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Income Tax Appellate Tribunal, “A’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
This appeal by assessee is directed against order of NFAC passed u/s 250 of the Income-tax Act,1961 ['the Act' for short] for the assessment year 2020-21 dated 4.9.2023. 2. Facts of the issue are that the Assessee Company is a Non- Banking Financial Company (NBFC) incorporated on 04.09.1991. The Assessee Company has obtained fresh Certificate of Registration from RBI to carry on the business of Non-Banking Financial Institution without accepting deposits. For the impugned AY 2020-21, the Assessee filed its return of income electronically vide Ack. No. 257811551140221 on 14.02.2021 declaring total income of Rs. 100,72,27,4707-. The case of the Assessee was selected for scrutiny under CASS and notice under section 143(2) of the Act was issued on 29.06.2021. Thereafter various notices under section 142(1) were issued. The Learned Assessing Officer during the course of assessment proceedings called for various
ITA No.735/Bang/2023 M/s. Vistaar Financial Services Pvt. Ltd., Bangalore information and in response to the same, the information or details sought were duly furnished by the assessee. The Learned Assessing Officer passed the assessment order under section 143(3) r.w.s. 144B, of the Act dated 10.09.2022 by making following adjustments: By denying deduction of Rs.93,37,4767- in respect of Cess; By denying deduction of Rs.11,45,3897- in respect of donations; 2.1 The Learned Assessing Officer issued notice under Section 274 r.w.s-. 270A of the Act dated 19.09.2022 stating that the Assessee has under-reported income as well as under reported income as a consequence of misreporting of the income. The Learned Assessing Officer also issued another notice dated 16.1 1.2022. In response to the aforesaid notices the Assessee filed replies on 26.10.2022 & 22.11.2022 explaining that there is no under- reporting or mis-reporting of income and thereby requesting to drop the penalty proceedings. The Assessment Unit, National Faceless Assessment Centre (NaFAC) passed penalty order under section 270A of the Act on 27.03.2023 by levying penalty of Rs.21,71,3707-. The Assessee aggrieved by the penalty order filed before NFAC. The NFAC passed an order by partly allowing the appeal of the Assessee vide order dated 4.9.2023. 3. Ground No.1 is general in nature, which do not require any adjudication. 4. Ground No.12 is with regard to levy of penalty in respect of claim of deduction of “Cess” which reads as follows:
As regards levy of penalty in respect of claim of deduction of "Cess": 12.1. The Learned CIT(A) is not justified in upholding the order of the Assessing Officer in levying penalty of Rs.14,56,646/- by failing to appreciate that the case of the Appellant does not fall within scope of section 270A of the IT Act.
ITA No.735/Bang/2023 M/s. Vistaar Financial Services Pvt. Ltd., Bangalore
12.2 Without prejudice to the above, the cit(a) failed to appreciate that the impugned penalty order is not sustainable as the Learned Assessing Officer initiated the penalty proceeding for under reporting of income whereas the penalty is levied by referring to section 270A (8) r.w.s. 270A(9)(e) which deal with misreporting.
12.3. Without prejudice to the above, the Learned CIT(A) is not justified in confirming penalty by falling to appreciate that the case of the Appellant is covered under section 270A(6) of the IT Act, hence, no penalty is leviable and the position taken by the Appellant was supported by judicial pronouncements in its favour.
12.4. Without prejudice to the above, the Learned CIT(A) ought to have appreciated that the Appellant withdrew its claim of allowability of deduction towards Cess during the assessment proceedings as soon as the law was amended retrospectively by Finance Act 2022.
12.5. Without prejudice to the above, the Learned CIT(A) has failed to appreciate that, even as per the intention of Legislature under Proviso to section 155 (18) read with Rule 132, there is no under- reporting of income and no penalty is leviable in the case of the Appellant.
12.6. Without prejudice to the above, the Learned CIT(A) has failed to appreciate that, although the Explanation 3 to section 40(a)(ii) was inserted by Finance Act 2022 retrospectively w.e.f. 01.04.2005, the Appellant cannot be held to be in default retrospectively for the purpose of levying penalty.
12.7. Without prejudice to the above, the Learned CIT(A) is not justified in upholding the levy of penalty by the Assessing Officer on the aforesaid issue by failing to appreciate that the no penalty can be levied on the debatable issue.
4.1 The assessee claimed in its return deduction on account of “Cess” at Rs.93,37,476/-. The ld. AO issued a show cause notice on 24.3.2022 proposing the disallowance of the same. The assessee vide letter dated 22.4.2022 withdrawn this claim of Educational Cess at Rs.93,37,476/-. Consequently, the ld. AO made the addition towards claim of Educational Cess. Against this, penalty has been levied by ld. AO. The same has been confirmed by NFAC. Against this assessee is in appeal before us.
ITA No.735/Bang/2023 M/s. Vistaar Financial Services Pvt. Ltd., Bangalore
We have heard the rival submissions and perused the materials available on record. The claim of deduction towards Educational Cess has been withdrawn by the assessee vide its letter dated 22.2.2022. The relevant para of that letter is as follows:
“The Company had claimed the amount at the time of filing of ROI on the contention that no reference to "cess " is made in section 40(a)(ii) of the Act, which provides that any 'rate or tax1 levied on profits or gains of any business or profession (PGBP) would not be allowed as a deduction in computing the total income of a taxpayer. Accordingly, a view was taken that education cess cannot be treated at par with "rate or tax" and hence deduction of Rs. 93,37,476 was claimed under section 37(1) of the Act given that such expense has been incurred wholly and exclusively for the purpose of business.”
5.1 In the present case, assessee has withdrawn claim towards educational cess before the ld. AO and the AO made addition on this count also. This fact has been recorded by the ld. AO in its order. Once the claim has been withdrawn by the assessee towards educational cess and in the return of income, assessee merely claimed that as an expenditure due to bonafide belief that cannot be reason to levy penalty. In our opinion, this act of assessee would not attract any penalty under the provisions of section 270A of the Act. Accordingly, we delete the penalty. 6. Ground No.13 of the assessee’s appeal which reads as follows: “13. As regards levy of penalty in respect of denial of deduction under section 80G: 13.1. The Learned CIT(A) is not justified in upholding the order of the Assessing Officer in levying penalty Rs.4,92,620/- by failing to appreciate that the case of the Appellant does not fall within scope of section 270A (8) r.w.s. 270A(9)(e) of the IT Act.
13.2. The Learned CIT(A) having accepted the genuineness of donation made to KVN Foundation and Sampark Sewa Trust is not justified in ignoring the supporting documents furnished during the proceedings with respect to the claim of donation of Rs.15,78,912/- to Chanakya Bharathi and therefore, there was no case of disallowance let alone under-reporting or misreporting.
ITA No.735/Bang/2023 M/s. Vistaar Financial Services Pvt. Ltd., Bangalore
13.3. Without prejudice to the above, the Learned CIT(A) has failed to appreciate the case of denial of deduction claimed under section 80G does not fall within the scope of section 270A (8) r.w.s. 270A(9)(e) of the IT Act.
6.1 The assessee has claimed that it has given donation to following parties:
a) Chanakya Bharathi Rs.44,35,312/- b) K.V.N. Foundation Rs. 7,00,000/- c) Sampark Seva Trust Rs. 11,865/- 6.2 Before ld. AO, assessee has not furnished supporting documents to claim deduction u/s 80G of the Act. However, before the ld. NFAC, assessee filed details in respect of all the above donations. However, the ld. NFAC gave relief only in respect of donations from following two parties: a) K.V.N. Foundation Rs. 7,00,000/- b) Sampark Seva Trust Rs. 11,865/- 6.3 The contention of the ld. A.R. is that he has filed all details before NFAC in a single stretch as a reply to NFAC’s notices as well as before ld. AO. However, it has not been properly considered. 7. We have heard the rival submissions and perused the materials available on record. In our opinion, it is appropriate to remit this issue to the file of NFAC to consider the evidences filed by assessee before NFAC. If it is not already filed, the assessee has to furnish once again before NFAC all the relevant details. The NFAC has to consider the same and decide the same afresh. Thus, the issue is remitted to the file of NFAC for fresh consideration. 8. The assessee has raised further grounds in ground Nos.2 to 11 & 14 to 17, which reads as follows: 2. “The lower authorities are not justified in levying penalty when the entire assessment proceedings are void-ab-initio being in contravention section 144B. 3. The Learned CIT(A) has failed to adjudicate the ground on that the penalty proceedings were not conducted as per the
ITA No.735/Bang/2023 M/s. Vistaar Financial Services Pvt. Ltd., Bangalore
mandatory provisions under section 274(2A), 274(2B) read with Notifications issued thereunder and Standard Operating Procedure (SOP) for penalties under Faceless Penalty Scheme and such penalty order is bad in law.
The penalty proceeding being concluded after the assessment proceeding is without jurisdiction and contrary to section 270A(1).
Without prejudice to the above, the Penalty order is bad in law being passed without affording the VC hearing to the Appellant by the lower authorities.
The Learned CIT(A) has erred in stating that it is not possible to grant physical hearing in all cases, by ignoring that in the replies filed on 21.10.2022 and 22.11.2022 the Appellant had sought for opportunity of being heard in pursuance to Faceless Penalty scheme and not physical hearing. 7. The Learned CIT(A) has failed to appreciate that the impugned penalty order is bad being based on the penalty notice which is vague as there is no reference to specific clause under which the Appellant is alleged to have under-reported/misreported income. 8. The impugned penalty order is bad being based on vague satisfaction in the assessment order as there is no reference to specific clause under which the Appellant is alleged to have under-reported/misreported income. 9. The Learned CIT(A) has failed to appreciate that the penalty proceedings are invalid as there is no requisite objective satisfaction recorded by the Assessing Officer in the quantum assessment order as regards Appellant's under- reporting/misreporting. 10. The Learned CIT(A) has failed to appreciate that the impugned penalty order is bad in law as the same has been passed without obtaining prior approval of the Joint Commissioner of Income under section 274(2) of the IT Act. 11. The Learned CIT(A) is not justified in upholding the penalty order without appreciating that the impugned penalty order is non- speaking, non reasoned and cryptic which is bad in law and liable to be set aside 14. Without prejudice to the above, the Learned CIT(A) has erred
ITA No.735/Bang/2023 M/s. Vistaar Financial Services Pvt. Ltd., Bangalore
in his understanding that under reporting and misreporting are not two different violations without appreciating that both the violations are governed by two different sub-sections i.e., section 270A{2) for underreporting and section 270(9) for misreporting.
Without prejudice to the above, the lower authorities have failed to appreciate that mere addition/ disallowance to total income does not warrant levy of penalty.
Without prejudice to the above, the lower authorities are not justified in levying penalty merely for the reason that the Appellant did not file appeal against the quantum assessment order.
The Learned CIT(A) is not justified in upholding the various observations made by the Assessing Officer in penalty order [in paragraphs 3.1 to 3.6] which are incorrect, perverse and contrary to the facts.
8.1 Since we have remitted the one issue on merit to the file of NFAC for fresh reconsideration, these grounds are infructuous and dismissed accordingly. 9. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 1st Dec, 2023
Sd/- Sd/- (Beena Pillai) (Chandra Poojari) Judicial Member Accountant Member
Bangalore, Dated 1st Dec, 2023. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order
Asst. Registrar, ITAT, Bangalore