2023 (10) TMI 199 - AT - Income Tax

Penalty u/s 270A - under-reporting in consequence of misreporting of income - incorrect amount of excess allowance u/s 32AC claimed by the Appellant in its ITR - HELD THAT - It is absolutely not in dispute in the instant case that assessee is indeed entitled for deduction u/s 32AC in view of the investment made in new plant and machinery. In fact the AO on being satisfied about the eligibility of the assessee to claim deduction u/s 32AC of the Act had indeed granted deduction @15% of value of new plant and machinery. Hence, the preliminary objection raised by the DR in this regard that assessee is not eligible to claim deduction u/s 32AC of the Act, does not have any legs to stand in the eyes of law and we hold that the DR is trying to make out a new case before the Tribunal which is not even the case of lower authorities. All these facts collectively go to prove that the assessee had come forward voluntarily before the ld AO to withdraw the excess claim of its deduction u/s 32AC of the Act before any detection by the Income Tax Department. Hence, in our considered opinion, the assessee s case would squarely fall under the exception provided u/s 270A(6)(a) wherein, the assessee had given its bona fide explanation and had disclosed all the material facts that are relevant for the explanation offered. In view of the exception provided in section 270A(6)(a) of the Act, we hold that the present facts does not make the revenue eligible to levy penalty u/s 270A of the Act. AR also made argument on the ground that there was absolutely no mala fide intention on the part of the assessee to claim excess deduction u/s 32AC of the Act in the facts of the instant case as even after the withdrawal of the differential 85% claim of deduction in the sum of Rs. 191 crores, the assessee still has brought forward losses to the tune of Rs. 2698.95 crores as is evident from the schedule CFL (details of loss to be carry forward) in the ITR filed for AY 2017-18. We are in agreement with this argument of the AR which proves the intention and behaviour of the assessee to withdraw the claim of deduction voluntarily by the assessee. Relief has already been granted to the assessee by applying the provisions of the Act itself considering the bonafide conduct of the assessee and the counter given by the DR. Hence, we direct the AO to delete the levy of penalty. Appeal of assessee allowed.

Summary

Issues Involved:

1. Justification of penalty under section 270A of the Income-tax Act, 1961.
2. Bona fide error in claiming deduction under section 32AC.
3. Voluntary rectification of the error by the assessee.
4. Applicability of exceptions under section 270A(6).
5. Specificity of the show cause notice.

Summary:

1. Justification of Penalty under Section 270A:
The primary issue to be decided was whether the Commissioner of Income Tax (Appeals) was justified in upholding the penalty levied under section 270A of the Income-tax Act, 1961. The assessee had claimed a deduction under section 32AC of the Act at 100% of the investment in new plant and machinery, which was later corrected to 15%. The Assessing Officer (AO) initiated penalty proceedings on the grounds of underreporting or misreporting of income.

2. Bona Fide Error in Claiming Deduction:
The assessee argued that the incorrect claim was due to a bona fide inadvertent mistake by the Tax Auditor, which was voluntarily rectified before any query by the AO. The Tribunal noted that the tax audit report and other relevant documents were duly furnished, and the error was acknowledged and corrected by the assessee before detection by the AO.

3. Voluntary Rectification of the Error:
The Tribunal observed that the assessee had voluntarily withdrawn the excess claim of deduction under section 32AC through a letter dated 02.04.2019, before any query was raised by the AO. This voluntary action was supported by a certificate from the Tax Auditor, confirming the inadvertent mistake.

4. Applicability of Exceptions under Section 270A(6):
The Tribunal held that the assessee's case fell under the exceptions provided in section 270A(6)(a) of the Act, as the explanation given by the assessee was bona fide and all material facts were disclosed. Therefore, the revenue was not eligible to levy penalty under section 270A.

5. Specificity of the Show Cause Notice:
The assessee contended that the penalty notice did not specify whether the penalty was for underreporting or misreporting of income, which are distinct offenses with different penalty rates. The Tribunal agreed that the AO must clearly specify the charge in the show cause notice, but this argument was not adjudicated as relief was granted based on the bona fide conduct of the assessee.

Conclusion:
The Tribunal directed the AO to delete the penalty, considering the bona fide nature of the error and the voluntary rectification by the assessee. The stay application was dismissed as infructuous. The appeal was allowed in favor of the assessee.