2024 (2) TMI 109 - AT - Income Tax

Penalty u/s. 270A - under reporting of income in consequence of mis-reporting of income - as per AO assessee failed to establish any nexus between the income earned from other source and interest expenses as explained u/s. 57 - HELD THAT - While invoking section 270A(9)(c) assessee has given a categorical reply to AO during the assessment proceedings and also submitted that all the details of books of accounts as well as the audit account. Assessee has established the nexus between the interest expenses and interest earned during the financial year 2009-10 from unsecured loans and in fact has given the genuineness, identity and creditworthiness for those parties. The assessee has also submitted notice copy thus, has given all the details and explained the expenses including that of the interest expenditure which was led out or extended wholly and exclusively for purpose of earning income from LIC policy maturity hence director fees from Mila India Pvt. Ltd.. Thus, it cannot be said that the assessee has under-reported in consequence of mis-reported the income of assessee at any point of time. Thus, section 270A(9)(c) of the act will not be attracted in the present case. Decided in favour of assessee.

Summary

Issues involved: Appeal against NFAC order for assessment year 2020-21.

Grounds of Appeal:
1. The order passed by lower authorities in bad in law and required to be quashed.
2. NFAC erred in confirming penalty of Rs. 11,39,816 ignoring appellant's submission.
3. NFAC erred in not considering appellant's case under section 270A(6) of the Act.
4. NFAC erred in imposing penalty without recording proper satisfaction.
5. NFAC erred in confirming AO's action for invoking section 270A(9) of the Act.

Details of the Judgment:
The assessee filed the return of income for assessment year 2020-21, but during scrutiny assessment, the Assessing Officer added Rs. 13,33,313 as income due to unestablished nexus between income and interest expenses. Penalty proceedings were initiated under section 270A r.w.s. 274, resulting in a penalty of Rs. 11,39,860 for under-reporting of income. The CIT(A) upheld the penalty.

The appellant argued that all expenditures were properly noted in accounts and submitted relevant documents during assessment proceedings, showing the genuineness of expenses claimed. The appellant provided explanations for interest payments, loans, and expenses, establishing the nexus between income and expenses. It was contended that section 270A should not apply as there was no misreporting or under-reporting.

The Revenue contended that the appellant did not claim expenditures as required by law, constituting misreporting and under-reporting, supported by assessment and penalty orders.

After considering all materials, it was found that the appellant had provided detailed explanations and evidence for expenses, demonstrating the legitimacy of claimed deductions. The nexus between income and expenses was established, and it was concluded that there was no misreporting or under-reporting. Therefore, section 270A(9)(c) was deemed inapplicable, and the penalty imposition was unjustified.

Consequently, the appeal of the assessee was allowed, overturning the penalty imposed under section 270A of the Act.