2023 (8) TMI 371 - AT - Income Tax

Penalty proceedings u/s. 270A - quantum addition in the case of the assessee was made u/s 43CA r.w.s. 56 (2) (x) i.e. deeming sections - Proof of misreporting of income - HELD THAT - Penalty was initiated and imposed under section 270A of the Act for misreporting of income is not only erroneous but also arbitrary and bereft of any reason as in the penalty notice the Respondents have failed to specify the limb - underreporting or misreporting of income, under which the penalty proceedings had been initiated. There is not even a whisper as to which limb of section 270A of the Act is attracted and how the ingredient of sub-section (9) of section 270A is satisfied. In the absence of such particulars, the mere reference to the word misreporting by the Revenue in the assessment order, for imposition of penalty makes the impugned order manifestly arbitrary. No penalty can be imposed in this case, as there is no misreporting is there by assessee for the purposes of section 270A. Even addition u/s. 43CA was not sustainable in view of Jai balaji Business Corporation (P.) Ltd. v. ACIT 2023 (2) TMI 421 - ITAT PUNE . But as assessee before us is for penalty issue only and matter of quantum issue is not before us that are of no use to assessee in present appeal. In the result grounds of appeal raised by assessee is allowed.

Issues Involved:
1. Jurisdiction and legality of the penalty order.
2. Violation of principles of natural justice.
3. Justification for the imposition of penalty under section 270A of the Income Tax Act.
4. Liberty to amend grounds of appeal.

Summary of Judgment:

1. Jurisdiction and Legality of the Penalty Order:
The appellant contended that the penalty order was "bad in law and without jurisdiction" as it was not framed according to the provisions of the Income Tax Act, 1961. The Tribunal noted that the penalty was imposed without waiting for the outcome of the quantum appeal, which is against the established practice. The undue haste by the Assessing Officer (AO) was deemed unwarranted.

2. Violation of Principles of Natural Justice:
The appellant argued that the National Faceless Appeal Centre (NFAC) did not provide a "proper, sufficient and adequate opportunity of being heard," thus violating the principles of natural justice. The Tribunal found that the appellate order was framed without application of mind to the facts and submissions brought on record by the appellant and without providing an opportunity for a personal hearing.

3. Justification for the Imposition of Penalty under Section 270A:
The Tribunal examined the provisions of section 270A and noted that the penalty for under-reporting and misreporting of income was not justified in this case. The Tribunal observed that the additions were made under sections 43CA and 56(2)(x), which are deeming provisions. It was concluded that in cases where deeming provisions apply, neither concealment of income nor under-reporting of income can be established against the assessee. The Tribunal also highlighted that the penalty notice failed to specify the limb ("underreporting" or "misreporting") under which the penalty proceedings were initiated, making the order arbitrary. The Tribunal relied on judicial precedents, including decisions from coordinate benches, to support the view that penalties based on estimated values or deemed provisions are not sustainable.

4. Liberty to Amend Grounds of Appeal:
The appellant sought liberty to add, alter, delete, or modify the grounds of appeal at the time of hearing. The Tribunal allowed the appeal, concluding that no penalty could be imposed as there was no misreporting by the assessee for the purposes of section 270A.

Conclusion:
The appeal of the assessee was allowed, and the penalty imposed under section 270A was deemed unsustainable. The order was pronounced in the open court on June 12, 2023.

← Previous Next →