2023 (6) TMI 430 - AT - Income Tax

Penalty levied u/s 270A - misreporting of income - AO has levied the higher penalty of 200% of tax payable of mis-reporting income - scope of word may direct the assessee to pay penalty - According to assessee imposition of penalty is at the discretion of AO, since sub-section (1) of section 270A of the Act, refers to the word 'may' and not shall - HELD THAT - From reading of the reasons given by the AO to levy penalty for misreporting it is discerned that he has failed to spell out as to how the assessee s case/additions falls within the ken of instances given in clause (a) to (f) of sub-section (9) of section 270A of the Act. Since AO failed to bring the addition/disallowance he made in quantum assessment, under the ken of (a) to (f) of the sub-section(9) of section 270A of the Act, the penalty levied for misreporting @ 200% cannot be sustained because it is trite law that penalty provisions have to be strictly interpreted. Therefore we find that the levy of penalty by the AO u/s 270A of the Act suffers from the vice of non-application of mind as well as violates principles of natural justice. Penalty levied on addition of sustained quantum addition cannot survive. Decided in favour of assessee.

Summary

Issues Involved:

1. Confirmation of penalty levied by AO under Section 270A of the Income Tax Act, 1961.
2. Determination of whether the penalty on the sustained quantum addition of Rs. 67,970/- was justified.

Summary:

Issue 1: Confirmation of Penalty Levied by AO under Section 270A of the Income Tax Act, 1961

The assessee filed a return of income for AY 2017-18 declaring Rs. 21,21,750/-. The case was selected for scrutiny, and the AO made a quantum addition of Rs. 3,94,996/-. The assessee appealed, and the Tribunal provided partial relief, confirming only Rs. 67,970/- of the additions. Meanwhile, the AO levied a penalty under Section 270A of the Act, imposing 200% of the tax on the alleged misreported income of Rs. 2,44,110/-. The CIT(A) confirmed this penalty, prompting the assessee to appeal to the Tribunal.

Issue 2: Determination of Whether the Penalty on the Sustained Quantum Addition of Rs. 67,970/- Was Justified

The Tribunal noted that the penalty issue, if leviable, should only pertain to the confirmed additions totaling Rs. 67,970/-. The Tribunal highlighted that Section 270A provides discretion to the AO to levy a penalty, as indicated by the use of the word "may" rather than "shall." The Tribunal also emphasized that the AO must specify under which of the six instances of misreporting, as outlined in Section 270A(9), the case falls. The AO failed to do so, merely stating that the assessee misreported income without detailing how the additions constituted misreporting.

The Tribunal concluded that the AO's action to levy a 200% penalty lacked proper justification and was arbitrary. The penalty provisions must be strictly interpreted, and the AO's failure to apply the correct legal standards and principles of natural justice rendered the penalty unsustainable. Consequently, the Tribunal directed the deletion of the penalty on the sustained quantum addition of Rs. 67,970/-.

Conclusion:

The appeal of the assessee was allowed, and the penalty levied under Section 270A of the Income Tax Act was directed to be deleted. The order was pronounced in the open court on 22/05/2023.