ITAT Quashes Penalty for Under-Reporting: Holds Assessee's Actions Bona Fide [Read Order]

In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Bengaluru Bench, has quashed the penalty levied on assessee for under-reporting income, marking a significant decision in favor of taxpayers.

This case, which pertains to the assessment year 2017-18, saw the Tribunal overturning the order of the Commissioner of Income Tax (Appeals) (CIT(A)) that upheld the penalty imposed by the Assessing Officer (AO).

Become PF & ESIC Pro: Basic to Advance Course - Enroll Today

The assessee, DACSS Granites Pvt. Ltd., a company engaged in granite business, had filed its return of income with negative income, resulting in a minimal tax demand of just Rs. 5. However, subsequent to the completion of the scrutiny assessment under Section 143(3) of the Income Tax Act, 1961, additions were made under Sections 14A, 36(1)(iii), and 40(a)(ia) of the Act, amounting to a total of Rs. 49,28,158. While the assessee accepted these additions, it did not contest the assessment order.

However, the AO issued a show-cause notice under Section 270A of the Act, proposing the levy of penalty for under-reporting of income. The AO, despite the assessee's objections, imposed a penalty of Rs. 7,61,400. The assessee then appealed to the CIT(A), who dismissed its contentions and upheld the penalty. Not satisfied with this decision, DACSS Granites Pvt. Ltd. took the matter to the ITAT.

Become PF & ESIC Pro: Basic to Advance Course - Enroll Today

Before the ITAT, the assessee argued that the additions made by the AO were related to two specific disallowances: one under Section 36(1)(iii) and the other under Section 40(a)(i). The company claimed that the disallowance under Section 36(1)(iii) was not warranted as the company had reserves amounting to Rs. 17.9 crore, making the disallowance unjustifiable. In addition, it was contended that the TDS error under Section 40(a)(i) had been rectified, with 70% of the payments disallowed by the company in compliance with the law.

Two Member Bench comprised of Prakash Chand Yadav(Judicial Member) and Waseem Ahmed(Accountant Member), after reviewing the facts, found that the assessee had surplus funds and had acted in good faith while rectifying the TDS mistake.

Become PF & ESIC Pro: Basic to Advance Course - Enroll Today

The Tribunal noted that these actions were in line with the law and should not be construed as under-reporting or mis-reporting of income. Furthermore, the Tribunal emphasized that the assessee had paid due taxes and filed the necessary forms, albeit belatedly, which the Tribunal deemed a procedural irregularity rather than a violation.

Citing previous decisions where immunity was granted despite delayed filing of Form 68, the ITAT concluded that the penalty was not warranted. Consequently, the ITAT quashed the penalty, providing relief to the assessee.

This ruling highlights the importance of bona fide actions by taxpayers and offers clarity on the issue of penalties for under-reporting, especially in cases where taxpayers have acted in good faith and complied with tax obligations.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates