2024 (9) TMI 211 - AT - Income Tax

Penalty u/s. 270A - disallowing 30% of indexed cost of development expenses with reference to LTCG offered by the assessee as failed to furnish certain evidences in support of the expenditure claimed - HELD THAT - The assessee has submitted all the details before the AO and also explained the reason for not furnishing few vouchers since it was misplaced and could not be furnished at the time of assessment proceedings and was willing to produce the same. AO went ahead and levied penalty u/s. 270A of the Act. Thus, it is noted that the A.O on estimated basis, disallowed an amount and levied penalty u/s. 270A. This impugned action of A.O levying penalty cannot be countenanced. We taking note of the explanation of the assessee is satisfied that the explanation given by the assessee during penalty proceedings is bonafide and find that the assessee has disclosed all the material facts to substantiate the explanation offered and therefore, as per sub clause (a) of sub section (6) of section 270A of the Act, we are of the view that this is not a fit case for levy of penalty for underreporting of income and moreover the disallowance of 30% of the expenditure in the quantum order was purely on estimation. Therefore, the penalty made by the A.O and confirmed by the Ld. CIT(A) is directed to be deleted. Appeal of the assessee is allowed.

Summary

Issues:
Penalty under Section 270A of the Income Tax Act for underreporting of income based on estimated disallowance of expenditure.

Analysis:
The judgment pertains to an appeal by the assessee against the penalty imposed under Section 270A of the Income Tax Act for underreporting of income. The assessment was framed by the Assessing Officer for the Assessment Year 2018-19 under Section 153C of the Act. The disallowance of 30% of indexed cost of development expenses was made due to the non-production of certain vouchers by the assessee. Penalty proceedings were initiated, and a penalty of Rs. 7,88,122 was levied at 200% of the underreported income of Rs. 16,63,384. The assessee contended that the disallowance was based on estimates and not deliberate misreporting, hence the penalty was unjustified.

The assessee argued that the disallowed expenditure was Rs. 55,44,614, and the AO disallowed 30% of it due to missing vouchers, which were misplaced and could not be furnished during assessment. The assessee maintained that this did not amount to underreporting as the disallowance was based on estimation and did not involve concealment or inaccurate reporting. The AR further contended that the penalty under Section 270A should not be imposed as no deliberate default was committed.

In response, the Departmental Representative supported the orders of the lower authorities, advocating for the penalty to be upheld. Upon considering the contentions of both parties and reviewing the material on record, the Tribunal noted that the disallowance was estimated by the AO due to missing vouchers. The assessee had explained the circumstances leading to the missing vouchers and expressed willingness to produce them. The Tribunal found the explanation provided by the assessee during penalty proceedings to be bona fide and concluded that all material facts were disclosed. Therefore, the Tribunal held that this was not a suitable case for the imposition of a penalty under Section 270A. The penalty imposed by the AO and confirmed by the CIT(A) was deemed unjustified and directed to be deleted.

In conclusion, the appeal of the assessee was allowed, and the penalty under Section 270A of the Income Tax Act was set aside.