AO using the terms “underreporting” and “misreporting as a consequence of underreporting” loosely, showed he was unaware of the different connotations and their implications.
In a recent judgment, ITAT Agra has deleted penalty under section 270A observing that the AO apparently used the terms “underreporting” and “misreporting as a consequence of underreporting” loosely, seemingly unaware of the different connotations and implications of the two distinct terms.
ABCAUS Case Law Citation:
4573 (2025) (05) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A), National Faceless Appeal Centre in confirming action of the Assessing Officer (AO) in imposing penalty under section 270A of the Income Tax Act, 1961 (the Act).
The penalty was levied on the assessee by the Assessing Officer under section 270A of the Act for having under reported his income in consequence to misreporting. The income which was so found to be under reported in consequence to misreporting,was his income derived from the business of selling of milk and other products of Mother Dairy from a booth relating to Mother Dairy run by him.
The income from this activity was estimated by the AO by applying a net profit rate to the turnover of the assessee resulting in an estimation of profit from the business. The AO, noting that the assessee had filed return of income declaring income from the Mother Dairy milk booth activity belatedly beyond the time prescribed in law, held the return so filed to be not a valid return. Thereafter, the AO gathered information pertaining to turnover of the assessee from the activity from Mother Dairy itself and applied an estimated net profit rate to the same, determining and assessing the profits earned from the same.
Further penalty proceedings u/s 270A of the Act were initiated. In the proceedings for levy of penalty no compliance was made by the assessee to the various notices issued by the AO. Therefore the AO, on the basis of material on record before him, held that it is a fit case for levy of penalty u/s 270A of the Act for underreporting since the income assessed was greater than the basic exempt income and there was conscious underreporting/ misreporting of income.
Accordingly, he levied penalty on the assessee in terms of Section 270A of the Act @ 50% of the tax payable on the underreported income which was confirmed by the CIT(A).
The Tribunal noted that the provisions of section 270A of the Act reveals that it identifies two different set of defaults for attracting penalty, both inviting different quantum of penalty. The section recognizes underreporting of income as one default and underreporting as a consequence of misreporting, as the other default, with the first default attracting penalty at the rate of 30% of the tax payable on the underreported income and the other default attracting penalty at the rate of 200% of the tax payable on such income. While subsection (1) to (7) of section 270A deal with underreporting of income, sub section (8) & (9) deal with underreporting as a consequence of misreporting.
The Tribunal opined that since the provisions, identify two separate set of defaults, it was incumbent on the AO to identify the specific default committed by the assessee, the present being penal proceedings.
The Tribunal observed that the AO while levying penalty was not sure whether it was a case of under reporting of income inviting penalty @30% in terms of the provisions of Section 270A(7) of the Act or it was a case of misreporting of income as a consequence of under reporting inviting penalty @ 200% of tax sought to be evaded in terms of the provisions of Section 270A(8) of the Act.
The Tribunal noted that uncertainty in the mind of the AO was evident from the order of the AO levying penalty under section 270A of the Act, wherein at one place, he recorded and held that the assessee had under reported income which was in consequence of misreporting, (which attracts penalty @ 200% of the tax sought to be evaded), but in the very next line the AO held that the assessee was liable to penalty @50% of the tax payable on under reported income in terms of the provisions of Section 270A(8) of the Act. Whereas, as per the provision of Section 270A(8) of the Act, penalty is levied for misreporting as a consequence of under reporting @200% of the tax payable on the under reported income. Thus, the AO apparently was using the terms “underreporting” and “misreporting as a consequence of underreporting” loosely, seemingly and blissfully unaware of the different connotations and implications of the two terms, that too while penalizing the assessee for a default.
The Tribunal held that it was clearly evident that the AO himself was not clear whether it is a case of under reporting of income or a case of mis-reporting as a consequence of under reporting. For this reason alone, the penalty levied was not sustainable.
Even otherwise, the Tribunal observed that taking into consideration the fact that the AO had levied penalty @30% of the under reported income and considering that the AO had levied penalty for the default of under reporting of income, the assessee’s case is saved from the levy of penalty by virtue of Sub-section (6) of Section 270A of the Act which states that under reported income shall not include the amount of under reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer, but the method employed is such that the income cannot be properly be deduced therefrom.
The Tribunal further noted that the assessee had submitted his complete financial statement to the AO relating to the business of dealing in milk and milk products of Mother Dairy through a booth run by him. The assessee was in possession of complete books of accounts, from which these financial figures had been derived. But without finding any infirmity in the books of accounts or for that the matter rejecting the books of accounts, the AO had estimated the income of the assessee by applying a estimated net profit rate to the total turnover of the assessee. Therefore, the estimation of income by the AO which had invited the levy of penalty under section 270A(3) of the Act allegedly for under reporting of income, was saved by exception provided in Sub-section (6) of Clause (b) of the section 270A, since, the estimation was not accompanied by rejection of the books of accounts of the assessee and the AO was apparently satisfied with the Books of accounts of the assessee.
The Tribunal further noted that as for the levy of penalty for misreporting as a consequence of under reporting of income, Section 270A(9) of the Act specifically identifies the circumstances of misreporting as a consequence of underreporting in Clause (a) to (f). However, the AO in his order levying penalty did not point out which specific case is fulfilled in the assessee’s case. Therefore, it was not even a case fit for levy of penalty for misreporting as a consequence of under reporting also.
Accordingly, the Tribunal held that the penalty levied was not sustainable in law and directed deletion of the same.
Download Full Judgment Click Here >>
- ICAI extends last date to submit MEF for FY 2025-26 to 10th October, 2025
- ICAI defers Guidance Note on Financial Statements of Non-Corporate entities/LLPs
- Delhi Govt. to help persons with benchmark disabilities with high support need
- Placing Genset in steel container fitted with additional parts amounts to manufacture
- FAQs on GST Rate Rationalization as per recommendations of 56th GST Council
