the two bench members comprsing of S. S. Godara&G. D. Padmashalioverturned the order of NFAC and quashed the penalties imposed.
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