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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI KULDIP SINGH & SHRI GAGAN GOYAL
This appeal by assessee is directed against the order of National Faceless Appeal Centre (for short “NFAC”) dated 23.12.2022 u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’) for A.Y. 2018-19. The assessee has raised the following grounds of appeal:-
1. THE PENALTY ORDER SO FRAMED IS BAD IN LAW AND WITHOUT JURISDICTION
1.1 It is submitted that in the facts and the circumstances of the case, and in law, the penalty order so framed is bad, illegal and void as well as without jurisdiction as the same is not framed in accordance with the provisions of the Income-tax Act, 1961 ['the Act'].
2. NATURAL JUSTICE
2.1 In the facts Income Tax Department, NATIONAL FACELESS APPEAL CENTRE (NFAC), Delhi erred in not granting proper, sufficient and adequate opportunity of being heard to the Appellant while passing the appellate order.
2.2 It is submitted that, in the facts and the circumstances of the case, and in law, the appellate order so framed be held as bad and illegal, as:
(1) The same is framed in breach of the principles of natural justice; and (ii) The same is passed without application of mind to the facts and the submissions brought on record by the Appellant.
(iii) The same is passed without providing an opportunity of personal hearing 2.3 It is submitted that in the facts and the circumstances of the case, and in law, no such action was called for.
3 WITHOUT FURTHER PREJUDICE TO THE ABOVE
The NATIONAL FACELESS APPEAL CENTRE (NFAC) erred in confirming the action of the A.O. in imposing penalty of Rs. 20,843/- u/s. 270A of the Act, on the ground of alleged under reporting of income.
3.2 It is submitted that in the facts and the circumstances of the case, and in law, no such addition was called for.
3.3 without prejudice to the above, assuming- but not admitting - that some addition was called for, it is submitted that the computation of the addition made by the A.O. is arbitrary, excessive and not in accordance with the law.
4. LIBERTY
4.1. The Appellant craves leave to add, alter, delete or modify all or any the aboveground at the time of hearing.
Brief facts of the case are that assessee company filed its return of income on 28.09.2018 declaring total income of Rs. 42,540/-. Case of the assessee was selected for scrutiny and was assessed at Rs. 1,76,640/- i.e. addition of Rs. 1,34,100/-. By virtue of this addition, penalty proceedings u/s. 270A was initiated and a notice u/s. 274 r.w.s. 270A of the Act was issued. It is pertinent to mention here that appeal of the assessee in quantum has already been disposed of by the Ld. CIT (A) against the assessee vide DIN No. ITBA/NFAC/APL-1/2022-23/1046156273. It is further noticed that order of penalty u/s 270A was finalized and imposed on 01.02.2022 i.e. without waiting for the outcome of quantum appeal pending, which is against the established practice between revenue and assessee in penalty proceedings. An undue haste can be seen in this action of AO which is otherwise not warranted as ample time for this action is already there with AO u/s 275.
We have gone through the order of AO imposing penalty u/s 270A, order of Ld. CIT (A) and submissions of the assessee alongwith grounds of appeal
taken. It is observed that quantum addition in the case of the assessee was made u/s 43CA r.w.s.
56. (2) (x) i.e. deeming sections. For ready reference we are reproducing herein below the provisions of section 270A as under:-
[Penalty for under-reporting and misreporting of income.
270A. (1) The Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the course of any proceedings under this 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 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. (3) The amount of under-reported income shall be,— (i) in a case where income has been assessed for the first time,— (a) if return has been furnished, the difference between the amount of income assessed and the amount of income determined under clause (a) of sub-section (1) of section 143; (b) in a case where [no return of income has been furnished or where return has been furnished for the first time under section 148],—
(A) the amount of income assessed, in the case of a company, firm or local authority; and (B) the difference between the amount of income assessed and the maximum amount not chargeable to tax, in a case not covered in item (A); (ii) in any other case, the difference between the amount of income reassessed or recomputed and the amount of income assessed, reassessed or recomputed in a preceding order: Provided that where under-reported income arises out of determination of deemed total income in accordance with the provisions of section 115JB or section 115JC, the amount of total under- reported income shall be determined in accordance with the following formula— (A — B) + (C — D) Where, A = the total income assessed as per the provisions other than the provisions contained in section 115JB or section 115JC (herein called general provisions); B = the total income that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of under-reported income; C = the total income assessed as per the provisions contained in section 115JB or section 115JC; D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC been reduced by the amount of under- reported income: Provided further that where the amount of under-reported income on any issue is considered both under the provisions contained in section 115JB or section 115JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D. Explanation.—for the purposes of this section,— (a) "preceding order" means an order immediately preceding the order during the course of which the penalty under sub-section (1) has been initiated; (b) in a case where an assessment or reassessment has the effect of reducing the loss declared in the return or converting that loss into income, the amount of under-reported income shall be the difference between the loss claimed and the income or loss, as the case may be, assessed or reassessed. (4) Subject to the provisions of sub-section (6), where the source of any receipt, deposit or investment in any assessment year is claimed to be an amount added to income or deducted while computing loss, as the case may be, in the assessment of such person in any year prior to the assessment year in which such receipt, deposit or investment appears (hereinafter referred to as "preceding year") and no penalty was levied for such preceding year, then, the under- reported income shall include such amount as is sufficient to cover such receipt, deposit or investment. (5) The amount referred to in sub-section (4) shall be deemed to be amount of income under- reported for the preceding year in the following order— (a) the preceding year immediately before the year in which the receipt, 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 there from; (c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or disallowance; (d) the amount of under-reported income represented by any addition made in conformity with the arm's length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X, and, disclosed all the material facts relating to the transaction; and (e) the amount of undisclosed income referred to in section 271AAB. (7) The penalty referred to in sub-section (1) shall be a sum equal to fifty per cent of the amount of tax payable on under-reported income. (8) Notwithstanding anything contained in sub-section (6) or sub-section (7), where under- reported income is in consequence of any misreporting thereof by any person, the penalty referred to in sub-section (1) shall be equal to two hundred per cent of the amount of tax payable on under-reported income. (9) The cases of misreporting of income referred to in sub-section (8) shall be the following, namely:— (a) misrepresentation or suppression of facts; (b) failure to record investments in the books of account; (c) claim of expenditure not substantiated by any evidence; (d) recording of any false entry in the books of account; (e) failure to record any receipt in books of account having a bearing on total income; and (f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.
(10) The tax payable in respect of the under-reported income shall be— (a) where no return of income has been furnished [or where return has been furnished for the first time under section 148] and the income has been assessed for the first time, the amount of tax calculated on the under-reported income as increased by the maximum amount not chargeable to tax as if it were the total income; (b) where the total income determined under clause (a) of sub-section (1) of section 143 or assessed, reassessed or recomputed in a preceding order is a loss, the amount of tax calculated on the under-reported income as if it were the total income; (c) in any other case, determined in accordance with the formula— (X–Y) 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.]
As section reproduced above clearly deal with deeming income only in the case of additions were made in section 115JB i.e. MAT provisions. As far as the present appeal is concerned, additions were being made by virtue of section 43CA r.w.s. 56(2) (x) i.e. deeming provisions. In case of applicability of deeming provisions there is no option provided in the statute except to make adjustment as per the figures derived from deeming sections vis-a-vis figures disclose by assessee. In that situation, case of the assessee does not fall in the category of under reporting of the income. In the cases where deeming provisions applied for addition of income neither concealment of income nor under reporting of income can be established against the assessee as there is no active participation of the assessee can be established in doing so.
Penalty was initiated and imposed under section 270A of the Act for misreporting of income is not only erroneous but also arbitrary and bereft of any reason as in the penalty notice the Respondents have failed to specify the limb - "underreporting" or "misreporting" of income, under which the penalty proceedings had been initiated. We also found that there is not even a whisper as to which limb of section 270A of the Act is attracted and how the ingredient of sub-section (9) of section 270A is satisfied. In the absence of such particulars, the mere reference to the word "misreporting" by the Revenue in the assessment order, for imposition of penalty makes the impugned order manifestly arbitrary. We are of the opinion that the entire edifice of the assessment order framed by AO was actually voluntary acceptance by assessee to buy peace and avoid litigation, which fact has been duly noted and accepted in the assessment order as well and consequently, there is no question of any misreporting.
To further elaborate the issue with fetching support from judicial precedents on the facts and law of the matter we relied on following pronouncements of coordinate benches as under: “[2023] 147 taxmann.com 333 (Pune - Trib.) Jai balaji Business Corporation (P.) Ltd. v. ACIT Section 270A, read with section 43CA, of the Income-tax Act, 1961 - Penalty - For under- reporting and misreporting of income (General) - Assessment year 2017-18 - Assessee sold land at a price less than stamp duty value - Assessing Officer made addition on basis of difference between value declared by assessee and value determined by DVO - Consequently, Assessing Officer also imposed penalty under section 270A - It was noted that value determined by DVO was an estimate based on other properties at different rates which were averaged to find out value which property ought to have realized on transfer - Also difference between value determined by assessee and by DVO was minimal - Whether since only basis of addition made was estimate made by DVO, said addition made on basis of estimation could not provide foundation for under-reported income for purpose of imposition of penalty under section 270A and thus, penalty was to be deleted - Held, yes [Para 3 and 4] [In favour of assessee]”
“[2022] 144 taxmann.com 168 (Pune - Trib.) Sai Bhargavanath Infra v. ACIT We observe from plain reading of sec. 43CA that it provides in a case where consideration received or accruing as a result of the transfer by an assessee of an asset other than the capital asset being land or building is lesser than the value adopted or assessed by any Government authority for the purpose of payment of stamp duty then the difference will taxed as deemed income. At the same time, the proviso to this section states that if there is a difference of such value within 10% margin then there cannot be any addition on the pretext of deemed income and this 10% margin has been inserted by Finance Act, 2020 w.e.f. 1-4-2021. The assessment year under consideration before us is A.Y. 2015-16 which is prior to the date when the amendment took place and such 10% margin was inserted. The question therefore, arises whether this amendment effective from 1-4-2021 can even apply to prior assessment years as well. The assessee had relied on Pune Tribunal decision in (supra) where the Tribunal has given retrospective effect in regard to section 43CA first proviso where the tolerance margin of 10% has been held to be applicable even for the prior assessment years. However, in this decision, reliance was placed on another decision of Bombay Tribunal in the case of Maria Fernandes Cheryl v. ITO (International Taxation) [2021] 123 taxmann.com 252/187 ITD 738 (Mum) which relates to section 50C of the Act. It was contended that section 43CA and section 50C of the Act are pari materia provisions and therefore, holding of retrospective application of section 50C is even applicable making retrospective application to section 43CA of the Act as well. The ld. A.R was unable to place on record before us any direct decision where the first proviso of section 43CA which has been brought into effect from 1-4- 2021 was held to be applicable retrospectively. In such scenario, we place reliance on the doctrine enshrined in the judgment of the full bench decision of Hon'ble Supreme Court in the case of CIT v. Vatika Township (P.) Ltd. [2014] 49 taxmann.com 249/227 Taxman 121/367 ITR 466. The fact in this case was that search and seizure u/s 132 was conducted on 10-2-2001 pursuant to which the assessment order for the block period from 1-4-1989 to 10-2-2000 was passed on 28-02-2002 at a total undisclosed income of Rs. 85,00,000/-. The tax was charged as prescribed in section 113 of the Act. Subsequently, a proviso was inserted u/s 113 by the Finance Act, 2002 w.e.f. 01 -06-2002 to provide for levy of surcharge at 10%. The A.O took the view that the said amendment was clarificatory in nature and he levied surcharge by passing rectification order u/s 154 of the Act. However, the Tribunal and the Hon'ble High Court upheld the assessee's claim that the said amendment was prospective in nature and did not apply to block period falling before 01 -06-2002. However, the plea of the assessee was rejected by the Hon'ble Supreme Court in CIT v. Suresh N. Gupta [2008] 166 Taxman 313/297 ITR 322 also held that the proviso to section 113 is clarificatory and hence, should be read into block assessment scheme under Chapter XIV-B with retrospective effect. Similar view was reiterated by the Hon'ble Supreme Court in CIT v. Rajiv Bhatara [2009] 178 Taxman 285/310 ITR 105 by holding the proviso u/s 113 to be retrospective in nature. Then the Supreme Court was of the view that the issue ought to be referred to a larger Bench of Five Judges. In this decision, the Hon'ble Supreme Court has given fundamental doctrine of retrospective applicability of provision. It has been held that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in terms of the Act or arises by necessary and distinct implication. The assessment creates a vested right on the assessee. The assessee cannot be subjected to re- assessment unless the provision to that effect is inserted by amendment either retrospectively or by necessary implications retrospectively. The Hon'ble Apex Court also opined that there cannot be any imposition of tax without the authority of law and such law has to be unambiguous and should prescribe liability to pay taxes in clear terms. This very principle is based on the doctrine which means that if a particular provision of statute is not clear regarding imposition of tax or because of persons from whom the tax has to be collected, in such case the persons should not be fastened with any liability to pay tax. It was further observed that though the Chief Commissioner in their Conference suggested that there should be retrospective amendment to section 113 of the Act, the Legislature chose not to do so even though for other provisions in which the legislature in its wisdom felt the need to do so has brought in amendments made with retrospective effect. The CBDT circular No. 2002 dated 27-08-2002 also makes it clear that the amendment to section 113 is prospective. Consequently, the conclusion reached in N. Suresh Gupta (supra) treating the proviso to section 113 of the Act as clarificatory and having retrospective effect was held to be incorrect and was over-ruled.”
In view of above discussion and case laws in favour of assessee, we are of the considered view that no penalty can be imposed in this case, as there is no misreporting is there by assessee for the purposes of section 270A. Even addition u/s. 43CA was not sustainable in view of “[2023] 147 taxmann.com 333 (Pune - Trib.) Jai balaji Business Corporation (P.) Ltd. v. ACIT. But as assessee before us is for penalty issue only and matter of quantum issue is not before us that are of no use to assessee in present appeal. In the result grounds of appeal raised by assessee is allowed.