Snehalkumar Bhogilal Trivedi Vs ITO (ITAT Ahmedabad)
Under-Reporting or Misreporting? – Vague 270A Notice Proves Fatal- ITAT Says AO’s Confusion Invalidates 270A Penalty
Assessee filed return of income for AY 2018-19 claiming exemption of capital gains u/s 54F. AO disallowed the claim of ₹25.76 lakh on the ground that Assessee had no evidence of sale or purchase of capital asset & that the exemption was wrongly claimed. Consequently, AO initiated penalty u/s 270A for misreporting of income.
However, in the notice issued u/s 274, AO mentioned both defaults of under-reporting & misreporting of income. Thereafter, in the penalty order, AO again levied penalty for both defaults, imposing ₹10,61,360/- at 200% of the tax payable. CIT(A) upheld the levy through an ex-parte order.
Before Tribunal, it was argued that AO had failed to identify the specific charge for which penalty was levied. While in the assessment order AO initiated penalty for misreporting, in the notice u/s 274 he mentioned both defaults, thereby creating ambiguity. It was submitted that law requires clear specification of the charge since under-reporting attracts 50% penalty & misreporting attracts 200%, both having different legal consequences.
Tribunal noted that it is a fact on record that AO while levying penalty has failed to identify the specific charge or default for levying penalty. The notice initiating penalty proceedings issued u/s 274 & the penalty order reveals that he levied penalty both for under reporting & under reporting as a consequence of misreporting of income. Courts have repeatedly held that mentioning of two distinct faults, which have different consequences for the levy of penalty, renders notices so issued to be void ab initio as also orders so passed. In the case of St. Joseph’s Educational Trust vs. DCIT, Chennai ITAT, categorically held that notice issued u/s.274 r.w.s. 270A stating both under reporting & misreporting of income, which are two distinct faults with different consequences, was as a vague notice & further held the penalty levied as a consequence of such notice to be void ab initio. The ITAT noted that notice specifying the charge or fault was a must to facilitate the assessee to meet the charge alleged against him. Failing which, the assessee would be unable to properly defend an ambiguous charge, which, in turn, would vitiate assessee’s right to a fair hearing guaranteed by the Constitution of India. Similar view was taken by the ITAT Pune Bench in the case of DCIT vs. Chakradhar Contractors & Engineers (P.) Ltd., & ITAT Mumbai in the case of Manish Manohardas Asrani vs. Int. Tax . Tribunal, therefore, directed deletion of penalty of ₹10.61 lakh levied u/s 270A, holding the notice & order to be void ab initio.
