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Facts
The assessee filed their return of income, which was later subject to a survey. A subsequent assessment determined a higher total income, and penalty proceedings under section 270A were initiated for under-reporting of income. The Assessing Officer (AO) imposed a penalty at 200% of the tax payable, which was upheld by the CIT(A).
Held
The Tribunal held that the AO failed to specify whether the penalty was for 'under-reporting' or 'misreporting' of income, and did not provide reasons or specific clauses under section 270A(9) to justify the higher penalty for misreporting. Therefore, the penalty proceedings were considered vague and unsustainable.
Key Issues
Whether the penalty levied under section 270A for under-reporting/misreporting of income was validly imposed without specifying the exact limb and providing justification for the higher penalty rate?
Sections Cited
270A, 270A(7), 270A(8), 270A(9), 270A(9)(a), 143(1), 143(3), 270AA(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “C”: NEW DELHI
Before: SHRI M. BALAGANESH & SHRI SUDHIR KUMAR
Revenue by: Shri Om Prakash, Sr. DR. Date of Hearing 12/03/2026 Date of pronouncement 27/03/2026 O R D E R PER SUDHIR KUMAR, JM :
This appeal is filed by the Assessee against the order dated 30.5.2023 of the CIT(A)-24, New Delhi pertaining to assessment year 2017-18.
The assessee has raised several grounds, the only effective issue to 2. be decided in this appeal is as to whether the ld CIT(A) was justified in confirming the levy of penalty u/s 270A of the Act in the facts and circumstances of the instant case.
We have heard the rival submissions and perused the material available on record. The assessee furnished the return of income for AY Page | 1 2017-18 on 16.03.2018 declaring total income of Rs. 4,93,460/-. The same was processed u/s. 143(1) of the Act on 8.4.2018. The case of the assessee was taken up for Compulsory Manual Scrutiny for AY 2017-18 as survey was conducted on assessee on 21.4.2016. The assessee is individual Prop. Of M/s Ridhi Sidhi Impex. The assessee was involved in accommodation entry business and shown commission income during the year under consideration. Later assessment u/s. 143(3) of the Act was framed on 27.12.2019 determining the total income at Rs. 13,53,184/- and penalty proceeding u/s. 270A was initiated against the assessee vide penalty notice dated 27.12.2019 for under reporting of income. Finally, a penalty @200% was imposed u/s. 270A(8) upon the assessee vide order dated 26.3.2022. Against the penalty order, assessee preferred the appeal before the Ld. CIT(A) who affirmed the order of the AO. Aggrieved, assessee is in appeal before us.
At the outset, it is noted that AO had imposed the penalty u/s. 270A @200% of the amount of tax payable on under reported income by observing that the assessee had under reported his income for the year under consideration and as per section 270A(8), the penalty for under reporting of income shall be a sum equal to 200% of amount of tax on under reported income, which action has been upheld by the CIT(A). It is noted that under section 270A, penalty is imposed in two conditions i.e. when the income is ‘under reported’ or ‘misreported’. Section 270A provides different penalty rates for each head i.e. as per section 270A(7) the penalty for ‘under reporting’ is prescribed at 50% and it is only for “misreporting” the penalty is prescribed at 200% u/s. 270A(8). The penalty notice u/s. 270A dated 27.12.2019 would show that the penalty was initiated under the head “under-reporting of income” and not under the head “misreporting”. It is further noted that even in the penalty order, there is not a single whisper of the ‘misreporting’ by the AO. The AO failed to state, both in the notice as well as in the penalty order, as to how the assessee’s case /addition falls within instances given in Clauses (a) to (f) of Sub-section (9) of Section 270A of the Act and, therefore, the impugned notice issued u/s. 270A being vague notice and thus liable to be quashed. In the instant case, from the perusal of the penalty notice placed on record dated 27.12.2019, it is evident that the AO had show caused the assessee as to why the assessee should not be imposed with penalty for ‘under reporting of income’. AO recorded satisfaction in the quantum assessment order that offence of both ‘under reporting’ and ‘mis-reporting’ is committed by the assessee and therefore, accordingly, the penalty would also be levied on the assessee for both in terms of section 270A(9) of the Act. The assessee had made complete disclosure of the entire income in the return. This goes to prove that the assessee had disclosed his income in the ITR. There was absolutely no underreporting income in consequence of misreporting of income in the instant case. The AO says that assessee case falls u/s 270A(9)(a) of the Act which talks about misreporting or suppression of facts, which is absolutely not applicable in the instant case. Hence, it is clear case where the AO had directly applied the higher penalty percentage provided in Section 270A(9) of the Act without mentioning under which clause thereon the case of the assessee falls. Non mentioning of the specific clause clearly specifying offences committed by the assessee, would become fatal to the penalty proceedings per se. Reliance in this regard is placed on the decision of the Hon’ble Jurisdictional High Court in the case of Schneider Electric Sought East Asia (HQ) PTE Ltd Vs. CIT reported in 443 ITR 186(Del) wherein, it was held as under:-
“6. Having perused the impugned order dated March 9, 2022, this court is of the view that the respondents' action of denying the benefit of immunity on the ground that the penalty was initiated 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 "under-reporting" or "misreporting" of income, under which the penalty proceedings had been initiated.
7. This court also finds that there is not even a whisper as to which limb of section 270A of the Act is attracted and how the ingredients of sub-section (9) of section 270A is satisfied. In the absence of such particulars, the mere reference to the word "misreporting" by the respondents in the assessment order to deny immunity from imposition of penalty and prosecution makes the impugned order manifestly arbitrary.” 5. Further, the Hon’ble Delhi High Court in the case of PCIT vs. Jaina Marketing and Associates has dealt the exactly similar and identical issue in favour of the assessee by observing as under:-
“31. We are further constrained to observe that even the assessment orders fail to base the direction for initiation of proceedings under Section 270A on any considered finding of the conduct of the petitioner being liable to be placed within the sweep of sub-section (9) of that provision. The order of assessment as well as the SCNs’ clearly fail to meet the test of ― ”specific limb” as propounded in Minu Bakshi and Schneider Electric. A case of misreporting, in any case, cannot possibly be said to have been made out bearing in mind the fact that the petitioner had questioned the taxability of income asserting that the same would not constitute royalty. The issue as raised was based on an understanding of the legal regime which prevailed. The contentions addressed on that score can neither be said to be baseless nor specious. In fact, that stand as taken by the petitioner was based on a judgment rendered by the jurisdictional High Court which was indisputably binding upon the AO who, for reasons unfathomable, thought it fit to base its decision on a judgment rendered by the Karnataka High Court. The AO, it would be pertinent to recall, chose to distinguish the judgment of the Supreme Court in Engineering Analysis itself. In any event, the position which the petitioner sought to assert and canvass clearly stood redeemed in light of the decision rendered by the Supreme Court.
Undisputedly, the petitioner had duly complied with the statutory pre-conditions set out in Section 270AA(1). It was thus incumbent upon the respondent to have come to the firm conclusion that the case of the petitioner fell in the category of misreporting since that alone would have warranted a rejection of its application for immunity. On an overall conspectus of the aforesaid, we come to the firm conclusion that the impugned orders would not sustain.” 6. In the background of the aforesaid discussions and respectfully following the precedents as referred above, we hold that there is no misreporting or underreporting of income as the entire details relevant for computation of income are already placed on record in ITR itself. Hence, this is not a fit case for levy of penalty u/s 270A of the Act. Accordingly, grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.