Mere Disallowance of Capitalized Interest Not Misreporting: ITAT deletes Income Tax Penalty u/s 270A [Read Order]

The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) has deleted the penalty imposed under section 270A of the Income Tax Act, 1961, and held that mere disallowance of the capitalized interest does not amount to misreporting of income, but amounts to only ‘under-reporting’.

The assessee, Urmila Rajendra Mundra, had filed the return of income for Assessment Year (AY) 2022–23.

During assessment proceedings, the Assessing Officer (AO) noticed that the assessee had claimed capitalized interest against an asset, in the AO’s view, was not allowable. The AO disallowed the claim and treated the disallowance as misreporting of income under section 270A and imposed a penalty at 200% of the tax payable on the disallowed amount.

On appeal, the Commissioner of Income Tax (Appeals) ( CIT(A) ) upheld the penalty, agreeing with the AO’s view that the claim constituted misreporting of income.

Before the Tribunal, the assessee contended that the claim was made on the basis of a bona fide belief, with all particulars of the transaction disclosed in the books of account and audit report.

The Bench comprising Narinder Kumar (Judicial Member) and Rathod Kamlesh Jayantbhai (Accountant Member) observed that there was no finding by the AO or the CIT(A) to establish that the assessee had concealed income or furnished inaccurate particulars with the intent to mislead. The Tribunal noted that all material facts were on record and the disallowance arose from a legal interpretation, not from suppression or falsification of facts.

The Tribunal noted that penalty provisions cannot be invoked for making a claim that is not accepted by the tax authorities but is otherwise bona fide and fully disclosed. The Tribunal held that the present case fell under “under-reporting” rather than “misreporting” as defined in section 270A.

Accordingly, the ITAT deleted the penalty levied under section 270A(9), allowing the assessee’s appeal.

The assessee was represented by Sunil Porwal, while Gautam Singh Choudhary represented the Revenue.

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