Penalty u/s 270A for Misreporting without Proper Charge Specification Invalid: ITAT Deletes Rs. 38.05 Lakh Penalty [Read Order]

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT)deleted the penalty of Rs. 38.05 lakh imposed on the assessee due to the failure of the Assessing Officer (AO) to clearly specify the charge whether for under-reporting or misreporting of income.

Nateshan Sampath (assessee), had not filed a return of income for Assessment Year 2018–19. The AO issued notice and the assessee filed a return of income declaring loss of Rs. 1,02,80,375 from business and long term capital gains of Rs. 20,68,361 from sale of immovable property.

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The AO completed assessment, determining a total income of Rs. 20.92 lakh. The AO initiated penalty proceedings under Section 270A(8), alleging that the assessee made a misreporting of income by failing to substantiate the cost of improvement.

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Aggrieved  by the order of the CIT(A), the assessee filed an appeal before the Commissioner of Income Tax (appeals) [CIT(A)]. The assessee’s appeal before the CIT(A) was dismissed. The CIT(A) held that the under-reporting was unearthed only due to action by the Revenue

The CIT(A) also held that the assessee was not entitled to immunity from penalty under Section 270A of the Income Tax Act. Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT.

The counsel for the assessee submitted that the assessee had already accepted the addition and paid the entire taxes with interest. The counsel submitted that the CIT(A) observed that the assessee had under-reported the income but confirmed the penalty on ground of misreporting of income.

The two-member bench comprising Waseem Ahmed (Accountant Member) and Keshav Dubey (Judicial Member) observed that that a penalty for misreporting (200%) can only follow after a clear finding of under-reporting and after identifying the specific default under Section 270A(9) of the Income Tax Act.

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The tribunal observed that both the AO and the CIT(A) failed to apply the step ladder prescribed under Section 270A for levying penalty.

The Tribunal relied on the Delhi High Court ruling in Schneider Electric South East Asia (HQ) PTE Ltd. V. Commissioner of Income Tax (international taxation) and others held that failure to specify the correct charge rendered the proceedings invalid.

The Tribunal concluded by deleting the penalty of Rs. 38.05 lakh. The appeal of the assessee was allowed.

To Read the full text of the Order CLICK HERE

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