Case Law Details
S. Saroja Vs DCIT (ITAT Chennai)
The appeal in question, made by S. Saroja, challenges the order passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, pertaining to the assessment year 2017-18. Central to the appeal was the penalty imposed by the Assessing Officer (AO) under section 270A of the Income Tax Act, 1961, due to an inadvertent error by the assessee’s accountant in the reporting of the annual value of house property.
The appellant, a senior citizen, had entrusted an accountant to file her return of income. The accountant inadvertently reported the annual value of the house property at Rs. 5,40,000 instead of Rs. 8,40,000. This error was pointed out during the assessment proceedings, and the appellant acknowledged and rectified the mistake, accepting the correct annual value of the house property and paying the corresponding taxes.
However, the AO levied a penalty under section 270A of the Act for the under-reporting of income due to this error, a decision upheld by the CIT(A). The appellant argued that the error was not intentional and did not constitute misreporting warranting a penalty.
The ITAT, upon considering the facts of the case and the submissions by both parties, concluded that the accountant’s inadvertent error could not be considered as under-reporting of income for levying penalty under section 270A. Additionally, the appellant’s decision to classify interest income under ‘income from business’ based on a bonafide belief was seen as a reasonable mistake, especially considering that there was no tax difference when offered under ‘income from other sources’ and ‘income from business’.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 2 1.02.2023 and pertains to assessment year 20 17-18.
2. The brief facts of the case are that, the assessee filed her return of income on 31.03.2018, declaring total income of Rs. 50,10,040/- and said return has been revised on 11.09.2018, declaring total income of Rs. 51,78,140/-. The case was selected for scrutiny and during the course of assessment proceedings, the AO noticed that the assessee has adopted annual value of house property at Rs. 5,40,000/-, instead of Rs. 8,40,000/- in the revised return filed for the relevant assessment year and therefore, called upon the assessee to explain as to why difference should not be added under the head income from house property. In response, the assessee submitted that the Accountant who filed the return has adopted incorrect figure while computing annual value of house property and thus, requested the AO to consider the difference amount as income of the assessee under the head income from house property. The assessee had also accepted interest income at Rs. 8,000/- under the head income from business. The AO, after considering relevant submissions of the assessee completed assessment u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) on 16.11.2019 and made additions of Rs. 3,08,000/- towards annual value of house property for Rs. 3,00,000/- and interest income under the head income from other source for Rs. 8,000/-. Thereafter, the AO initiated penalty proceedings u/s. 270A of the Act for under-reporting of income and after considering submissions of the assessee levied penalty of Rs. 1,92,192/- for under-reporting of income by misreporting of its income. The assessee carried the matter in appeal before the first appellant authority, but could not succeed. The ld. CIT(A), for the reasons stated in their appellant order dated 21.2.2023 sustained penalty levied by the AO u/s. 270A of the Act.
3. The ld. Counsel for the assessee submitted that the assessee being a senior citizen aged 81 years, engaged Accountant for filing his return of income and submitted all details. The Accountant who filed return of income by inadvertent error disclosed annual value of the house property at Rs. 5,40,000/- instead of Rs. 8,40,000/-. In respect of interest income, the assessee on bonafide belief declared interest income under the head income from business. However, when the AO noticed above mistakes, he has fairly agreed and paid taxes on annual value of the house property and also accepted assessment of interest income under the head other sources. Therefore, it cannot be said that the assessee has under reported his income by misreporting income which warrants penalty u/s. 270A of the Act.
4. The ld. DR, supporting the order of the ld. CIT(A) submitted that as per the provisions of section 270A of the Act, if assessed income is more than the amount of returned income, then penalty is leviable u/s. 270A of the Act. In case the assessee accepted additional income, then it can avail immunity provided u/s. 270AA of the Act. Since, the assessee has misreported his income, the AO has rightly levied penalty and their order should be upheld.
5. We have heard both the parties, perused materials available on record and gone through orders of the authorities The AO levied penalty u/s. 270A of the Act, for under reporting of income in respect of annual value of house property and interest income assessed under the head income from other source. The assessee has filed original return of income, where it has declared annual value of house property at Rs. 5,40,000/-. The assessee had also offered interest income under the head income from business. The said mistake has been continued in revised return filed for relevant assessment year. However, during assessment proceedings when the AO noticed said lapse, the assessee admitted the mistake and offered Rs. 8,40,000/- under the head income from house property towards annual value of house property. The assessee had also accepted assessment of interest income under the head income from other source. During penalty proceedings, the assessee explained before the AO that said mistake is on account of inadvertent error committed by an Accountant. We find that, if you go through income on which the AO levied penalty u/s. 270A of the Act, on annual value of house property, the Accountant who filed return of income has committed inadvertent error and reported only ALV of Rs. 5,40,000/- instead of Rs. 8,40,000/- and in our considered view said mistake cannot be considered as under reporting of income for levying of penalty u/s. 270A of the Act. In respect of assessment of interest income under the head business, instead of income from other source, the assessee fairly agreed that he was on a bonafide belief that said income is assessable under the head income from business. In our considered view, when the assessee has explained that there is a bonafied mistake in offering interest income under the head income from business and also there is no difference in tax when it was offered under the head income from other source and income from business, in our considered view, there is no reason for the AO to levy penalty u/s. 270A of the Act, for under reporting of income. Thus, we delete penalty levied u/s. 270A of the Act towards under reporting of income in respect of annual value of house property and also assessment of interest income under the head income from other sources.
6. In the result, appeal filed by the assessee is allowed.
Order pronounced in the court on 31st May, 2023 at Chennai.
