Case Law Details
Sachin Baban Shinde Vs ITO (ITAT Pune)
In a significant ruling for taxpayers, the Income Tax Appellate Tribunal (ITAT), Pune Bench, has set aside a penalty levied under Section 270A of the Income Tax Act, 1961, against Sachin Baban Shinde. The Tribunal held that a penalty for underreporting income cannot be imposed when the assessee, a salaried employee with a technical background, genuinely relied on a fraudulent tax consultant and voluntarily paid the due tax and interest even before receiving a formal notice from the Income Tax Department. The decision underscores the importance of assessing the assessee’s intent and knowledge in cases of misreporting.
Case Background and Allegations:
The case pertains to the assessment year 2018-19. Sachin Baban Shinde, a salaried individual, initially filed his income tax return (ITR) declaring a taxable income of Rs. 4,07,090/-. Subsequently, the Assessing Officer (AO) received information from the Income Tax Officer (Investigation), Nashik, indicating that Shinde had claimed excess deductions in his return. This led to the initiation of reassessment proceedings under Section 147 of the IT Act, with a notice under Section 148 being issued on February 25, 2020.
In response to the Section 148 notice, Shinde furnished a revised return on March 11, 2020, declaring a taxable income of Rs. 8,32,990/-. The assessment was completed under Section 147 on March 2, 2021, accepting the income declared in the revised return. However, the Assessing Officer later proceeded to impose a penalty of Rs. 1,46,760/- on September 12, 2021, under Section 270A(8) of the IT Act. This penalty was levied on the grounds of underreporting income “in consequence of misreporting.” The Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (CIT(A)/NFAC) subsequently upheld this penalty, leading Shinde to appeal before the ITAT.
Assessee’s Defense: Unwitting Victim of Fraud
Before the ITAT, Shinde’s authorized representative presented a detailed explanation for the underreported income. It was argued that the underreporting was directly attributable to the wrongful actions of a tax consultant named Kishor Patil. Shinde, being a salaried employee from a technical background, claimed to have no understanding of the intricacies of income tax law (“does not understand ABCD of Income Tax”) and therefore relied entirely on Patil for filing his ITR.
The defense highlighted that Patil had allegedly cheated numerous employees from various companies, including CEAT LTD, Bosch Company, HAL, and M & M, by claiming excess deductions under Chapter VI-A of the IT Act without their knowledge or consent, solely for his own benefit. The fraud came to light following a survey conducted under Section 133A at Patil’s premises. Upon discovering the widespread nature of the fraud, Shinde and other affected employees filed a complaint against Patil with the Economic Offence Wing of the Police Department in Nashik. News of Patil’s fraudulent activities also appeared in local daily newspapers.
Crucially, Shinde’s counsel emphasized that as soon as the fact of excess deductions claimed came to his knowledge, he immediately took corrective action. He paid the due tax along with interest on May 28, 2019, which was significantly before the Section 148 notice was issued to him on February 25, 2020. It was explained that a revised return could not be filed voluntarily before the Section 148 notice because the due date for filing such a return had already passed. After receiving the Section 148 notice, Shinde contacted another tax consultant who prepared and furnished the correct return.
Revenue’s Stance:
The Departmental Representative (DR) countered these arguments, asserting that the assessee had not filed a correct return of income voluntarily. The DR contended that since the correct income was disclosed only after the issuance of the Section 148 notice, the assessee was liable for the penalty, and therefore, the penalty confirmed by the CIT(A)/NFAC should be upheld.
ITAT’s Deliberation and Verdict:
The ITAT carefully considered the submissions from both sides and the material on record. The Tribunal acknowledged the assessee’s background as a salaried employee unfamiliar with complex tax provisions and his complete reliance on the tax consultant. The ITAT noted the evidence of the consultant’s fraudulent activities, including the police complaint and newspaper reports, which substantiated Shinde’s claim of being an unwitting victim.
A pivotal factor in the ITAT’s decision was the timing of the tax payment. The Tribunal found that Shinde had paid the due tax along with interest on May 28, 2019, which was nearly nine months before the Section 148 notice was issued on February 25, 2020. This voluntary payment, despite the inability to file a revised return due to the expired due date, demonstrated the assessee’s bona fides and intent to comply once the error came to his knowledge. The ITAT observed that the Assessing Officer had accepted the income declared in the return furnished in response to the Section 148 notice, further supporting the assessee’s post-discovery compliance.
The ITAT explicitly rejected the Revenue’s contention that the penalty under Section 270A was “inevitable” simply because the correct return was not filed voluntarily before the Section 148 notice. The Tribunal found “force in the arguments of the Ld. counsel of the assessee that the amount of tax & interest was deposited voluntarily much prior to the issue of notice u/s 148 of the IT Act.”
Absence of Specific Judicial Precedents in Order:
It is noteworthy that the ITAT’s order, in its detailed reasoning, primarily relied on the specific facts and circumstances of the case and the interpretation of Section 270A of the IT Act. The order does not explicitly cite or distinguish any specific judicial precedents from higher courts or other tribunals in its analysis. The decision appears to be grounded in the factual matrix demonstrating the assessee’s lack of intent to misreport and his prompt corrective action upon discovering the fraud committed by his consultant.
Conclusion:
Considering the totality of the facts, particularly the assessee’s genuine reliance on a fraudulent tax consultant, his lack of technical understanding of tax laws, and the crucial act of voluntarily paying the entire tax and interest liability before the issuance of the Section 148 notice, the ITAT concluded that this was not a fit case for imposing a penalty under Section 270A of the IT Act. Consequently, the order passed by the CIT(A)/NFAC confirming the penalty was set aside, and the Assessing Officer was directed to delete the penalty of Rs. 1,46,760/-. This ruling provides relief to taxpayers who might inadvertently fall victim to professional misconduct by their tax advisors, provided they demonstrate prompt and genuine efforts to rectify the error upon discovery.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal filed by the assessee is directed against the order dated 27.09.2024 passed by Ld. CIT(A)/NFAC for the assessment year 2018-19.
2. The appellant has raised the following grounds of appeal :-
“1. The learned Commissioner of Income Tax is not justified in levying penalty u/s 270A of Rs.1,46,760/- on the ground that the assessee had under reported income in consequence of misreporting without appreciating that the said levy of penalty was not justified in law.
2. The learned Commissioner of Income Tax failed to appreciate that before the Commissioner of Income Tax, the assessee had duly explained that under reporting of income in his case was attributable to wrong action of tax consultant and all the material facts relating thereto along with substantiating evidences in form of complaint filed against Tax Consultant before Economic Wing of Police Department etc. were also furnished by the assessee and therefore, the levy of penalty u/s 270A without rebutting the explanation offered by the assessee was not justified in view of provisions of the said Act.
3. The learned Commissioner of Income Tax ought to have appreciated that the bona fides of the explanation offered by assessee were established from the fact that the assessee, being salaried employee from technical background, was totally dependent upon the tax consultant for filing income tax return and therefore, the levy of penalty u/s 270A was not justified in view of the explanation offered by the assessee.”
3. Facts of the case, in brief, are that the assessee is an individual salaried employee filed return of income for the assessment year 2018-19 declaring taxable income of Rs.4,07,090/-. The Assessing Officer, on the basis of information received from the Income Tax Officer, (Investigation) Nashik, that the assessee has claimed excess deductions, initiated proceeding u/s 147 of the IT Act after obtaining approval from the authorities & accordingly, a notice u/s 148 was issued on 25-02-2020. The assessee furnished return of income on 11-03-2020 in response to notice u/s 148 of the IT Act, declaring taxable income of Rs.8,32,990/-. The assessment was completed u/s 147 of the IT Act on 02.03.2021 by accepting the income returned in response to notice u/s 148 of the IT Act. Subsequently, vide order dated 12.09.2021 the Assessing Officer imposed penalty of Rs.1,46,760/- u/s 270A(8) of the IT Act for underreporting of income in consequence of misreporting.
4. After considering the reply of the assessee, Ld. CIT(A)/NFAC dismissed the appeal and confirmed the penalty of Rs.1,46,760/-imposed u/s 270A(8) of the IT Act. It is this order against which the assessee is in appeal before this Tribunal.
5. Ld AR appearing from the side of the assessee submitted before us that the order passed by Ld. CIT(A)/NFAC is unjustified. Ld. AR submitted before us that as soon as the fact of claiming excess refund by the tax consultant came in the knowledge of the assesse he immediately paid the due tax along with interest on 28-05-2019 whereas the notice u/s 148 was issued to him on 25-02-2020, however the revised return could not be filed voluntarily since the date was over. Accordingly, it was requested before the Bench to delete the penalty of Rs.1,46,760/- imposed u/s 270(A) of the IT Act.
6. Ld. DR submitted before us that the appellant has not filed correct return of income voluntarily & therefore the appellant is liable for penalty. It was therefore requested by Ld. DR to confirm the penalty order passed by Assessing Officer & sustained by Ld. CIT(A)/NFAC.
7. We have heard Ld. Counsels from both the sides and perused the material available on record. In this regard, we find that the assessee is a salaried employee & belongs to technical background. The return of most of the employees of CEAT LTD, Bosch Company, HAL & M & M including that of the assessee was filed by a tax consultant namely Kishor Patil. We further find that the assessee came to know from other employees in company that Mr. Kishor Patil with his expertise is able to legally calculate lower tax, resulting in refund of TDS deducted by employer. The assessee was unaware about the contents of the Income Tax Return filed by Kishor Patil & truly believed that the returns are filed legally as per the provisions of the Income Tax Act. The assessee being from technical background does not understand ABCD of Income Tax & therefore completely relied on the above named tax consultant, who without informing him & others, claimed excess deduction under chapter VI-A of the IT Act & claimed refund. It was Kishor Patil who cheated all the employees & claimed excess deduction in their returns without informing them for his own benefit. The fact of the cheating came in light when a survey u/s 133A was conducted at the premises of Mr Kishor Patil. When the fact that this kind of fraud was made in the name of number of persons all of them complaint to the Economic Offence Wing of Police Nashik, against the tax consultant Kishore Patil. The news regarding fraud committed by Kishore Patil also flashed in the daily news paper of Nashik. It is also apparent that there is no mistake of the assessee but it was the hidden interest of the tax consultant who triggered the gun by using shoulders of the assessee & many more for his own benefit. It is also found that as soon as the fact of excess deduction claimed, came to the knowledge of the assessee he immediately paid the due tax with interest, even before the issue of notice u/s 148 of the IT Act & contacted another genuine tax consultant who prepared and furnished correct return in response to the notice u/s 148 of the IT Act. We find that the Assessing Officer has levied penalty u/s 270(A) of the IT Act of Rs.1,46,760/- on the basis of the fact that the correct income was not returned voluntarily but only after issue of notice u/s 148 of the IT Act. It is also found that when the notice u/s 148 was issued the appellant has disclosed his correct income & paid the due tax before issue of notice. We also find that the Assessing Officer has accepted the return as it is which was furnished by the appellant in response to the notice u/s 148 of the IT Act. We cannot accept the contention of Ld. DR that the revised return was not voluntary therefore the penalty u/s 270(A) of the Act is inevitable. In this regard the contention of Ld. counsel is also important wherein he stated that the due tax along-with interest was already paid before the issue of notice u/s 148 of the IT Act & admittedly the return of income could not be filed as the due date was already over. We find force in the arguments of the Ld. counsel of the assesse that the amount of tax & interest was deposited voluntarily much prior to the issue of notice u/s 148 of the IT Act since the income tax with interest was deposited by the assesse on 28-05-2019 whereas the notice u/s 148 was issued on 25-02-2020. Considering the totality of the facts of the case, we are of the considered opinion that this is not a fit case to impose penalty u/s 270(A) of the IT Act & accordingly the order passed by Ld. CIT(A)/NFAC is set-aside & the Assessing Officer is directed to delete the penalty of Rs.1,46,760/- imposed u/s 270(A) of the IT Act. Thus, the grounds of appeal raised by the assessee are allowed.
8. In the result, the appeal of the assessee is allowed.
Order pronounced on this 08th day of May, 2025.
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