IMMUNITY FROM IMPOSITION OF PENALTY FOR MISREPORTING OF INCOME

[Mr. M. GOVINDARAJAN]

Misreporting of income

Section 270A of the Income Tax Act, 1961 (‘Act’ for short) provides penalty for under reporting or misreporting of income.  Section 270A(1) provides that the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the course of any proceedings under this Act, direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income.  Section 270A (2) prescribes the nature of under-reporting of income.  The penalty is 50% of the amount of tax payable on under reported income. 

Section 270A (9) prescribes the cases of mis-reporting of income as detailed below-

• misrepresentation or suppression of facts;
• failure to record investments in the books of account;
• claim of expenditure not substantiated by any evidence;
• recording of any false entry in the books of account;
•  failure to record any receipt in books of account having a bearing on total income; and
• failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.

The penalty that can be imposed on the above said cases is 200% of the tax payable on under-reported income.

Immunity from penalty

Section 270AA of the Act grants immunity to the assessee whose income is under reported from imposition of penalty.  Section 270AA(1) provides that an assessee may make an application to the Assessing Officer to grant immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C or section 276CC, if he fulfills the following conditions-

1. the tax and interest payable as per the order of assessment or reassessment under  section 143(3) or section 147  has been paid within the period specified in such notice of demand; and
2. no appeal against the order referred to in clause (a) has been filed.

An application shall be made within one month from the end of the month in which the order referred to in clause (a) of sub-section (1) has been received and shall be made in such form and verified in such manner as may be prescribed.   The Assessing Officer shall, subject to fulfillment of the conditions specified in sub-section (1) and after the expiry of the period of filing the appeal as specified in clause (b) of sub-section (2) of section 249, grant immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C or section 276CC, where the proceedings for penalty under section 270A has not been initiated under the circumstances referred to in sub-section (9) of the said section 270A.  The said order shall be passed within one month from the date of receipt of application.  This order is final.  No appeal or revision can be filed against the said order.

Application for immunity from penalty cannot be entertained if the mis-reported income comes under any one of the categories mentioned in Section 270A(9).

In IBS SOFTWARE PRIVATE LIMITED VERSUS THE UNION OF INDIA, THE ASSISTANT COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM, ASSESSMENT UNIT, INCOME TAX DEPARTMENT, NATIONAL FACELESS - 2023 (12) TMI 1266 - KERALA HIGH COURT the writ petition has been filed impugning the order, whereby the petitioner's application  filed under Section 270AA of the  Act  seeking immunity from imposition of penalty in pursuance to the assessment order in  has been rejected, on the ground that the case is not eligible to be considered for grant of immunity from imposition of penalty as the facts of the case are covered under sub-Section (9) of Section 270A of the Act.

The High Court analyzed the provisions of Section 270A and Section 270AA of the Act.  The High Court observed that the assessing officer has to process the application under Section 270AA of the Act seeking immunity from imposition of penalty, inter alia, only if the case does not fall on any of the circumstances mentioned in Section 270A (9) of the Act.  If there has been misrepresentation or suppression of facts by the assessee, then the application seeking immunity from imposition/payment of penalty under Section 270AA of the Act shall not be maintainable.

The High Court observed that the assessing authority, in their order, has specifically recorded that while computing the income of the assessee and its return of income, it was not just under-reported the income, but also misrepresented the facts claiming deduction of expenses, which were already self disallowed, and therefore, it was a fit case for penalty proceedings under Section 270A of the Act. It was also stated that penalty proceedings should be initiated separately under sub-Section (9) of Section 270A of the Act.

The High Court held that the assessing authority while examining the application under Section 270AA of the Act cannot sit in appeal against its own assessment order to record a different finding than what was recorded in the assessment order. The assessing officer cannot examine the correctness or otherwise of the assessment order while examining the application under Section 270AA of the Act seeking immunity from imposition/payment of penalty, etc.   If there is a specific finding recorded in the assessment order that the assessee had underreported the income by misrepresenting the facts in the return of its income, then the application under Section 270AA of the Act would not be maintainable, in view of the express bar under Section 270A of the Act.

The High Court found no irregularity in the order passed by the assessing authority and dismissed the writ petition filed by the writ petitioner.

In AMAR NATH C/O. SHIV NARAIN AMAR NATH VERSUS ITO, WARD 1 (1) , GURGAON - 2023 (7) TMI 469 - ITAT DELHI a survey u/s 133A of the Act was conducted in the premises of the assessee.  It was found that the assessee maintained two sets of accounts - one for income tax purposes and the other for business purposes.  The sales to the extent of Rs.77.25 lakhs recorded in the sales book were not found in the books of account.  The Assessing Officer computed undisclosed profit of Rs. 246438/- @ 3.29% on such out of book sales.  The Assessing Officer levied a penalty of Rs. 80,224/- @ 200% of the tax payable on the undisclosed income.  The assessee filed an appeal before the first appellate authority.  The appellant contended that the appellant was eligible for immunity from imposition of penalty under section  270AA of the Act as additional demand was deposited on 27.01.2020 and no appeal has been filed against the assessment order.  The Commissioner of Income Tax (Appeals) dismissed the appeal since there was no merit in the appeal.

The assessee filed the present appeal before the ITAT against the order of Commissioner of Income Tax (Appeals) on the following grounds-

•  The  order passed by lower authorities is against the principles of natural justice as the appellant is eligible for immunity u/s 270 AA of the Act because he has fulfilled the two conditions mentioned in section 270 AA of the Act.
• He shall deposit the demand within the period specified in notice. . He shall not file appeal against the order passed under section  143 (3) of the Act. Both the conditions are fulfilled. So justice may be done by quashing the order by which penalty of Rs. 80224.00 is imposed. As per provisions of section 270 A sub section (1) of the Act. Sub Sec 7, tax on under reported of income was calculated at Rs. 40112.00. So the penalty should be Rs. 20056.00.

The ITAT observed that Section 270AA nowhere  indicates that the power of granting immunity is available to the first appellate authority. No application was filed before the Ld. AO and during the appellate proceedings, for the first time assessee had claimed that he was eligible for immunity from imposition of penalty u/s 270AA of the Act.  The Commissioner of Income Tax (Appeals) determined the issue against the assessee holding that as the penalty proceedings were initiated under Section 270A(9) of the Act provisions of Section 270AA are not applicable. Ld. CIT(A) also gave a finding that it was a case of under reporting of the income in the nature of misreporting, therefore, the case of assessee falls within the ambit of Section 270A(9) of the Act.

The ITAT was of considered view that as the Assessing Officer has specifically invoked Section 270(9)(a) of the Act then by virtue of  Section 270AA(3) of the Act, as reproduced above, it has to be considered to be a case of under reported income in consequence of misreporting which creates liability of penalty equal to 200% of the amount of tax payable on under reported income as per  Section 270A(8) of the Act.  The assessee was maintaining two sets of books of accounts which were impounded during the course of survey proceedings and it was found that assessee has made out of books sales amounting to Rs. 77,25,354/- upon which addition on gross profit at 3.19% of Rs. 77,35,354/- was made. That certainly amounts to under reporting of incoming consequence to misreporting by way of misrepresentation of facts. There is thus no force in the claim that penalty ought to have been levied at 50% of the additional tax payable as provided under section 270A (7) of the Act.

The ITAT dismissed the appeal.

Discussions to this article

[Akshay Makkar]

What if an order contains both the under reported and mis reporting. Can the assesse file for immunity for under reporting individually ?