• Friday, 11 Apr 2025, 10:55:25 am

Income Tax Act, 1961 – Sections 270A, 40(a)(ia), 2(24)(x), 36(1)(va) and 143(3) - The assessee filed a return declaring total income of Rs. 87,57,240/-. The Assessing Officer (AO) made additions of Rs. 2,35,839/- for late payment of employees' contributions to PF/ESI under Section 2(24)(x) read with Section 36(1)(va) and Rs. 68,277/- under Section 40(a)(ia) for non-deduction of TDS on certain payments. The AO initiated penalty proceedings under Section 270A, classifying the case as both "under-reporting of income" and "misreporting of income" and imposed a penalty at 200% of the tax payable under Section 270A(8). The CIT(A) upheld the penalty, stating that the assessee had misrepresented facts and claimed unsubstantiated expenses. The assessee appealed before ITAT, arguing that the AO had not clearly distinguished between under-reporting and misreporting, and that the issues involved were debatable - Whether the penalty under Section 270A was valid despite the AO failing to specify whether the case involved "under-reporting" or "misreporting" of income - Whether the additions made on account of PF/ESI late payment and TDS disallowance could be classified as "misreporting of income" under Section 270A(9) - Whether the imposition of a 200% penalty under Section 270A(8) was justified in the absence of specific findings of deliberate misrepresentation – HELD - ITAT noted that the AO had imposed a penalty without clearly distinguishing between "under-reporting" and "misreporting" of income, which is essential under Section 270A. Various judicial precedents, including Kishor Digambar Patil vs. ITO and Manish Manohardas Asrani vs. ITO, emphasize that the AO must explicitly specify the applicable limb of Section 270A, failing which the penalty order is legally unsustainable - The Tribunal observed that the disallowance of PF/ESI payments and TDS deductions were based on debatable legal interpretations rather than deliberate misrepresentation or suppression of facts. Since the Supreme Court's ruling in Checkmate Services Pvt. Ltd. vs. CIT on PF/ESI deposits came after the assessment order, the issue was not settled at the time, making the penalty unwarranted - ITAT held that none of the conditions listed under Section 270A(9) (such as misrepresentation, suppression of facts, or false entries) applied to the assessee's case. Since the disallowances arose from legal differences rather than deliberate falsification, the imposition of a 200% penalty was unjustified - Relying on Prem Brothers Infrastructure vs. NFAC & Anr., ITAT concluded that mere disallowances of expenses do not automatically translate into "misreporting of income" unless specific evidence of fraud or willful misrepresentation is present - Accordingly, the penalty under Section 270A was deleted, and the appeal was allowed in favor of the assessee - The ITAT set aside the penalty order, ruling that the AO's failure to specify the applicable provision under Section 270A rendered the penalty invalid. The appeal was allowed, and the penalty was deleted in full

 

2025-VIL-215-ITAT-AHM

 

IN THE INCOME TAX APPELLATE TRIBUNAL

“D” BENCH AHMEDABAD

 

ITA No. 1592/Ahd/2024

Assessment Year: 2017-18

 

Date of Hearing: 27.01.2025

Date of Pronouncement: 30.01.2025

 

INFOANALYTICA CONSULTING PRIVATE LIMITED

 

Vs

 

THE DEPUTY COMMISSIONER OF INCOME TAX

 

Appellant by: Shri Sunil Talati, AR

Respondent by: Shri Nitin Kulkarni, Sr. DR

 

BEFORE

SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER

SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER

 

ORDER

 

PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:

 

This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeal), Ahmedabad, National Faceless Appeal Center Delhi (in short “Ld. CIT(A)”) vide order dated 16.07.2024, passed for A.Y. 2017-18.

 

2. The Assessee has taken the following grounds of appeal: -

 

1. The order of the learned CIT(A) is erroneous and bad in law and on the facts of the case.

 

2. The learned CIT(A) has erred in not considering the submission of the Appellant and in upholding the penalty order of the Assessing Officer and hence the levy of penalty u/s.270A is liable to be quashed.

 

3. The Appellant craves to add, amend, alter, delete and or modify the aforesaid grounds of appeal.

 

3. The brief facts of the case are that assessee has filed its return of income declaring total income of Rs.87,57,240/-. During the course of assessment proceedings, the AO has made the following additions.

 

i. Addition of Rs.2,35,839/- on account of late payment of Employees Contribution to PF & ESI.

 

ii. Disallowance u/s.40(a)(ia) of the Act of s.68,277/-

 

Accordingly, the AO has recorded satisfaction for initiation of penalty proceedings u/s.270A of the Act, for “under-reporting of income which is in consequences of mis-reporting of income”. In the penalty proceedings, after taking the submission of the assessee on record, the AO confirmed the penalty for “under-reporting of income which is in consequences of mis-reporting thereon” for a sum equal to 200% of the amount of tax payable as per the provisions of section 270A(8) of the Act. While passing the order the AO made the following observations:

 

5. As the assessee has under reported its income which is in consequences to misreporting thereon for the year under consideration, the penalty for under reporting of income which is in consequences to misreporting thereon shall be a sum equal to 200% of the amount of tax payable on under-reported income as per provisions of the Act. section 270A(8) of Accordingly, looking to the facts s of the case, a penalty of Rs. 2,01,100/-imposed under section 270A(2) rws. 270A(9) of the Income Tax Act, 1961 on the under reported income of Rs.3,04,116/-on the basis of the merit in the case of the assessee.

 

4. In appeal, the Ld.CIT(A) confirmed the penalty order with the following observations:

 

6.2 Since the appellant failed to comply with the provisions of sec 40a(ia) coupled with the non-adherence to notification no 11/2016 dated 2nd Dec 2016 the submission of appellant that it has submitted during assessment proceedings does not relieve the appellant from penalty being levied u/s 270A(9) on account of (a) misrepresentation of suppression of facts and (c) claim of expenditure not substantiated by any evidence.

 

5. The assessee is in appeal before us against the aforesaid order passed by the Ld.CIT(A).

 

6. At the outset, the Ld. Counsel for the assessee submitted that from the contents of the penalty order, it is observed that the AO is not sure as to whether the penalty have been levied for “under-reporting” of income or “mis-reporting” of income. The Ld. Counsel for the assessee relied on several judicial precedents which have held that penalty u/s.270A of the Act, requires precise classification, whether the penalty is being levied for mis-reporting of income or under-reporting of income. Secondly, the Ld. Counsel for the assessee submitted that looking into the instant facts it is not a case of mis-reporting of income attracting levy of penalty @ 200% u/s.270A(8) of the Act, since the assessee’s case is not following in any of the specific instances of mis-reporting of income provided u/s. 270A(9) of the Act.

 

7. In response, the Ld. DR placed reliance on the observations made by the AO and the Ld.CIT (A) in their respective orders, confirming the levy of penalty.

 

8. We have heard the rival contention and perused the material available on record. In this case, an assessment order was passed u/s 143(3) of the Act dated 28.11.2019 determining total income of Rs.9,90,61,310/-after making an addition of Rs.2,35,839/- on account of disallowance for late payment of Employee Contribution to PF & ESI and Rs.68,227/- on account of disallowance u/s 40(a)(ia) of the Act. The Assessing officer passed the penalty order u/s 270A of the Act for the relevant assessment year dated 16.03.2022 by levying penalty amounting to Rs,2,01,000/- for “underreporting of income which is in consequence of misreporting thereon” mentioning that the Ld. AO has recorded satisfaction for the initiation of penalty u/s 270A of the Act. Further, the AO has imposed penalty @200% on the amount of tax payable as per the provisions of Section 270A of the Act. The provisions of section 270A(2) of the Act deals with levy of penalty for under-reporting of income and this section typically involves discrepancies such as omission or inaccuracies not involving deliberate misrepresentation. In this case a lower penalty @50% of tax is levied. However, penalty u/s.270A(8)/(9) involves cases of wilful suppression or misstatement or misrepresentation of facts, thereby attracting more severe penalty @200% of the amount of tax payable. Various courts have consistently held that the penalties under section 270A of the Act, requires precise classification and income adjustment cannot attract penalty both u/s.270A(2) of the Act as well 270A(9) of the Act. It would be useful to reproduced some of the judicial precedents which have thrown useful light on the subject which are as follows:

 

i. In the case of Kishor Digambar Patil Vs. Income Tax Officer in ITA No.54 & 55/PUN/2023 vide order dated 30.03.2023, the ITAT has made the following observations on the issue.

 

6.2. Faced with the situation and in light of overwhelming material strongly supporting the assessee's case and going by stricter interpretation as per Commissioner of Customs (Imports), Mumbai vs. Dilipkumar And Co. & Ors. 2018 (9) SCC 1 (SC) (FB), I am of the view that the above stated judicial precedents regarding the "limb theory" would squarely apply even in case of failure of the Assessing Officer to quote any of the six sub-limbs as well prescribed in sec.270A(9) (a) to (1) of the Act introduced by the legislature in order to rationalize and bring objectivity, certainty and clarity in the penalty provisions". And that his non-compliance to this clinching effect would not only defeat the legislative mandate but also it renders the amending provisions an otiose. I accordingly hold in these peculiar facts and circumstances that both the impugned penalties deserve to be quashed as not sustainable in the eye of law. Order accordingly.

 

ii. In the case of Shri Manish Manohardas Asrani Vs. International Tax Ward 1(1)(1) in ITA No.4134/Mum/2023 vide order dated 15.10.2024, the ITAT made the following observations:

 

8. Coming to the instant case, admittedly in the assessment order, the AO initiated the penalty proceedings u/s 270A of the Act without mentioning any sub clause of the section 270A of the Act or not specifying any limb of the penalty proposed to be levied. Further, in the penalty notice issued u/s 274 r.w.s 270A of the Act dated 11.11.2021 mentioned under reporting of the income. Subsequently during the penalty proceedings again issued the notice dated 20.12.2021 u/s 274 r.w.s 270A of the Act, without specifying any limb or sub clause of section 270A of the Act and ultimately vide order dated 22.02.2022 u/s 270A of the Act levied the penalty for misreporting of the income as well as underreporting of the income, as per provisions of section 270A(8) of the Act with the aid of section 270A(9)(e) of the Act. As the AO issued the vague notice without specifying any particular limb or sub clause for levying the proposed penalty. There is no whisper at all in the notice issued u/s 270A read with section 274 of the Act about "misreporting of income" whereas the penalty has been levied ultimately for both 'under reporting' and 'misreporting of income @ 200% in terms of section 270A(9) of the Act, for which show cause notice was never issued to the Assessee. And therefore in view of the judgment passed by the co-ordinate Bench of the Tribunal in the case of Jaina Marketing & Associates (supra), wherein the Co-ordinate Bench of the Tribunal not only analyzed the provisions of law but also considered the judgments of the Higher Courts and the Tribunal and deleted the identical penalty as involved in this case, hence respectfully following the decision of the Tribunal, we are inclined to delete the penalty under consideration. Thus, the penalty is deleted and appeal filed by the Assessee is allowed.

 

9. As we have deleted the penalty, hence not dwelling into other aspects of the case, as extensively argued by the parties, as adjudication of the same would be futile exercise.

 

iii. Hon’ble Delhi High Court in the case of GE Capital Us Holding Inc Vs. DCIT (International Taxation) Circle 1(3)(1), New Delhi vide W.P(C) 1646/2022 dated 31.05.2024 has made the following observations:

 

31. We are further constrained to observe that even the assessment orders fail to base the direction for initiation of proceedings under Section 270A on any considered finding of the conduct of the petitioner being liable to be placed within the sweep of sub-section (9) of that provision. The order of assessment as well as the SCNs' clearly fail to meet the test of "specific limb" as propounded in Minu Bakshi and Schneider Electric. A case of misreporting, in any case, cannot possibly be said to have been made out bearing in mind the fact that the petitioner had questioned the taxability of income asserting that the same would not constitute royalty.

 

iv. Hon’ble Delhi High Court in the case of Prem Brothers Infrastructure Vs. National Faceless Assessment Centre & Anr. New Delhi vide W.P(C) 7092/2022 dated 31.05.2022 has made the following observations:

 

8. This Court also finds that there is not even a whisper as to which limb of Section 270A of the Act is attracted and how the ingredient of sub-section (9) of Section 270A is satisfied. In the absence of such particulars, the mere reference to the word "misreporting" by the Respondents in the penalty order to deny immunity from imposition of penalty and prosecution makes the impugned order manifestly arbitrary.

 

9. In view of the above judicial precedents, we observe that it is a well settled law that penalty cannot be sustained u/s.270A of the Act, without specifying any specific limbs of the section 270A of the Act under which the penalty is being levied. It would be useful to reproduce the show-cause notice initiating levy of penalty which reads as under:

 

“Whereas in the course of proceedings before me for the Assessment Year 2017-18, it appears to me Under-reporting of income in consequent of misreporting.”

 

10. Further, in the penalty order u/s.270A of the Act, while passing the order confirming penalty @200% u/s.270A of the Act, the AO has made the following observations:

 

5. As the assessee has under reported its income which is in consequences to misreporting thereon for the year under consideration, the penalty for under reporting of Income which is in consequences to misreporting thereon shall be a sum equal to 200% of the amount of tax payable on under-reported income as per provisions of section 270A(8) of the Act. Accordingly, looking to the facts of the case penalty of Rs. 2,01,100/- imposed under section 270A(2) r.w.s. 270A(9) of the income come Tax Act, 1961 on the under reported income of Rs.3,04,116/-on the basis of the merit in the case of the assessee

 

11. Accordingly, from the contents of the notice for initiating penalty proceedings as well as appellate order u/s.270A of the Act, the AO has no clarity under which specific limb of section 270A the AO is proceeding to levy penalty. Therefore, in view of the well settled Judicial precedents on the subject as cited above and in the absence of any clarity on specific limb u/s.270A of the Act, where the penalty have been levied on the assessee, in our considered view penalty u/s.270A of the Act is not liable to be sustained.

 

12. Another notable issue for consideration before us is that while levying the penalty u/s.270A of the Act @200% which is levied for offences of penalty committed u/s.270A(9) of the Act, it is observed that the AO has not specified which specific offence under section 270A(9) of the Act has been committed by the assessee. It would be useful to reproduce the relevant extract of section 270A(9) of the Act for ready reference.

 

(9) The cases of misreporting of income referred to in sub-section (8) shall be the following, namely:—

 

(a) misrepresentation or suppression of facts;

 

(b) failure to record investments in the books of account;

 

(c) claim of expenditure not substantiated by any evidence;

 

(d) recording of any false entry in the books of account;

 

(e) failure to record any receipt in books of account having a bearing on total income; and

 

(f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.

 

13. Further while confirming the penalty, the Ld.CIT(A) has held that penalty is levied u/s.270A(9) of the Act, on account of (a)misrepresentation or suppression of fact and (c) claim of expenditure not substantiated by any evidence.

 

14. In our considered view, in the assessee’s set of facts, the above clauses of section 270A(9) of the Act are not attracted at all. In the Assessment Order, addition of Rs.2,35,839/- has been made on account of late payment of Employees Contribution to PF & ESI. We observe from the record that disallowance regarding late deposits of Employees Contribution towards PF & ESI were adequately disclosed in Form No.3CD(Tax Audit Report). In the instant case, the return of income for the impugned year i.e AY 2017-18 was filed on 30.11.2017 and Assessment Order was passed on 28.11.2019, therefore, at the time of passing of the Assessment Order, issue of delayed payment towards PF & ESI was debatable issue and issue got settled fully after passing of order by Hon’ble SC in the case of Checkmate Services private limited v/s. CIT vide order dated 12.10.2022. Therefore, in our considered view, the case of the assessee does not fall under any of the provisions of section 270A (9) of the Act viz. (a) misrepresentation of suppression of facts and (c) claim of expenditure not substantiated by any evidence. Further, we observe that the AO has disallowed the sum of Rs.68,277/- u/s.143(3) of the Act, on account of non-deduction of TDS interest of Rs.2,27,423/- on car loan payable. From the facts placed on record, the details regarding non-deduction of tax from the interest were furnished in Form 3CD (Tax Audit Report) at the time of filing of return of income and the Ld. Counsel for the assessee submitted before us that the assessee had not made disallowance in anticipation of submission of certificate u/s.201 of the Act from the deductee. Accordingly, even with respect to second disallowance made by the AO provision of section 270A(9)(a) or 270A(a)(c) of the Act are not attracted. Therefore, to conclude looking into the facts of the assessee’s case, it is not a fit case for levy of penalty u/s.270(A) of the Act, on account of failure on the part of the AO in giving precise classification/limb of section 270A of the Act in which the case of the assessee is falling and further even on perusal of specific cases of misreporting of income specified in section 270A(9) of the Act, as observed in the preceding part of the order, the case of the assessee does not fall in any of the instances specified u/s.270A(9) of the Act.

 

15. In the result, the penalty u/s.270A of the Act is directed to be deleted and appeal of the assessee is allowed.

 

This Order pronounced in Open Court on 30/01/2025.

 

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