Case Law Details
Veereshayya Angadi Vs ITO (ITAT Bangalore)
Introduction: The Income Tax Appellate Tribunal (ITAT) in Bangalore recently addressed the issue of penalization of an assessee for an excessive refund claim on the return of income, influenced by a tax consultant. In the case of Veereshayya Angadi Vs ITO, the court examined the complex nuances of penalty under section 270A of the Income Tax Act, redefining the responsibility of the assessee and the tax consultant.
Analysis: This landmark case revolves around the concept of ‘bonafide belief’ of the assessee, who filed a revised return of income based on the advice of a tax consultant. The tribunal, through a series of additional grounds, scrutinized the role of the tax consultant, the validity of the revised return of income, the presence of mens rea by the appellant, and the overall execution of the penalty proceedings.
The ITAT ruled that the additional grounds raised by the assessee, which were not considered by the National Faceless Appeal Centre (NFAC), must be examined. It relied on a similar case – Shri Ravikiran Netla in ITA No.2123/Bang/2018, where the tribunal held that if the fraudulent act was found to be solely perpetrated by the tax consultant and the assessee’s act was bonafide, no penalty can be levied.
Conclusion: The ITAT Bangalore’s ruling brings a new perspective to the imposition of penalties under section 270A of the Income Tax Act. This verdict stands as a precedent, emphasizing that if an assessee’s act is found to be bonafide, they shall not be penalized for the actions of a tax consultant. Thus, this ruling significantly shifts the lens towards the responsibilities of tax consultants in influencing the tax decisions of the assessees.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
These appeals are directed the order of NFAC for the assessment years 2017-18 & 2018-19 both are dated 7.11.2022. The issue in these appeals is common and the assessee has raised following grounds:
1. That the order of the learned Commissioner of Income-tax (Appeals) in so far it is prejudicial to the interests of the appellant, is bad and erroneous in law and against the facts and circumstances of the case.
2. That the learned lower authorities erred in levying penalty u/s. 270A of the Act even though the appellant has established that the appellant acted under a bonafide belief and filed the revised return of income based on the advice of the tax consultant.
“Additional grounds
3. That the learned lower authorities erred in law and on facts in initiating penalty proceedings based on the additions made in the assessment order passed on the basis of return of income filed u/s. 139(5) of the Act which is not valid in law as the same does not satisfy the conditions specified for revising the return of income. .,
4. That the learned lower authorities erred in law and on facts in initiating penalty proceedings and passing the order u/s. 270A of the Act without establishing the mens rea by the appellant.
5. That the notice and order u/s. 270A are bad in law as the learned lower authorities erred in not mentioning the clause of S. 270A(2) under which the appellant has under-reported the income and therefore, the order passed u/s 270A is bad in law for being based on a vague notice.
6. That the order u/s. 270A of the Act is bad in law as it travels beyond the show-cause notice in so far it held that appellant has misreported the income whereas notice only alleged a mere under reporting of income.
7. That the entire proceedings u/s. 270A of the Act is bad in law and without jurisdiction as the assessing officer issuing notice u/s. 270A of the Act and passing the order are different.
8. Without prejudice to the above grounds, that the learned Commissioner of Income-Tax (Appeals) ought to have restricted the penalty at 50% of the demand as the notice u/s1 270A of the Act was issued for under-reporting of income and not mis-reporting of income.
9. Without prejudice to the above grounds, that the learned lower authorities ought to have provided an opportunity to comply with the provisions of section 270AA of the Act for immunity from penalty.”
2. The assessee has raised following additional grounds along with petition explaining the reasons for raising the additional grounds:
1. That the learned lower authorities erred in law and on facts in initiating penalty proceedings based on the additions made in the assessment order passed on the basis of return of income filed u/s. 139(5) of the Act which is not valid in law as the same does not satisfy the conditions specified for revising the return of income.
2. That the learned lower authorities erred in law and on facts in initiating penalty proceedings and passing the order u/s. 270A of the Act without establishing the mens rea by the appellant.
3. That the notice and order u/s. 270A are bad in law as the learned lower authorities erred in not mentioning the clause of S. 270A(2) under which the appellant has under-reported the income and therefore, the order passed u/s 270A is bad in law for being based on a vague notice.
4. That the order u/s. 270A of the Act is bad in law as it travels beyond the show-cause notice in so far it held that appellant has misreported the income whereas notice only alleged a mere under reporting of income.
5. That the entire proceedings u/s. 270A of the Act is bad in law and without jurisdiction as the assessing officer issuing notice u/s. 270A of the Act and passing the order are different.
6. Without prejudice to the above grounds, that the learned Commissioner of Income-Tax (Appeals) ought to have restricted the penalty at 50% of the demand as the notice u/s. 270A of the Act was issued for under-reporting of income and not mis-reporting of income.
7. Without prejudice to the above grounds, that the learned lower authorities ought to have provided an opportunity to comply with the provisions of section 270AA of the Act for immunity from penalty.
3. We have heard the both the parties on admission of additional grounds. In our opinion, all the facts are already on record and there is no necessity of investigation of any fresh facts for the purpose of adjudication of above ground. Accordingly, by placing reliance on the judgement of Hon’ble Supreme Court in the case of NTPC Vs. CIT 229 ITR 383 (SC) we inclined to admit the additional ground for the purpose of adjudication as there was no investigation of any fresh facts otherwise on record and the action of the assessee is bonafide.
4. Facts of the issue involved in both the assessment years are similar. We consider the facts in assessment year 2017-18, which are as follows:
4.1 For the Assessment Year (‘AY’) 2017-18, the Assessee filed his Original Income-Tax Return vide acknowledgement no. 937184840260717 on 26”’ July, 2017 by declaring total income of Rs. 2 1,53,790/-. Later the Assessee has filed the revised Income-tax Return vide acknowledgement no. 178739830270818 on 27th August 2018 by declaring total income of Rs. 9,57,190/-
4.2 Assessee has filed the Original Income-Tax Return by disclosing the appropriate assessable income in his tax return. Subsequently, assessee was approached by a tax consultant and the tax consultant has deceived the assessee sating that the return of income filed by you is wrong and same needs to be revised. Tax consultant took advantage of Assessee due to lack of assessee’s knowledge on tax laws and filed the Revised Income-tax Return by claiming excessive refund amounting to Rs. 3,65,340/-.
4.3 For the said assessment year, the Assessee is in receipt of scrutiny notice under Section 143(2) of the Income-tax Act,1961 [‘the Act’ for short] on 22 September, 2019 and consequent to the said proceedings an order was passed under Section 143(3) of the Act on 30 November, 2019 by treating Rs.12,36,600/- as under reported income with a due demand of Rs. 3,82,109/-
4.4 For the said Assessment Year, the Assessee is in receipt in Show cause notice for penalty under section 270A of the Act and Assessee has made his submissions requesting to drop the penalty proceedings. The Ld.AO without considering the assessee’s plea and has passed penalty order.
4.5 Against this assessee went in appeal before the NFAC, which is confirmed the levy of penalty u/s 270A of the Act.
5. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in the case of Shri Ravikiran Netla in ITA No.2123/Bang/2018 dated 10.9.2020 wherein held as under:
6. “We have heard both the parties and perused the material on record. In the quantum appeal order dated 19.2.2018, the CIT(Appeals) recorded these facts in para 5 of his order that Mr. Nagesh Shastry was instrumental in fling the revised return. However, the same facts and arguments in the penalty proceedings are not considered by the CIT(Appeals). In our opinion, it is proper to examine whether Mr. Nagesh Shastry is instrumental in claiming fraudulent refund on behalf of assessee by indulging in malpractices. If Mr. Nagesh Shastry is found solely responsible for such fraudulent act and that assessee’s act is bonafide, penalty cannot be levied. With these observations, we remand this issue to the file of the CIT(Appeals) to consider all these facts and decide the issue afresh in accordance with law, after affording assessee opportunity of being heard.
7. In the result, the appeal of assessee is allowed for statistical purposes.”
5.1 Further, the assessee raised additional grounds before us. The NFAC has no occasion to examine such issue. This is required to be considered by the NFAC. Being so, in the interest of justice, we remit the entire issue in dispute in both the appeals to the file of NFAC (First Appellate Authority) for reconsideration and to decide whether the assessee is bonafide in claiming excessive refund in its return of income and decide accordingly. If there is no fault of the assessee, assessee shall not be penalized for the action of the tax consultant.
6. In the result, appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 19th June, 2023
