2024 (12) TMI 426 - AT - Income Tax

Penalty u/s 270A - under-reporting in consequence of misreporting - assessee has offered an additional amount under the head 'income from other sources' in the return of income filed against notice issued u/s. 148 - HELD THAT - The provisions of sec.270A(2) gives the circumstances under which a person shall be considered to have under-reported his income. From the report of the Assessing Officer, it is crystal clear that neither any intimation was passed u/s. 143(1) nor any order u/s. 143(3). Under these circumstances, the assessee, in our opinion, does not fall under any of the categories i.e., clauses (a) to (g) of sub-sec.(2) of sec.270A of the Act. Once it is held that assessee has not under-reported his income, the question of mis-reporting does not arise. Also admitted fact that the income tax refund along with interest on such refunds were adjusted against the outstanding demand for earlier years and no amount was received by the assessee in it s bank account. We, therefore, find merit in the arguments of the Learned Counsel for the Assessee that it is an inadvertent and bonafide error in not disclosing the interest on income tax refund. As in the case of Price Waterhouse Coopers Pvt. Ltd. 2012 (9) TMI 775 - SUPREME COURT observed that a bonafide and an inadvertent error does not attract penalty u/sec.271(1)(c )- we hold that the Ld. CIT(A), in the instant case, is not justified in sustaining the penalty levied by the Assessing Officer u/sec.270A - Appeal of the assessee is allowed.

Summary

Issues Involved:

1. Levy of Penalty under Section 270A of the Income Tax Act for Under-Reporting and Misreporting of Income.
2. Applicability of Clauses under Subsection (2) of Section 270A.
3. Validity of Penalty without Specifying the Limb under Section 270A(9).
4. Consideration of Bona Fide Error in Non-Disclosure of Income.

Detailed Analysis:

1. Levy of Penalty under Section 270A of the Income Tax Act for Under-Reporting and Misreporting of Income:

The primary issue in this case was the levy of a penalty amounting to Rs. 3,27,993/- under Section 270A of the Income Tax Act. The penalty was imposed by the Assessing Officer (AO) due to the assessee's failure to disclose interest income on an income tax refund in the original return. The AO considered this as under-reporting of income due to misreporting. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the penalty, emphasizing that the assessee had shown an additional amount of Rs. 21,22,930/- in response to a notice under Section 148, which was not disclosed in the original return filed under Section 139(1).

2. Applicability of Clauses under Subsection (2) of Section 270A:

The assessee argued that none of the clauses under subsection (2) of Section 270A, which define under-reporting of income, were applicable. The CIT(A) disagreed, noting that the reassessed income was greater than the income initially declared, thereby falling under clause (c) of subsection (2). The CIT(A) concluded that the case involved under-reported income as per the statutory criteria. However, the Tribunal found that the assessee did not fall under any of the categories outlined in clauses (a) to (g) of subsection (2) of Section 270A, as there was no intimation under Section 143(1) or assessment order under Section 143(3).

3. Validity of Penalty without Specifying the Limb under Section 270A(9):

The assessee contended that the penalty order was invalid as it did not specify the limb under Section 270A(9) (a) to (f). The Tribunal noted that the penalty was imposed without such specification, which is a procedural requirement, and thus, found merit in the assessee's argument for deletion of the penalty.

4. Consideration of Bona Fide Error in Non-Disclosure of Income:

The assessee claimed that the omission to disclose the interest was an inadvertent error, as the refund and interest were adjusted against outstanding demands, and no actual receipt was made to the bank account. The Tribunal acknowledged this as a bona fide error, referencing the Supreme Court's decision in Price Waterhouse Coopers Pvt. Ltd. vs. CIT, which held that inadvertent errors do not warrant penalties. The Tribunal concluded that the CIT(A) was not justified in sustaining the penalty, as the omission did not constitute misreporting.

Conclusion:

The Tribunal allowed the appeal, directing the deletion of the penalty imposed under Section 270A. The decision underscored the importance of distinguishing between genuine errors and intentional non-disclosure when imposing penalties for under-reporting of income. The Tribunal's ruling emphasized procedural adherence and the necessity of specifying the applicable limb under Section 270A(9) when levying penalties.