2025 (1) TMI 763 - AT - Income Tax

Penalty u/s 270A - misreporting of income - assessee evidently did not file Form No. 68 but had requested for immunity from imposition of penalty on plain paper - HELD THAT - Since the required Form No. 68 was not filed before the Ld. AO, the Ld. CIT(A) confirmed the penalty imposed by the Ld. AO - CIT(A) has not appreciated the fact that the assessee had substantively complied with the conditions specified u/s 270AA, not contested the assessment order further and had paid the tax. CIT(A) has not considered the fact whether for mere non-filing of Form No. 68 but otherwise making the application on a plain paper for waiver of penalty and fulfilling the substantive conditions, the immunity provided u/s 270AA could be denied to the assessee or not when filing of a Form is only a procedural requirement. higher amount of penalty for mis-reporting of income is specified as per the provisions of sub-section (9) of section 270A and the Ld. AO has not specified under which clause from (a) to (f) the assessee s case fell so as to impose the penalty for misreporting of income. At the most, the case was a case of under reporting of income in the first place. Sub-section (6) of section 270A also excludes cases of under-reported income where the assessee s explanation is found to be bona fide. Since the Ld. CIT(A) has gone by the procedural requirement while the assessee had duly complied with the substantive requirement, and neither in the order of the Ld. AO nor in the order of the Ld. CIT(A) a case of mis-reporting of income has been made out and higher amount of penalty has been imposed, hence, in the interest of justice if the order of the Ld. CIT(A) is set aside and the issue is remitted back to the file of Ld. CIT(A) to decide whether filing of Form 68 could be dispensed with and immunity could be granted when the assessee had paid the taxes, not further contested the order of the Ld. AO and had applied for immunity from imposing of penalty on plain paper. Order to pass a speaking order as to whether it is a case of mis-reporting of income and which of the clauses of section 270A(9) of the Act, if any is attracted for arriving at his decision. The assessee shall file all necessary evidence before the Ld. CIT(A) for the relief claimed and shall not seek unnecessary adjournments. Appeal filed by the assessee is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment addresses several core issues:

• Whether the penalty proceedings initiated by the Assessing Officer (AO) for misreporting of income were valid under Section 270A of the Income Tax Act, 1961.
• Whether the penalty order was sustainable given the alleged procedural lapses in the show cause notice under Section 274 of the Act.
• Whether the assessee was entitled to immunity from penalty under Section 270AA despite not submitting the prescribed Form No. 68.
• Whether the procedural requirement of filing Form No. 68 could be waived when the substantive conditions for immunity were met.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Penalty Proceedings under Section 270A

• Relevant Legal Framework and Precedents: Section 270A of the Income Tax Act provides for penalty in cases of under-reporting and misreporting of income. The AO initiated penalty proceedings under this section.
• Court's Interpretation and Reasoning: The Tribunal noted that the AO failed to specify the exact clause of misreporting under Section 270A(9) applicable to the assessee's case.
• Key Evidence and Findings: The AO did not propose any variation to the income declared by the assessee, yet initiated penalty proceedings for misreporting.
• Application of Law to Facts: The Tribunal found that the AO's failure to specify the clause of misreporting rendered the penalty proceedings questionable.
• Treatment of Competing Arguments: The assessee argued against the validity of the penalty, while the department maintained its imposition.
• Conclusions: The Tribunal remitted the issue back to the CIT(A) to determine if the case was indeed of misreporting and which clause of Section 270A(9) applied.

Issue 2: Sustainability of Penalty Order due to Procedural Lapses

• Relevant Legal Framework and Precedents: Section 274 mandates a valid show cause notice before imposing a penalty.
• Court's Interpretation and Reasoning: The Tribunal highlighted the lack of a specific charge in the show cause notice as a procedural lapse.
• Key Evidence and Findings: The AO's notice did not specify the exact nature of the misreporting.
• Application of Law to Facts: The Tribunal considered the procedural lapse significant enough to question the penalty's validity.
• Treatment of Competing Arguments: The department argued procedural compliance, while the assessee contested the notice's validity.
• Conclusions: The Tribunal found the penalty order unsustainable due to procedural deficiencies.

Issue 3: Entitlement to Immunity under Section 270AA

• Relevant Legal Framework and Precedents: Section 270AA provides immunity from penalty if certain conditions are met, including filing an application in Form No. 68.
• Court's Interpretation and Reasoning: The Tribunal considered whether substantive compliance could suffice in the absence of Form No. 68.
• Key Evidence and Findings: The assessee paid the tax and did not appeal the assessment order but failed to submit Form No. 68.
• Application of Law to Facts: The Tribunal noted the substantive compliance and questioned if procedural lapses should negate immunity.
• Treatment of Competing Arguments: The assessee argued for immunity based on substantive compliance, while the department insisted on procedural requirements.
• Conclusions: The Tribunal remanded the issue to the CIT(A) to decide on the waiver of Form No. 68 based on substantive compliance.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The mere fact that it is statutory does not matter one way of that other. There are conditions and conditions. Some may be substantive, mandatory and based on considerations of policy and some others may merely belong to the area of procedure."
• Core Principles Established: Substantive compliance may suffice over procedural lapses if the core conditions of the statute are met.
• Final Determinations on Each Issue: The Tribunal remanded the case to the CIT(A) for reconsideration of the penalty's validity and the possibility of granting immunity under Section 270AA based on substantive compliance.