The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) restored the matter to the Commissioner of Income Tax (Appeals)[CIT(A)] for fresh consideration in a case involving a penalty under Section 270A of Income Tax Act,1961 for under-reported income, after the appeal was dismissed ex-parte without considering the relief granted in the quantum proceedings.
Mono Steel (India) Ltd,appellant-assessee,was involved in manufacturing and resale of angle channels ingots. During the assessment, the Assessing Officer ( AO ) noticed that the appellant-assessee’s power plant division showed a net profit of 67.16%, much higher than the 2.77% net profit from its steel business. The assessee claimed a deduction under Section 80-IA for the power plant division, but the steel division, which was linked to it, showed much lower profits, raising concerns of tax evasion.
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The AO found that the assessee did not provide a proper distribution of expenses between the two units. The officer estimated that 10% of the “other expenses,” amounting to Rs. 2.09 crores, should be allocated to the power plant unit. This amount was added to the assessee’s total income.
Additionally, the AO initiated penalty proceedings under Section 270A, noting that although the CIT(A) had granted relief, the appeal effect had not been received. A penalty of 50% on the under-reported income of Rs. 36,31,592/- was imposed.
The CIT(A) dismissed the assessee’s appeal due to non-appearance.The assessee the appealed before the tribunal.
The assessee’s counsel argued that the penalty under Section 270A was not justified. He highlighted that the CIT(A) had given significant relief in the quantum order, stating that Rs. 1.64 crores in expenses were for manufacturing, not the power plant unit. The CIT(A) also ruled that administrative expenses should be split based on the turnover of the power plant and steel units.
In the Department’s appeal, the ITAT upheld the CIT(A)’s decision. However, the counsel pointed out that the CIT(A) had not considered the relief given in the quantum order when dismissing the penalty appeal, arguing that the dismissal was unfair and against natural justice.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The two member bench comprising Dr.BRR Kumar ( Vice President ) and Siddhartha Nautiyal ( Judicial Member ) noted that while dismissing the appeal against the Section 270A order, the CIT(A) did not consider the facts submitted by the assessee, which pointed out the relief granted in the quantum proceedings. The ITAT also observed that the CIT(A) failed to address the assessee’s argument that the additions were due to ad-hoc apportionment of expenses, and therefore, penalty should not be levied.
Read More: ITAT Quashes Penalty for Under-Reporting: Holds Assessee’s Actions Bona Fide
The appellate tribunal found that the CIT(A) did not discuss the case facts or the assessee’s grounds. Citing a previous case, the bench held that when an ex-parte order violates natural justice, the assessee should be given another chance to present its case.
In the interest of fairness, the tribunal sent the matter back to the CIT(A) for fresh consideration, directing a fair hearing and review of the quantum proceedings.
In short, the appeal filed by the assessee was allowed for statistical purposes.
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