2023 (10) TMI 971 - AT - Income Tax

Penalty u/s 270A - under reporting of the income - change in the head of income for assessing the rental income - addition made by the AO pertained to the statutory deduction allowable u/s 24(a) of the Act while computing income under the head income from house property HELD THAT - We noticed that the assessee had offered rental income under the head Income from House Property , but the assessing officer has assessed the same under the head Income from business. The standard deduction @ 30% allowable u/s 24(a) while computing income under the head Income from house property will not be available when it is assessed under the Income from business. Thus, it is not a case that the assessee has suppressed or under reported any income. The assessee has not under reported any income. The addition has arisen on account of change in head of income. We notice that the assessee has offered an explanation as to why it reported the rental income under the head Income from House property and the said explanation is not found to be false. Accordingly, we are of the view that the case of the assessee is covered by clause (a) of sub. sec. (6) of sec. 270A of the Act. We notice that as held in the case of S Saroja 2023 (5) TMI 1262 - ITAT CHENNAI that bonafide mistake committed while computing total income, the penalty u/s 270A of the Act should not be levied. Decided in favour of assessee.

Summary

Issues involved:
The judgment involves challenging a penalty under section 270A of the Income Tax Act related to underreporting of income.

Facts and Decision:
The assessee, part of D' Decor Group, declared a net loss in the original return of income. Subsequently, during assessment proceedings, rental income was declared under 'income from house property' instead of 'income from business', resulting in disallowance of standard deduction for repairs. The Assessing Officer initiated penalty proceedings under section 270A for underreporting income, which was confirmed by the CIT(A). The assessee contended that the change in the head of income was due to reduced business activity and the statutory deduction was automatically computed by the software. The AR argued that the penalty should be deleted as there was no underreporting of income. The Tribunal noted that the addition to total income was due to a change in the head of income, not underreporting, and the AO had discretion not to initiate penalty proceedings. Citing a similar case, the Tribunal concluded that the penalty should be deleted, and directed the AO to do so.

Legal Analysis:
The Tribunal observed that section 270A gives discretion to the Assessing Officer regarding penalty proceedings. The change in the head of income resulted in the addition to total income, not underreporting. The Tribunal noted that the assessee's explanation for the change was genuine, falling under an exception to underreporting as per section 270A. Referring to a precedent, the Tribunal concluded that a bonafide mistake in computing income should not lead to a penalty under section 270A.

Conclusion:
The Tribunal allowed the appeal, setting aside the penalty imposed under section 270A and directing the deletion of the penalty by the Assessing Officer.

Separate Judgment:
The judgment was pronounced by Shri B.R. Baskaran (AM) and Shri Pavan Kumar Gadale (JM) on 17.10.2023.