No under reporting if income assessed u/s 143(3) is same as per ITR processed u/s 143(1)(a)

No under reporting of income if income assessed u/s 143(3) is same as per return processed u/s 143(1)(a) – ITAT

In a recent judgment, the ITAT Delhi has held that there is no under reporting of income u/s 270A as income assessed u/s 143(3) and income determined in return processed u/s 143(1)(a) are same.

ABCAUS Case Law Citation:
4227 (2024) (08) abcaus.in ITAT

In the instant case, the Revenue had challenged the order passed by the CIT(A) in deleting the penalty for under reporting of income u/s 270A of the Income Tax Act, 1961 (the Act).

The assessee firm filed return of income which was processed under section 143(1)(a) of the Act after making adjustments for disallowance of expenditure u/s 43B as per audit report. The proposed adjustment was agreed by the assessee. Consequently, return of income was  processed u/s 143(1) of the Act by CPC, Bengaluru determining total income making adjustment/disallowance u/s 43B of the Act.

The case was selected for scrutiny and an order was passed under section 143(3). During the assessment proceedings, the AO noted from the Audit report that certain payments were not made before the due date for furnishing the return of income of the previous year u/s 139(1) of the Act.

On account of the above, the AO disallowed the amount u/s 43B of the Act and levied penalty u/s 270A of the Act for under reported income which was in consequence of misreporting thereof of the disallowances made u/s 43B of the Act.

The Tribunal noted that the AO invoked provision of sub-section 8 of section 270A and levied penalty being 200% of tax payable on under reported income in consequences of misreporting thereof.

The assessee argued that conclusion of under-reported income in penalty order was wrong in view of the provision of section 270A(2)(a) of the Act. Calculation of under reported income was not made as per provision of section 270A(3)(ii). Calculation of tax payable on under reported income comes to zero as per the method provided in section 270A(10)(c). Further assessee contended that though it has not filed appeal against the assessment order, the disallowances made in assessment order should have been considered before imposing the penalty.

The Tribunal noted that the disallowance u/s 43B of the Act so made in assessment order was already made while computing income u/s 143(1)(a) of the Act.

The Tribunal further observed that the CIT(A) held that Section 270A(2) defines ‘under reporting of income’. As per provision of section 270A(2)(a), a person shall be considered to have under reported his income if the income assessed is greater than the income determined in the retuned processed under clause (a) of sub section (1) of section 143; However in the present case, there was no under reporting of income as income assessed u/s 143(3) of the Act and income determined in return processed u/s 143(1)(a) were same.

The CIT(A) held that in view of provisions of section 270A(2)(a) of Income Tax Act, this is not a case where appellant had under reported its income and in absence of under reporting of income, penalty cannot be levied u/s 270A of the Act.

The Tribunal accepted the decision of the CIT(A) that this was not the case where the assessee had under reported its income in consequences of misreporting thereof and no penalty was leviable on the prima facie disallowances made u/s 43B of the Act.

Accordingly, the appeal of the Revenue was dismissed. 

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• Object of assessment proceedings is not to find empirically correct solution on every fact issue – HC
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• Penalty u/s 271B for unfilled column 40 in Tax Audit Report Form 3CD deleted by ITAT
• Merely ex-parte rectifying computation without amending assessment order not make it nullity- ITAT
• Once assessee discharges primary onus, it shifts to AO to bring evidence to contrary – ITAT