No Section 270A Penalty if No Misreporting or Underreporting by Assessee

Mahendra N. Patel Vs DCIT (ITAT Ahmedabad)

In the case of Mahendra N. Patel Vs DCIT, heard by ITAT Ahmedabad, the penalty imposed under section 270A of the Income Tax Act was nullified due to the absence of misreporting or underreporting by the assessee.

The case stemmed from the assessee filing their return of income for the assessment year 2020-21, declaring a total income of Rs. 5,49,75,980/-. Subsequently, the Assessing Officer conducted scrutiny assessment and determined a total assessed income of Rs. 5,63,08,997/-, with an addition of Rs. 13,33,313/-. This addition pertained to interest expenses, which the Assessing Officer deemed lacked proper justification.

Penalty proceedings were initiated against the assessee for misreporting and underreporting of income, leading to the imposition of a penalty of Rs. 11,39,860/- under section 270A of the Act.

Upon appeal, the CIT(A) upheld the penalty order. However, the assessee contested the decision, asserting that all expenditures were duly noted in the books of accounts and submitted during the assessment proceedings. The assessee provided evidence supporting the claimed deductions, including interest payments and certain expenses paid to M/s Shree Fintax Services. It was argued that there was no misreporting or underreporting on the part of the assessee.

During the proceedings, it was established that the assessee had provided comprehensive details and explanations regarding the expenses, establishing a clear nexus between the claimed expenditures and the income earned. The genuineness, identity, and creditworthiness of parties involved were duly demonstrated.

The ITAT Ahmedabad, after examining all relevant materials, concluded that section 270A(9)(c) of the Act was not applicable in this case, as there was no misreporting or underreporting of income by the assessee. Consequently, the penalty imposed by the Assessing Officer and upheld by the CIT(A) was deemed unjustified and was thus nullified.

In summary, the Mahendra N. Patel Vs DCIT case serves as a significant precedent where the ITAT exercised discretion in nullifying a penalty under section 270A due to the absence of misreporting or underreporting by the assessee.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This is an appeal filed against the order dated 31-08-2023 passed by National Faceless Appeal Centre (NFAC), Delhi for assessment year 2020-21.

2. The grounds of appeal are as under:-

3. The assessee filed his return of income for assessment year 2020-21 on 11-12-2020 declaring total income of Rs. 5,49,75,980/-. The case was selected for scrutiny assessment and order u/s. 143(3) r.w.s. 144B of the Income Tax Act, 1961 was passed on 29-09-2022 determining the total assessed income by Rs. 5,63,08,997/- thereby making addition of Rs. 13,33,313/-. The Assessing Officer observed that during the course of assessment proceedings, the assessee failed to establish any nexus between the income earned from other source and interest expenses of Rs. 13,33,313/- as explained u/s. 57 of the Act. The Assessing Officer initiated penalty proceedings for mis-reporting of income and under reporting of income and show cause notice was issued u/s. 270A r.w.s. 274 was issued on 03-08-2022. Since the assessee did not reply the same, the Assessing Officer imposed penalty of Rs. 11,39,860/- for under reporting of income in consequence of mis-reporting of income u/s. 270A r.w.s. 274 of the Act.

4. Being aggrieved by the penalty order passed u/s. 270A of the Act, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.

5. The ld. A.R. submitted that the expenditure was properly noted in the books of accounts/audit report and the same was filed during the assessment proceedings as the assessment order in para 2 mentions that the assessee has submitted copy of ITR acknowledgement, computation of income, copy of form 26AS, director fee and therefore claimed deduction u/s. 57 on account of interest payment against maturity of LIC of India of Rs. 1,48,65,220/- interest of unsecured loan of Rs. 13,33,313/- and certain expenses of Rs. 6,60,000/- paid to M/s Shree Fintax Services. The assessee submitted that receipt from LIC regarding interest payment against maturity of LIC of India and also submitted that list of six parties from whom he has taken unsecured loan. The assessee has filed his ledger in the books of accounts of these parties as well as copy of bank statements, confirmation and ITR of the said parties. As regards to short term fund requirements, the assessee has taken a loan and for that the assessee has given reason which was incorporation in para 5 of the assessment order. Thus, section 270A will not be attracted as there was no mis-reporting and under-reporting by the assessee.

6. The ld. D.R. submitted that the assessee has not claimed the proper expenditure as required under the law and therefore the same is mis-reporting and under reporting. The ld. D.R. relied upon the assessment order, penalty order and the order of the CIT(A).

7. Heard both the parties and perused all the relevant materials available on record. While invoking section 270A(9)(c) of the Act, the assessee has given a categorical reply to the Assessing Officer during the assessment proceedings vide reply dated 09-03-2020 and also submitted that all the details of books of accounts as well as the audit account. The assessee has established the nexus between the interest expenses and interest earned during the financial year 2009-­10 from unsecured loans and in fact has given the genuineness, identity and creditworthiness for those parties. The assessee has also submitted notice copy of Shree Fintax Services and thus, the assessee has given all the details and explained the expenses including that of the interest expenditure which was led out or extended wholly and exclusively for purpose of earning income from LIC policy maturity hence director fees from Mila India Pvt. Ltd.. Thus, it cannot be said that the assessee has under-reported in consequence of mis-reported the income of assessee at any point of time. Thus, section 270A(9)(c) of the act will not be attracted in the present case. The assessee Assessing Officer as well as the CIT(A) was not justified in imposing the penalty.

8. In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 31-01-2024