ITAT sets aside Income Tax Penalty on Fruit Dealer for Misreporting, Directs CIT(A) to Reconsider Immunity Despite Form 68 Lapse [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) has set aside a penalty imposed for misreporting of income while directing the Commissioner of Income Tax (Appeals) ( CIT(A) ) to re-examine the firm’s claim for immunity, observing that a procedural lapse in form submission alone should not override the assessee’s substantive requirements.

The appellant, Terai Fruits Company, is a partnership firm involved in fruit trading, which fell under the income tax investigation for the Assessment Year (AY) 2018-19. According to data received from the Central Bank of India, the firm had deposited over ₹1.03 crore in cash into its bank account during the Financial Year (FY) 2017–18.

However, they had not filed any return of income for that year, leading to reassessment proceedings under Section 147 of the Income Tax Act, 1961.

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The appellant filed its return of income after receiving a notice under Section 148 of the Act. The ITR filed disclosed total profits of ₹2.88 lakh. The firm contended that its partnership structure had dissolved due to the death of one partner, after which the business was continued as a proprietorship by the surviving partner. He reported the remaining income as his individual return.

The appellant filed a request seeking immunity from penalty under Section 270AA of the Act, but submitted a letter rather than the prescribed Form 68.

The Assessing Officer (AO) mentioned a procedural lapse and rejected the application for immunity. The officer also proceeded to levy a penalty of ₹1.78 lakh for alleged misreporting of income.

The CIT(A) upheld the order of AO, pointing out that filing Form 68 is a requirement for immunity, and the appellant’s failure to do so was a mistake that couldn't be excused.

The ITAT bench of Pradip Kumar Choubey (Judicial Member) and Rakesh Mishra (Accountant Member) noticed that despite the assessee having failed to submit Form 68, had made all substantive compliance under Section 270AA of the Income Tax Act, 1961.

The bench citing the Supreme Court’s decision in Mangalore Chemicals & Fertilizers Ltd. (1992), the Tribunal reiterated that procedural lapses should not defeat legitimate and bona fide claims when the substantive intention of the law has been met.

Accordingly, the ITAT set aside the penalty order and remanded to the CIT(A).

The Tribunal also instructed that the assessee be given a fair opportunity to present all relevant evidence, and a reasoned order be passed.

Sujit Basu and Rajib Mukherjee represented the assessee, while Akhil Kumar represented the department.

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