No penalty u/s 270A when disallowances mentioned in Tax Audit Report not added back

No penalty u/s 270A when disallowances were mentioned in Tax Audit Report but assessee by mistake not added it back to the total income.

In a recent judgment, the ITAT Pune held that no penalty u/s 270A can be levied when disallowances u/s 43B were mentioned in Tax Audit Report but assessee by mistake not added it back to the total income.

ABCAUS Case Law Citation:
4381 (2025) (01) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming penalty u/s 270A of the Income Tax Act, 1961 (the Act) on account of under-reporting of its income in consequence of mis-reporting.

The appellant assessee was a company registered under the Companies Act and engaged in the activity of construction. The return for the relevant Assessment Year was processed u/s 143(1) of the Act.  Subsequently, the case was selected for scrutiny under CASS and statutory notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee, in response to which the AR of the assessee appeared before the Assessing Officer from time to time and filed the requisite details.

During the course of assessment proceedings the Assessing Officer noted that in the tax audit report the auditor had shown the service tax liability which was not paid on or before the due date. The assessee while filing the return of income was supposed to add back the above amount which was not done.  The Assessing Officer, therefore, asked the assessee to explain as to why the said amount had not been added back to the total income of the assessee.  Rejecting the various explanations given by the assessee and invoking the provisions of section 43B of the Act, the Assessing Officer made addition to the total income of the assessee.  

Similarly, noticing from the Tax Audit Report, the Assessing Officer, invoking the provisions of section 36(1)(va) r.w.s. 2(24)(x) of the Act on account of late payment of employees’ contribution to PF and ESI, made addition to the total income of the assessee.  The assessee accepted the above additions and no appeal was filed.

The Assessing Officer initiated penalty proceedings u/s 270A of the Act on account of under-reporting of its income in consequence of mis-reporting.  Rejecting the various explanations given by the assessee, the Assessing Officer levied penalty o@ 200% of the tax payable on such under-reporting income as per the provisions of section 270A of the Act.

Before the CIT(A), the assessee submitted that the addition made by the Assessing Officer was on account of mis-match of disallowance u/s 43B of the Act reported in the tax audit report which was by mistake not added back to the total income of the assessee while filing of the return of income. 

It was submitted that this mistake was an apparent casting and the company never had any intention of evading the tax. It was submitted that the company had already accepted the order demanding the tax on this mismatch and paid the tax. 

However, CIT(A) / NFAC was not satisfied with the arguments advanced by the assessee and upheld the action of the Assessing Officer by observing that tad he submission of the assessee was unacceptable because the assessee was a company and is assisted by professionals in work related to tax matters. Any possible purported “mistake” would have been caught at various stages by professionals if not at the time of filing of return, then subsequently and assessee could have corrected the purported “mistake” by filing belated return. In this case, what was pointed out by auditor had been omitted by the assessee. There was no way in which such a purported “error” or “mistake” can be made when the facts had been pointed out by the Audit report. Had the case not been taken up in scrutiny and misreporting resulting in underreporting by the assessee detected, assessee would have got away with misreporting resulting in under reporting of income.

Before the Tribunal the assessee contended that it was a  technical mistake on the part of the assessee that the amount of service tax liability not paid before the due date could not be added to the total income of the assessee.  The assessee drew the attention of the Bench to the intimation issued u/s 143(1) of the Act and submitted that no such adjustment has been made by the CPC. 

Further, referring to the notice issued u/s 274 r.w.s. 270A of the Act it was submitted that although the notice speaks of under-reporting / mis-reporting of income, however, the notice is silent regarding under which limb or clause of section 270A of the Act such penalty had been levied, since the same was missing. 

Referring to the decision of the Hon’ble Delhi High Court it was submitted that the Hon’ble Delhi High Court in the said decision has held that in absence of any whisper as to which limb of section 270A of the Act is attracted and how the ingredient of sub-section (9) of section 270A is satisfied, the penalty levied by the Assessing Officer was not in accordance with law.  

Similarly relying on the decision of the Co-ordinate Bench, it was submitted that under somewhat similar circumstances the Bench upheld the action of the CIT(A) / NFAC in deleting the penalty levied u/s 270A of the Act and the appeal filed by the Revenue was dismissed.

Further, it was pointed out that in another case, Delhi High Court held that where penalty was levied on assessee under section 270A alleging misreporting of income, however, fact that assessee had furnished all details of transactions relating to disallowance made under section 14A and Assessing Officer as well as assessee had used same details to arrive at different quantum of disallowances, this by no stretch of imagination could be held to be ‘misreporting’ and further, in absence of details as to which limb of section 270A was attracted, penalty order was quashed. 

Also, it was submitted that the Hon’ble Supreme Court has held that where in tax audit report filed by the assessee, it was indicated that provision towards payment of gratuity was not allowable but assessee failed to add said provision to total income, no penalty could be imposed for such mistake.  It was submitted that in view of the binding decision of the Hon’ble Supreme Court where the facts are identical to the facts of that of the assessee, penalty levied by the Assessing Officer and sustained by the CIT(A) / NFAC being not in accordance with law, should be deleted.

The Tribunal observed that it was an admitted fact that the audit report contained service tax liability which was not paid on or before the due date.  Similarly, the audit report also contained the non-payment of employees’ contribution towards PF to the government account within the statutory due time.  Thus, both the amounts were already available in the audit report which is the basis for disallowance by the Assessing Officer.  Therefore, in view of the decision of the Hon’ble Delhi High Court, it cannot be held to be mis-reporting.  It was also an admitted fact that there is complete absence of details as to which limb of section 270A of the Act was attracted in initiating the penalty proceedings.  

Further the Tribunal noted that Hon’ble Supreme Court has held that where in tax audit report filed by the assessee, it was indicated that provision towards payment of gratuity was not allowable but assessee failed to add said provision to total income, no penalty could be imposed for such mistake.

The Tribunal observed that in the intimation issued u/s 143(1) of the Act, no such adjustment on account of non-payment of service tax liability and employees’ contribution to PF before the due date had been added. 

In view of the facts and respectfully following the decisions, the Tribunal opinion that it was not a fit case for levy of penalty u/s 270A of the Act. 

Accordingly, the Tribunal set aside the order of the CIT(A) / NFAC and directed the Assessing Officer to cancel the penalty.

Download Full Judgment Click Here >>

read latest abcaus posts

----------- Similar Posts: -----------

Leave a Reply