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TMI Blog2025 (1) TMI 1472X X X X Extracts X X X X X X X X Extracts X X X X ..... eporting of income.
So, without computing "under-reporting income" as per sub-section (2) of section 270A of the Act, machinery provisions also fails. It is a trite law that the penalty provisions must be construed strictly. Therefore, the direction given by the Ld.PCIT modifying the assessment order with a direction to AO to invoke the applicable penalty provisions u/s. 270A(9)(e) on the entire sum is legally untenable - Appeal of the assessee is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order. According to the Ld.PCIT, omission on the part of the AO to initiate penalty u/s. 270A of the Act for underreporting of income in consequence of misreporting of income of Rs. 7,41,89,422/- vitiates the assessment order passed by the AO u/s. 153A of the Act thereby making assessment order, erroneous as well as prejudiced to the interest of the Revenue and therefore he justified his action to invoke the jurisdiction u/s. 263 of the Act, by citing the decision of the Hon'ble Madras High Court in the case of CIT v. Chennai Metro Rail Ltd., reported in [2018] 92 taxmann.com 329 (Madras), wherein, the Hon'ble Madras High Court observed that the Ld.PCIT has power to revise the assessment order in view of Sec.271(1) r.w.s.263 of the Act and observed as under: "In view of Section 271(1) read with Section 263 of the Act, the Principal Commissioner might pass such order as the circumstances of the case might justify, which could include an order enhancing or modifying the assessment or cancelling the assessment or directing a fresh assessment. Directing fresh assessment would, in our view, include assessment of penalty. It cannot, therefore, be said that the Princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturn of income u/s. 153A on account of unaccounted sales subsequent to search findings in the order squarely attract penalty as per the provisions of section 270A(9)(e). It is not that additions were made on estimated basis but only adopting GP on the undisclosed sales quantified during the course of search which has been admitted by the assessee in its return of income. Hence the assessing officer ought to have initiated penalty for underreporting consequent to misreporting for the entire undisclosed income of Rs. 7,41,89,422/-. Instead erred in initiating penalty u/s. 270A for underreporting of income of Rs. 32,25,627/-. To that extent the order is erroneous and prejudicial to the interest of revenue. 9.5 In the case of Malabar Industrial Co. Ltd. Vs. CIT [(2000) 2 SCC 718: (2000) 243 ITR 83 (SC)], the Hon'ble Supreme Court held that AO passing an order without application of mind renders the order erroneous within the meaning of Section 263 of the IT Act. In the instant case also, the Assessing Officer has passed the order without invoking the applicable penalty. This is not an instance of AO having taken one of the two possible views, but one of a patent error in applyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income. (2) A person shall be considered to have under-reported his income, if-- (a) the income assessed is greater than the income determined in the return processed under clause (a) of sub-section (1) of section 143; (b) the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished or where return has been furnished for the first time under section 148; (c) the income reassessed is greater than the income assessed or reassessed immediately before such reassessment; (d) the amount of deemed total income assessed or reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income determined in the return processed under clause (a) of sub-section (1) of section 143; (e) the amount of deemed total income assessed as per the provisions of section 115JB or section 115JC is greater than the maximum amount not chargeable to tax, where no return of income has been furnished or where return has been furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposit or investment appears, being the first preceding year; and (b) where the amount added or deducted in the first preceding year is not sufficient to cover the receipt, deposit or investment, the year immediately preceding the first preceding year and so on. (6) The under-reported income, for the purposes of this section, shall not include the following, namely:-- (a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered; (b) the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom; (c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me; (c) in any other case, determined in accordance with the formula-- (XY) where, X = the amount of tax calculated on the under-reported income as increased by the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order as if it were the total income; and Y = the amount of tax calculated on the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order. (11) No addition or disallowance of an amount shall form the basis for imposition of penalty, if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year. (12) The penalty referred to in sub-section (1) shall be imposed, by an order in writing, by the Assessing Officer, the Commissioner (Appeals), the Commissioner or the Principal Commissioner, as the case may be. A bare reading of section 270A (supra) would reveal that there can be penalty levied for two lapses/faults: (i) under-reporting income for which assessee shall be levied 50% of the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount not chargeable to tax, where no return of income has been furnished or where return has been furnished for the first time under section 148; (f) the amount of deemed total income reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income assessed or reassessed immediately before such reassessment; (g) the income assessed or reassessed has the effect of reducing the loss or converting such loss into income." Having considered the facts, in this case, it is undisputed that assessee's case would not fall in any of the sub clause (b) to (g) of sub-section (2) of Section 270A of the Act, and the only clause which remains is clause (a) of section 270A(2), which is that (a)a person shall be considered to have under-reported his income, assessed is less than income determined in the return processed u/s. 143(1)(a) of the Act. 9. In the present case on hand, it is undisputed that there has been no 'Intimation' issued by the revenue u/s. 143(1)(a) of the Act. Therefore, it can be safely presumed that the assessee cannot be considered to have under-reported his income within the meaning of sub-section(2) of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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