ITAT deleted penalty u/s 270A observing law does not bar from making a claim

ITAT deleted penalty u/s 270A observing that law does not bar or prohibit a person from making a claim, when he knows the matter is going to be examined by the Assessing Officer

In a recent judgment, the ITAT Hyderabad deleted the penalty u/s 270A observing inter alia that law does not bar or prohibit a person from making a claim, when he knows the matter is going to be examined by the Assessing Officer

ABCAUS Case Law Citation:
4350 (2024) (12) abcaus.in ITAT Hyderabad

In the instant case, the assessee had challenged the order passed by the Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre in confirming the penalty u/s 270A of the Income Tax Act, 1961 (the Act).

The appellant assessee was a Private Limited Company engaged in the business of supply of vehicles, machines, oils & lubricants, spare and services of machines and vehicles. The assessment was completed u/s. 143(3) of the Act wherein the Assessing Officer (AO) made certain additions towards unaccounted cash purchases, disallowance of rent and disallowance of commission expenses u/s. 40(a)(ia) of the Act, on ad-hoc and estimation basis.

The AO also initiated penalty proceedings U/s 270A read with section 274 of the Act by issuing notice. In its reply, the assessee submitted that the penalty U/s 270A for under reporting or misreporting of income cannot be attracted as all the details called for by the AO were furnished and the addition was made on ad-hoc / as a percentage of expenditure.

The AO, however, did not consider the submissions of the assessee and concluded that the assessee has clearly mis-reported / under reported the income and therefore, levied penalty @ 200% of the tax payable on the additions made.

Before the Tribunal the assessee submitted that the penalty of 200% levied by the AO u/s. 270A of the Act was unsustainable in law in view of the fact that the assessee had paid the tax imposed, with interest, and has not preferred an appeal against the assessment order. Therefore, assessee was entitled to the immunity as contemplated U/s. 270AA of the Act.

The Tribunal observed the provisions of section 270A(6)(c) of the Act and opined that the under-reported income shall not include the amount, if the income is determined on the basis of estimation. In the present case of the assessee, AO had made additions on ad-hoc basis / estimation in the original assessment passed U/s. 143(3) of the Act. Therefore, as per the provisions of section 270(6), the assessee’s case does not attract the penalty U/s. 270A of the Act for under-reporting of income. Furthermore, the assessee had already paid the tax and interest on the additions made in the assessment.

Apart from the above, the Tribunal opined that the Hon’ble High Court of Delhi has held that law does not bar or prohibit an assessee for making a claim, which he believes may be accepted or is plausible; that when such a claim is made during the course of regular or scrutiny assessment, liberal view is required to be taken as necessarily the claim is bound to be carefully scrutinized both on facts and in law; that full probe and appraisal is natural and normal; that threat of penalty cannot become a gag and/or haunt an assessee for making a claim which may be erroneous or wrong, when it is made during the course of the assessment proceedings; that normally, penalty proceedings in such cases should not be initiated unless there are valid or good grounds to show that factual concealment has been made or inaccurate particulars on facts were provided in the computation. Law does not bar or prohibit a person from making a claim, when he knows the matter is going to be examined by the Assessing Officer.

In view of the above, the Tribunal held that the penalty levied U/s. 270A of the Act in the case of the assessee was unsustainable in law and therefore, the penalty was deleted.

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