No Penalty u/s 270A when AO fails to Specify Incidence ‘Under Reporting of Income’: ITAT [Read Order]

The Dehradun Bench of the Income Tax Appellate Tribunal (ITAT) held that a penalty under Section 270Aof the Income Tax Act, 1961 cannot be sustained where the Assessing Officer fails to specify the exact charge or circumstance constituting under-reporting or misreporting of income.

During the assessment proceedings, the Assessing Officer observed that the assessee had incorrectly carried forward business loss of ₹1,52,97,649 instead of ₹1,42,77,566. Further, employees’ contribution towards PF and ESI amounting to ₹5,01,734 was disallowed under Section 36(1)(va) of the Income Tax Act, on account of delayed payment.

Accordingly, in the assessment completed under Section 143(3) read with Section 144B of the Income Tax Act, penalty proceedings under Section 270A were initiated for under-reporting and misreporting of income. Thereafter, a penalty of ₹10,63,566, being 200% of the tax sought to be evaded on under-reported income of ₹15,21,817, was imposed. The Commissioner of Income Tax (Appeals) upheld the penalty.

The Authorised Representative contended that although the penalty was levied on the ground of under-reporting of income as a consequence of misreporting under Section 270A(9)(a) of the Income Tax Act, neither the assessment order nor the penalty notice specified the particular charge falling within clauses (a) to (f) of Section 270A(9). It was argued that in the absence of a specific allegation, the penalty proceedings were invalid and liable to be quashed.

The Departmental Representative supported the orders of the lower authorities, submitting that the incorrect claim of carry-forward of business loss and the delayed payment of PF and ESI clearly constituted a case of under-reporting arising from misreporting of income.

The Tribunal of Satbeer Singh Godara, Judicial Member and Manish Agarwal, Accountant Member observed that the failure of the Assessing Officer to identify and communicate the specific circumstance under clauses (a) to (g) of Section 270A(2) or clauses (a) to (f) of Section 270A(9) of the Income Tax Act, which formed the basis for imposing the penalty, rendered the entire penalty proceedings invalid and unsustainable in law. Accordingly, the penalty imposed under Section 270A was quashed.

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The Tribunal further noted that the assessee had applied for immunity under Section 270AA of the Income Tax Act. The application was rejected solely on the ground that the penalty had been levied for misreporting of income under Section 270A(9). However, since the Commissioner of Income Tax (Appeals) had treated the case as one involving only under-reporting of income and not misreporting, the assessee was also entitled to claim immunity under Section 270AA of the Income Tax Act.

The Tribunal relied on the judgment of the Delhi High Court in the case of Schneider Electric South East Asia (HQ) Pte Ltd. vs ACIT, wherein the Court has dealt with the issue of satisfaction recorded at the time of levying the penalty under Section 270A of the Income Tax Act.

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