2025 (1) TMI 868 - AT - Income Tax

Penalty levied u/s 270A - under-reporting of income in consequence of mis-reporting - assessee's failure to add back the service tax liability and late payment of employees' contribution to PF in the tax return - HELD THAT - It is an admitted fact that the audit report contained service tax liability which was not paid on or before the due date. Similarly, the audit report also contained the non-payment of employees contribution towards PF to the government account within the statutory due time. Thus, both the amounts were already available in the audit report which is the basis for disallowance by the AO - Therefore, in view of the decision of Prem Brothers Infrastructure LLP 2022 (6) TMI 130 - DELHI HIGH COURT it cannot be held to be mis-reporting. It is also an admitted fact that there is complete absence of details as to which limb of section 270A of the Act was attracted in initiating the penalty proceedings. We find in the case of Price Waterhouse Coopers (P.) Ltd. 2012 (9) TMI 775 - SUPREME COURT has held that where in tax audit report filed by the assessee, it was indicated that provision towards payment of gratuity was not allowable but assessee failed to add said provision to total income, no penalty could be imposed for such mistake. As in the intimation issued u/s 143(1) no such adjustment on account of non-payment of service tax liability and employees contribution to PF before the due date has been added. Thus, it is not a fit case for levy of penalty u/s 270A - Assessee appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The legal judgment revolves around the following core issues:

Whether the delay in filing the appeal by the assessee should be condoned.
Whether the penalty imposed under section 270A of the Income Tax Act for under-reporting and mis-reporting of income was justified.
Whether the assessee's failure to add back the service tax liability and late payment of employees' contribution to PF in the tax return constitutes mis-reporting or suppression of facts.
Whether the penalty notice adequately specified the limb of section 270A under which the penalty was levied.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of Delay

Relevant Legal Framework and Precedents: The Tribunal considered the application for condonation of delay, which is generally permissible if sufficient cause is shown.
Court's Interpretation and Reasoning: The Tribunal found the reasons for the delay satisfactory and condoned the delay, allowing the appeal to be admitted.
Conclusions: The delay in filing the appeal was condoned, and the appeal was admitted for adjudication.

Issue 2: Justification of Penalty under Section 270A

Relevant Legal Framework and Precedents: Section 270A deals with penalties for under-reporting and mis-reporting of income. The court referred to precedents, including the Supreme Court's decision in Price Waterhouse Coopers (P.) Ltd. vs. CIT, which held that penalties should not be imposed for inadvertent errors.
Court's Interpretation and Reasoning: The Tribunal noted that the service tax liability and PF contributions were disclosed in the audit report, indicating no intent to conceal income. The failure to add back these amounts was deemed an inadvertent error.
Key Evidence and Findings: The audit report clearly indicated the liabilities, and the assessee had already paid the taxes on these amounts. The penalty notices lacked specificity regarding the limb of section 270A invoked.
Application of Law to Facts: The Tribunal applied the principle that penalties should not be imposed for genuine errors, especially when all relevant facts were disclosed.
Treatment of Competing Arguments: The Department argued that the penalty was justified due to the failure to file a revised return. However, the Tribunal found the absence of concealment or misrepresentation significant.
Conclusions: The Tribunal concluded that the penalty under section 270A was not justified and directed its cancellation.

Issue 3: Specification of Penalty Notice

Relevant Legal Framework and Precedents: The requirement for specificity in penalty notices is critical, as established in various judicial precedents.
Court's Interpretation and Reasoning: The Tribunal observed that the penalty notices did not specify the clause of section 270A under which the penalty was levied, rendering the penalty proceedings procedurally defective.
Conclusions: The lack of specificity in the penalty notice contributed to the Tribunal's decision to cancel the penalty.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The submission of the assessee is unacceptable because the assessee is a company and is assisted by professionals in work related to tax matters. Any possible purported 'mistake' would have been caught at various stages by professionals if not at the time of filing of return, then subsequently and assessee could have corrected the purported 'mistake' by filing belated return."
Core Principles Established: Penalties under section 270A should not be imposed for inadvertent errors when full disclosure is made in audit reports. Specificity in penalty notices is essential.
Final Determinations on Each Issue: The Tribunal condoned the delay in filing the appeal, found the penalty under section 270A unjustified due to inadvertent error and lack of specificity in the penalty notice, and directed the cancellation of the penalty.

The judgment emphasizes the importance of distinguishing between genuine mistakes and intentional misreporting in tax matters, underscoring the necessity for clear communication in penalty notices.

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