Ashok Kumar Gupta Vs DCIT (ITAT Delhi)
Summary: The Delhi Bench of the Income Tax Appellate Tribunal considered the assessee’s appeal against the order dated 30.05.2023 of the CIT(A)-24, New Delhi, concerning Assessment Year 2017-18. The only effective issue before the Tribunal was whether the CIT(A) was justified in confirming the levy of penalty under Section 270A of the Income Tax Act, 1961.
The assessee had furnished his return of income for AY 2017-18 on 16.03.2018 declaring total income of Rs. 4,93,460/-. The return was processed under Section 143(1) on 08.04.2018. The case was subsequently taken up for Compulsory Manual Scrutiny because a survey had been conducted on the assessee on 21.04.2016.
The assessee was an individual proprietor of M/s Ridhi Sidhi Impex and was involved in accommodation entry business, showing commission income during the relevant year. Assessment under Section 143(3) was completed on 27.12.2019 determining total income at Rs. 13,53,184/-. Penalty proceedings under Section 270A were initiated through a penalty notice dated 27.12.2019 for under-reporting of income. Subsequently, penalty at 200% was imposed under Section 270A(8) by order dated 26.03.2022. The CIT(A) affirmed the penalty.
Before the Tribunal, it was noted that Section 270A contemplates penalty in two circumstances, namely under-reporting and misreporting of income, with different penalty rates. The Tribunal observed that under Section 270A(7), penalty for under-reporting is prescribed at 50% of the tax payable on under-reported income, whereas under Section 270A(8), where under-reported income is in consequence of misreporting, the penalty is 200% of the tax payable on under-reported income.
The Tribunal found that the penalty notice dated 27.12.2019 had initiated proceedings under the head “under-reporting of income” and not under the head “misreporting”. It further noted that even the penalty order did not contain a single reference to misreporting by the Assessing Officer. The AO had failed, both in the notice and in the penalty order, to state how the assessee’s case or addition fell within the instances specified in clauses (a) to (f) of Section 270A(9).
The Tribunal also observed that the assessee had made complete disclosure of the entire income in the return and that the income was disclosed in the ITR itself. According to the Tribunal, there was therefore no under-reporting of income in consequence of misreporting in the instant case. The AO had stated that the assessee’s case fell under Section 270A(9)(a), concerning misrepresentation or suppression of facts, but the Tribunal held that the provision was not applicable on the facts.
In support of its conclusion, the Tribunal relied upon the Delhi High Court decision in Schneider Electric South East Asia (HQ) PTE Ltd Vs ACIT, reported in 443 ITR 186, where the High Court held that failure to specify whether penalty proceedings were initiated for under-reporting or misreporting, and failure to indicate which limb of Section 270A was attracted and how Section 270A(9) was satisfied, rendered the action arbitrary.
The Tribunal also referred to the Delhi High Court decision in PCIT vs. Jaina Marketing and Associates, which, according to the Tribunal, dealt with an exactly similar and identical issue. The decision emphasised that the assessment order and show-cause notices must meet the test of a “specific limb” and that a case of misreporting could not be sustained where the assessee had disclosed the relevant income and had taken a bona fide legal position.
The Tribunal ultimately held that there was no misreporting or under-reporting of income because the entire details relevant for computation of income were already placed on record in the ITR itself. Respectfully following the precedents referred to above, it held that the case was not fit for levy of penalty under Section 270A. The grounds raised by the assessee were allowed and the appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. This appeal is filed by the Assessee against the order dated 30.5.2023 of the CIT(A)-24, New Delhi pertaining to assessment year 2017-18.
2. The assessee has raised several grounds, the only effective issue to be decided in this appeal is as to whether the ld CIT(A) was justified in confirming the levy of penalty u/s 270A of the Act in the facts and circumstances of the instant case.
3. We have heard the rival submissions and perused the material available on record. The assessee furnished the return of income for AY 2017-18 on 16.03.2018 declaring total income of Rs. 4,93,460/-. The same was processed u/s. 143(1) of the Act on 8.4.2018. The case of the assessee was taken up for Compulsory Manual Scrutiny for AY 2017-18 as survey was conducted on assessee on 21.4.2016. The assessee is individual Prop. Of M/s Ridhi Sidhi Impex. The assessee was involved in accommodation entry business and shown commission income during the year under consideration. Later assessment u/s. 143(3) of the Act was framed on 27.12.2019 determining the total income at Rs. 13,53,184/- and penalty proceeding u/s. 270A was initiated against the assessee vide penalty notice dated 27.12.2019 for under reporting of income. Finally, a penalty @200% was imposed u/s. 270A(8) upon the assessee vide order dated 26.3.2022. Against the penalty order, assessee preferred the appeal before the Ld. CIT(A) who affirmed the order of the AO. Aggrieved, assessee is in appeal before us.
4. At the outset, it is noted that AO had imposed the penalty u/s. 270A @200% of the amount of tax payable on under reported income by observing that the assessee had under reported his income for the year under consideration and as per section 270A(8), the penalty for under reporting of income shall be a sum equal to 200% of amount of tax on under reported income, which action has been upheld by the CIT(A). It is noted that under section 270A, penalty is imposed in two conditions i.e. when the income is ‘under reported’ or ‘misreported’. Section 270A provides different penalty rates for each head i.e. as per section 270A(7) the penalty for ‘under reporting’ is prescribed at 50% and it is only for “misreporting” the penalty is prescribed at 200% u/s. 270A(8). The penalty notice u/s. 270A dated 27.12.2019 would show that the penalty was initiated under the head “under-reporting of income” and not under the head “misreporting”. It is further noted that even in the penalty order, there is not a single whisper of the ‘misreporting’ by the AO. The AO failed to state, both in the notice as well as in the penalty order, as to how the assessee’s case /addition falls within instances given in Clauses (a) to (f) of Sub-section (9) of Section 270A of the Act and, therefore, the impugned notice issued u/s. 270A being vague notice and thus liable to be quashed. In the instant case, from the perusal of the penalty notice placed on record dated 27.12.2019, it is evident that the AO had show caused the assessee as to why the assessee should not be imposed with penalty for ‘under reporting of income’. AO recorded satisfaction in the quantum assessment order that offence of both ‘under reporting’ and ‘mis-reporting’ is committed by the assessee and therefore, accordingly, the penalty would also be levied on the assessee for both in terms of section 270A(9) of the Act. The assessee had made complete disclosure of the entire income in the return. This goes to prove that the assessee had disclosed his income in the ITR. There was absolutely no underreporting income in consequence of misreporting of income in the instant case. The AO says that assessee case falls u/s 270A(9)(a) of the Act which talks about misreporting or suppression of facts, which is absolutely not applicable in the instant case. Hence, it is clear case where the AO had directly applied the higher penalty percentage provided in Section 270A(9) of the Act without mentioning under which clause thereon the case of the assessee falls. Non mentioning of the specific clause clearly specifying offences committed by the assessee, would become fatal to the penalty proceedings per se. Reliance in this regard is placed on the decision of the Hon’ble Jurisdictional High Court in the case of Schneider Electric Sought East Asia (HQ) PTE Ltd Vs. CIT reported in 443 ITR 186(Del) wherein, it was held as under:-
“6. Having perused the impugned order dated March 9, 2022, this court is of the view that the respondents’ action of denying the benefit of immunity on the ground that the penalty was initiated under section 270A of the Act for misreporting of income is not only erroneous but also arbitrary and bereft of any reason as in the penalty notice the respondents have failed to specify the limb “under-reporting” or “misreporting” of income, under which the penalty proceedings had been initiated.
7. 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 ingredients 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 assessment order to deny immunity from imposition of penalty and prosecution makes the impugned order manifestly arbitrary.”
5. Further, the Hon’ble Delhi High Court in the case of PCIT vs. Jaina Marketing and Associates has dealt the exactly similar and identical issue in favour of the assessee by observing as under:-
“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. The issue as raised was based on an understanding of the legal regime which prevailed. The contentions addressed on that score can neither be said to be baseless nor specious. In fact, that stand as taken by the petitioner was based on a judgment rendered by the jurisdictional High Court which was indisputably binding upon the AO who, for reasons unfathomable, thought it fit to base its decision on a judgment rendered by the Karnataka High Court. The AO, it would be pertinent to recall, chose to distinguish the judgment of the Supreme Court in Engineering Analysis itself. In any event, the position which the petitioner sought to assert and canvass clearly stood redeemed in light of the decision rendered by the Supreme Court.
32. Undisputedly, the petitioner had duly complied with the statutory pre-conditions set out in Section 270AA(1). It was thus incumbent upon the respondent to have come to the firm conclusion that the case of the petitioner fell in the category of misreporting since that alone would have warranted a rejection of its application for immunity. On an overall conspectus of the aforesaid, we come to the firm conclusion that the impugned orders would not sustain.”
6. In the background of the aforesaid discussions and respectfully following the precedents as referred above, we hold that there is no misreporting or underreporting of income as the entire details relevant for computation of income are already placed on record in ITR itself. Hence, this is not a fit case for levy of penalty u/s 270A of the Act. Accordingly, grounds raised by the assessee are allowed.
7. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 27/03/2026.
