Saltwater Studio LLP Vs NFAC (ITAT Mumbai)
In the case of Saltwater Studio LLP Vs NFAC, the ITAT (Income Tax Appellate Tribunal) examined the legality of the penalty imposed under section 270A of the IT Act for misreporting of income. The AO (Assessing Officer) and the Ld. CIT(A) confirmed the penalty, citing misreporting of income by the assessee. However, the ITAT analyzed the relevant provisions of the Act and concluded that the penalty could not be sustained due to the lack of application of mind and violation of principles of natural justice.
The AO had levied a penalty of 200% of the tax payable on the under-reported income, considering it as misreporting. However, the ITAT observed that the AO failed to establish how the assessee’s case fell within the instances of misreporting mentioned in sub-section (9) of section 270A of the Act. The penalty provisions need to be strictly interpreted, and since the AO could not demonstrate the applicability of misreporting clauses to the case, the penalty was deemed unsustainable.
Based on the facts and circumstances of the case, the ITAT directed the deletion of the penalty imposed under section 270A of the IT Act. The penalty levied for misreporting lacked the application of mind and violated principles of natural justice. The decision highlights the importance of strictly interpreting penalty provisions and ensuring a valid basis for imposing penalties.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This is an appeal preferred by the assessee against the order of the Ld. Commissioner Of Income Tax(Appeals)/ NFAC, Mumbai (herein after “CIT(A)”, dated 23-11-2022 for AY 2017-18, wherein the Ld. CIT(A) was pleased to confirm the penalty levied by AO u/s 270A of the Income Tax Act,1961 (herein after “the Act”).
2. Brief facts are that the assessee had filed its return of income for AY 20 17- 18 dated 3 1.10.2017 declaring Rs. 21,21,750/-. Later the case of the assessee was selected for scrutiny under CASS. Thereafter, the AO framed scrutiny assessment u/s 143(3) by order dated 10-12-2019 by making the inter-alia quantum addition of total Rs 3,94,996/- which action was assailed by assessee before the Ld. CIT(A) who was pleased to dismiss the appeal of the assessee vide order on 23.11.2022, which action of the Ld. CIT(A) was again challenged before this Tribunal. And the Tribunal vide order dated 31.03.2023 has given part relief to the assessee and confirmed certain additions since assessee did not press the addition on following (i) Interest on income tax refund to the tune of Rs. 64,581/- (ii) to interest of late payment of TDS of Rs. 973/-, (iii) disallowance of expenses on estimate basis @ 0.6% i.e, Rs. 2,416/-. Thus addition of total Rs. 67,970/- was not pressed before Tribunal, which was confirmed. Thus, the assessee’s quantum assessment was partly allowed by the Tribunal directing AO, to delete Rs. 3,27,026/- and thus assessee’s appeal(quantum) was partly allowed.
3. Meanwhile, the AO levied penalty u/s 270A of the Act, wherein AO imposed 200%of tax which was held by him to be mis-reported at Rs. 2,44,110/- by order dated 06-08-2021 which has been challenged by the assessee before the CIT(A) who was pleased to confirm the same by passing the impugned order; and therefore the assessee being aggrieved, is before this Tribunal.
4. We have heard both the parties and perused the records. It is noted that the assessee’s quantum assessment has been partly allowed by this Tribunal, and the Tribunal was pleased to delete Rs. 3,27,026/- vide order dated – 31.03. Therefore the penalty issue even if leviable is only confined to the balance additions of total Rs 67,970/- and not on the Rs 3,94,996/- as done by AO/Ld CIT(A). The quantum additions sustained by this Tribunal are (i) late payment of interest TDS of Rs 973/-; (ii) Interest on income tax refund of Rs. 64,581/- (iii) disallowance of expenses of estimate basis @ 0.6% Rs. 2,416/-. Therefore, according to the Ld AR even if penalty can be levied it can be only regarding this amount I.e, Rs 67,970/-. And the following chart would give bird’s eye view about the same;
