Case Law Details
Exim Trac Vs ACIT (ITAT Mumbai)
The appeal before the Tribunal concerned the levy of penalty under Section 270A of the Income Tax Act, 1961 for Assessment Year 2019–20. The penalty, amounting to 200% of the tax sought to be evaded, was imposed on account of alleged under-reporting of income in consequence of misreporting.
The assessee, a partnership firm engaged in export of general merchandise, had filed its return declaring total income of ₹50,05,950. In the return, it claimed a deduction of ₹1,00,000 under Section 80GGC for a donation purportedly made to a political party.
Subsequently, based on a search conducted on the political party, information was received by the department indicating that the party was involved in providing bogus donation entries. The investigation revealed a systematic accommodation entry mechanism where donation amounts were returned in cash after deducting commission.
Pursuant to this information, proceedings under Section 148A were initiated. During these proceedings, despite being confronted with evidence including a sworn statement admitting bogus entries, the assessee initially maintained that the donation was genuine. However, after issuance of notice under Section 148, the assessee withdrew the deduction in the return filed in response and paid the corresponding tax and interest. The reassessment was completed accepting the revised income.
Thereafter, penalty proceedings under Section 270A were initiated by the Assessing Officer on the ground that the assessee had under-reported income due to misreporting. The Assessing Officer rejected the claim of voluntary disclosure, observing that the withdrawal of the deduction occurred only after detection through investigation and was not a bona fide act. The penalty at 200% of tax was imposed and later confirmed by the Commissioner (Appeals).
Before the appellate authority, the assessee contended that it was a regular tax-compliant entity and had disclosed the donation in the original return with supporting documents. It argued that the withdrawal of the claim and payment of tax before completion of reassessment indicated bona fide conduct and absence of concealment. It was also submitted that the Assessing Officer had not independently proved that the donation was bogus and had merely relied on third-party information. Additionally, the penalty notice was challenged as vague and defective.
The Commissioner (Appeals), however, rejected these contentions. It was observed that the deduction was withdrawn only after the case was reopened based on search findings. The authority held that, had the investigation not occurred, the assessee would have continued to claim an incorrect deduction. Therefore, the conduct amounted to misrepresentation or suppression of facts under Section 270A(9)(a). The argument of voluntary disclosure was rejected on the ground that the disclosure was made only after detection. It was also held that disclosure of particulars in the return does not absolve liability where the underlying claim is found to be non-genuine. The penalty was accordingly upheld.
Before the Tribunal, the assessee reiterated that there was no variation between returned and assessed income in reassessment and therefore Section 270A was not applicable. It also argued that the penalty notice was vague for not specifying the exact limb of misreporting.
The Tribunal examined the statutory framework of Section 270A and distinguished it from the earlier regime under Section 271(1)(c). It noted that Section 270A specifically categorises cases of under-reporting and misreporting, and in the present case, the Assessing Officer had clearly invoked misreporting under Section 270A(9)(a), i.e., misrepresentation or suppression of facts. The Tribunal held that the assessee was aware of the charges and had responded to them; hence, the notice could not be treated as vague or invalid.
On merits, the Tribunal observed that the deduction claimed was based on a transaction which investigation revealed to be a circular movement of funds constituting a bogus donation. The assessee had initially defended the claim even during Section 148A proceedings and withdrew it only after the department had obtained evidence through a search operation. Therefore, the subsequent withdrawal and offer of income could not be considered voluntary.
The Tribunal further held that claiming a deduction based on an accommodation entry amounts to misrepresentation of facts. A post-detection disclosure does not erase the original misreporting. The argument that the income was offered to maintain peace or due to change of mind was rejected, as the initial claim itself was based on a non-existent or non-genuine transaction.
The judicial precedents relied upon by the assessee were found to be distinguishable, as they either related to different provisions or different factual contexts, including disputes on eligibility of deduction rather than penalty for misreporting.
In conclusion, the Tribunal held that the assessee’s conduct squarely fell within the scope of misreporting under Section 270A(9)(a). The penalty imposed at 200% of the tax sought to be evaded was upheld, and the appeal of the assessee was dismissed.
Author Bio
