AVM Productions Vs ACIT (ITAT Chennai)
The assessee, M/s AVM Productions, filed its return declaring a loss of ₹1.62 crore. The AO noticed that the assessee had claimed depreciation attributable to ₹3 crore paid as compensation to resolve a dispute relating to construction, which had been capitalized in the building block. Since depreciation on this amount had already been disallowed in earlier years and upheld by appellate authorities, the AO disallowed consequential depreciation of ₹11,04,148 for AY 2017-18 and initiated penalty proceedings u/s 270A for misreporting of income. Penalty of ₹6,82,606 (200% of tax) was imposed and confirmed by CIT(A).
Before the Tribunal, the assessee contended that the AO did not specify how the case amounted to “misreporting of income” under section 270A(9) and merely reproduced statutory provisions without proper reasoning.
The ITAT observed that:
- Section 270A distinguishes between “under-reporting” and “misreporting” of income, and penalty at 200% applies only when misreporting as defined in section 270A(9) is established.
- The AO failed to specify which clause of section 270A(9) (such as suppression of facts, false entries, etc.) was applicable.
- The penalty order contained no reasoning demonstrating how the assessee’s claim amounted to misreporting.
- Such an order reflects non-application of mind and is not a speaking order.
Holding that reasoning is the “heartbeat” of a judicial order, the Tribunal concluded that penalty imposed mechanically without proper findings cannot survive.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
