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2025 (2) TMI 41 - AT - Income TaxLevy of penalty u/s. 270A - under-reporting of income which is in consequences of mis-reporting of income - Assessee argued AO is not sure as to whether the penalty have been levied for under-reporting of income or mis-reporting of income - HELD THAT - It is a well settled law that penalty cannot be sustained u/s. 270A of the Act without specifying any specific limbs of the section 270A of the Act under which the penalty is being levied. From the contents of the notice for initiating penalty proceedings as well as appellate order u/s. 270A AO has no clarity under which specific limb of section 270A the AO is proceeding to levy penalty. Therefore in view of the well settled Judicial precedents on the subject as cited above and in the absence of any clarity on specific limb u/s. 270A of the Act where the penalty have been levied on the assessee in our considered view penalty u/s. 270A of the Act is not liable to be sustained. Also AO has not specified which specific offence under section 270A(9) of the Act has been committed by the assessee. Addition made on account of late payment of Employees Contribution to PF ESI - As observe from the record that disallowance regarding late deposits of Employees Contribution towards PF ESI were adequately disclosed in Form No.3CD(Tax Audit Report). In the instant case the return of income for the impugned year i.e AY 2017-18 was filed on 30.11.2017 and Assessment Order was passed on 28.11.2019 therefore at the time of passing of the Assessment Order issue of delayed payment towards PF ESI was debatable issue and issue got settled fully after passing of order in the case of Checkmate Services private limited 2022 (10) TMI 617 - SUPREME COURT Therefore in our considered view the case of the assessee does not fall under any of the provisions of section 270A (9) of the Act viz. (a) misrepresentation of suppression of facts and (c) claim of expenditure not substantiated by any evidence. Disallowance of non-deduction of TDS interest on car loan payable - The details regarding non-deduction of tax from the interest were furnished in Form 3CD (Tax Audit Report) at the time of filing of return of income and the Ld. Counsel for the assessee submitted before us that the assessee had not made disallowance in anticipation of submission of certificate u/s. 201 of the Act from the deductee. Accordingly even with respect to second disallowance made by the AO provision of section 270A(9)(a) or 270A(a)(c) of the Act are not attracted. Decided in favour of assessee.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment revolve around the imposition of a penalty under Section 270A of the Income Tax Act, 1961. Specifically, the issues include:
ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents Section 270A of the Income Tax Act deals with penalties for under-reporting and misreporting of income. Subsection (2) typically involves discrepancies such as omissions or inaccuracies without deliberate misrepresentation, attracting a lower penalty. In contrast, Subsections (8) and (9) address willful suppression or misrepresentation, attracting a higher penalty of 200% of the tax payable. Judicial precedents emphasize the necessity for precise classification when imposing penalties under Section 270A. Courts have consistently held that penalties cannot be sustained without specifying the exact limb of Section 270A under which the penalty is levied. Court's Interpretation and Reasoning The Court observed that the AO failed to provide clarity on whether the penalty was for "under-reporting" or "mis-reporting" of income. The penalty order lacked specificity regarding which limb of Section 270A(9) was applicable. The Court noted that judicial precedents require precise classification of the penalty under Section 270A, and the absence of such specificity renders the penalty unsustainable. Key Evidence and Findings The AO made additions to the assessee's income for late payment of Employee Contributions to PF & ESI and disallowance under Section 40(a)(ia). The AO imposed a penalty of 200% for "under-reporting of income which is in consequence of misreporting." However, the AO did not specify which specific instance of misreporting under Section 270A(9) applied to the assessee. Application of Law to Facts The Court applied the legal framework of Section 270A and relevant judicial precedents to the facts of the case. It found that the AO's failure to specify the applicable limb of Section 270A(9) and the lack of clarity in the penalty notice and order were significant deficiencies. The Court concluded that the penalty could not be sustained due to these procedural lapses. Treatment of Competing Arguments The assessee argued that the penalty was not justified as the AO failed to specify whether it was for "under-reporting" or "mis-reporting" and did not identify the specific limb of Section 270A(9) applicable. The Department relied on the AO's observations to justify the penalty. The Court sided with the assessee, emphasizing the need for precise classification and specificity in penalty orders. Conclusions The Court concluded that the penalty under Section 270A could not be sustained due to the AO's failure to specify the exact limb of Section 270A(9) applicable and the lack of clarity in the penalty order. The Court directed the deletion of the penalty. SIGNIFICANT HOLDINGS The Court held that:
Verbatim Quotes of Crucial Legal Reasoning "In view of the well-settled Judicial precedents on the subject as cited above and in the absence of any clarity on specific limb u/s. 270A of the Act, where the penalty has been levied on the assessee, in our considered view penalty u/s. 270A of the Act is not liable to be sustained." Core Principles Established The judgment reinforces the principle that penalties under Section 270A require clear and precise classification, and any ambiguity or lack of specificity in penalty orders can render them unsustainable. Final Determinations on Each Issue The Court determined that the penalty imposed under Section 270A was unsustainable due to procedural deficiencies, including the lack of specification of the applicable limb of Section 270A(9) and the general lack of clarity in the penalty order. The penalty was directed to be deleted, and the appeal was allowed in favor of the assessee.
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