ITAT deleted penalty u/s 270A for non specification as to whether assessee misreported the income or under reported
In a recent judgment, ITAT Jaipur has deleted penalty u/s 270A for non specification as to whether assessee misreported the income or under reported. It was also held that when merely the claim of the assessee was not entertained it cannot be a reason automatically to levy the penalty u/s 270A for misreporting or under reporting of the income.
ABCAUS Case Law Citation:
4694 (2025) (08) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the levy of penalty u/s 270A of the Income Tax Act, 1961 (the Act) considering disallowances of interest capitalized for calculation of capital gain.
During the year assessee had sold immoveable property. Against the resulting capital gain, the interest paid to Bank during construction period was capitalized & claimed as “cost of improvement” in the return of income.
However, during the quantum proceedings, the Assessing Officer (AO) disallowed the claim of the appellant for want of any documentary evidence. Against that disallowance for claim of cost of expenditure the assessee did not prefer any appeal accepted that disallowance.
Subsequently, the AO initiated penalty proceeding as per provision of section 270A of the Act. The assessee stated that there was no speciation as to the fact that the assessee misreported the income or under reported. The assessee submitted that against the claim of interest as cost of acquisition the assessee had filed the copy of the bank statement which supported the claim made by the assessee. In the quantum proceeding when the claim was disallowed and since the assessee was not having any further tax burden has not preferred an appeal.
The AO considered the reply filed by the assessee but did not consider as tenable and levied the penalty @ 200 % of the tax on the under reported income on disallowance made in quantum proceeding.
The CIT(A) observed that the appellant did not dispute the addition. He opined that when the claim of the appellant was disallowed for want of any documentary evidence, the addition attained finality and looking to the nature of addition, it cannot be said that the additions were result of any difference in opinion.
The CIT(A) observed that in the instant case, false claim of deduction fell in the category of misreporting of income and, therefore, penalty was rightly imposed.
Further, with respect to the argument of the appellant regarding failure of the AO to classify the case either in the category of ‘underreporting’ or’ misreporting’, the CIT(A) opined that it is clear from the language of provisions of section 270A(1) of the Act that the penalty is to be levied when there is under reporting of income. Only the quantum of penalty varies when there is ‘under-reporting’ and ‘misreporting’ which terms have been explained in section 270A(2) and section 270A(9), respectively.
The CIT(A) held that the AO had used words “under reporting in consequence of misreporting” which are the same as mentioned in provisions of sub-section (8) of section 270A of the Act.
Before the Tribunal the assessee argued that the claim of the assessee was supported by the evidence placed on record so there was neither under reporting of income or not misreporting of income. Since, there was not much tax outgo in the hands of the assessee on account of available carried forward loss being adjusted against that disallowance the assessee did not prefer the appeal.
The assessee also argued that AO had not given the proper show cause notice wherein there was not specified allegation as to under which limb they intend to levy the penalty.
The Tribunal observed that the assessee while replying to the notice issued u/s 142(1) of the Act had stated that deduction of interest was claimed on borrowing from two banks and the statement of the loan was submitted. Thus, the claim of the assessee was supported by the evidence.
The Tribunal further observed that the contention of the AO that of the CIT(A) that the claim of cost of acquisition was without any supporting evidence devoid merits. Even at the time of hearing of the appeal the Revenue did not challenged the reply filed by the assessee and placed on record in the quantum of proceeding and thereby did not rebut this fact that the claim of the assessee was with the proper supporting evidence.
The Tribunal opined that merely the claim of the assessee was not entertained, it cannot be a reason automatically to levy the penalty for misreporting or under reporting of the income. This view is supported from the decision of the Hon’ble Apex Court wherein it was held that merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not, in our opinion, attract the penalty under section 271(1)(c).
In view of the above ratio and following the decision of the Apex court the Tribunal opined that there was no reason to sustain the penalty.
Even otherwise also the bench also noted that in the notice issued for proposing to levy the penalty the Act the AO did not specify as to whether the assessee had misreported the income or under reported the income and since this being the lapse on the part of the AO and consequently the levy of penalty cannot sustain without specifying the specific charge against the assessee penalty levied cannot be sustained.
The Tribunal further noted that Jurisdictional High Court (JHC)had set aside the penalty order under section 270A holding that neither in the assessment order nor in the subsequent show-cause notices, the Assessing Officer had specified that the case of the assessee was covered under which part of sub-section (9) of Section 270A of the Act. Even in the penalty order it was not specified that which part of sub-section (9) of Section 270A of the Act was attracted in the case of the assessee. While arriving at the decision, the JHC relied upon the judgment of the Delhi High Court where Revenue had failed to specify the limb – “under reporting” or “misreporting” of income, under which the penalty proceedings had been initiated.
As a result, the penalty was directed to be deleted.
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