The Income Tax Appellate Tribunal ( ITAT ) Bangalore has upheld the penalty imposed under Section 270A of the Income Tax Act, 1961, ruling that the assessee misreported income by claiming both capital expenditure and depreciation as an application of income. The tribunal overturned the relief granted by the Commissioner of Income Tax ( Appeals ) [CIT(A)/NFAC] and held that misreporting penalties do not require proof of intent to evade tax.
The case relates to Assessment Year 2017-18, where the assessee, a charitable trust, filed its income tax return on October 28, 2017, declaring Nil income after claiming exemption under Section 11. The case was selected for scrutiny assessment, during which the Assessing Officer (AO) found that the trust had claimed depreciation on assets despite already claiming capital expenditure as an application of income. The AO disallowed the depreciation claim of Rs.7.53 crore, stating that it resulted in a double deduction, which violated Section 11(6) of the Act.
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Additionally, the AO disallowed a loss of Rs.1.77 lakh on the sale of a vehicle, reasoning that the entire cost of acquisition had already been treated as an application of income in earlier years. Since the loss could not be considered a fresh application of income, the AO rejected the claim. Based on these findings, the AO initiated penalty proceedings under Section 270A, citing misreporting of income and imposing a penalty of Rs.5.31 crore, which was 200% of the tax payable on misreported income.
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The assessee challenged the penalty order before the CIT(A)/NFAC, arguing that the depreciation claim was a clerical error and not a deliberate attempt to misreport income. The CIT(A)/NFAC accepted this explanation and deleted the penalty, ruling that the mistake was unintentional and did not indicate willful misrepresentation.
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The Revenue Department appealed before the ITAT Bangalore, arguing that misreporting under Section 270A does not require proof of intent to evade tax. The Revenue contended that the assessee had multiple opportunities to rectify the mistake by filing a revised return under Section 139(5) but failed to do so. The Revenue also argued that penalty provisions exist to enforce compliance and do not require proof of mens rea.
The ITAT ruled in favor of the Revenue, holding that misreporting of income under Section 270A includes misrepresentation or suppression of facts, failure to record necessary details, and claiming deductions not substantiated by law. The tribunal cited Supreme Court precedents, including Union of India v. Dharamendra Textile Processors (2008), which established that penalty provisions under tax laws do not require mens rea.
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The tribunal also noted that the assessee had approved its audit report, which included the depreciation claim in its application of income, contradicting its claim of inadvertent error. Since the depreciation claim was uploaded on the Income Tax Department’s portal and digitally signed, the ITAT ruled that it could not be considered an oversight.
The ITAT Bangalore Bench comprised of Prashant Maharshi (Vice-President) and Keshav Dubey (Judicial Member) set aside the CIT(A)’s order and upheld the penalty imposed by the AO under Section 270A, confirming that the assessee misreported income by claiming a double deduction. The tribunal ruled that penalty provisions under tax laws exist to ensure compliance, and the presence of intent is not necessary for their application.
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