DURAISAMY SENTHIL KUMAR,ERODE vs. ITO, ERODE

“1. The order of the NFAC, Delhi dated 24.03.2023 vide DIN & Order No. ITBA/NFAC/S/250/2022-23/1051236160(1) for the above mentioned Assessment Year is contrary to law, fact and in circumstances of the case. 2. The NFAC, Delhi erred in confirming the levy of penalty u/s 270A of the Act to the tune of Rs. 9,69,180/- on the presumption of misreporting of income of Rs.4,84,590/- as per the provisions of section 270A(8) of the Act without assigning proper reasons and justification.

The NFAC, Delhi failed to appreciate that failed to appreciate that the presumption of mis-reporting of income on the factual matrix of the case was erroneous and ought to have appreciated that the bonafide action of the appellant in not claiming the carried forward losses from house property for the purpose of computation of taxable total income for the next immediate succeeding assessment year, fortify the inadvertent mistake of the appellant in reporting such loss for the assessment year under consideration, thereby vitiating the consequential penalty order under consideration.

The NFAC, Delhi ought to have appreciated that in any event, the present penal provisions under consideration are subjected to reasonable cause in terms of Section 273B of the Act and further ought to have appreciated that the discretion vested in the hands of the JA0 for passing the penalty order under consideration was not exercised in proper perspective, thereby vitiating the impugned order in its entirety.

The NFAC, Delhi failed to appreciate that the findings in para 8 of the impugned order were wrong, incorrect, erroneous, invalid, unjustified and not sustainable both on facts and in law.

Brief facts of the case are that the assessee has filed his return of income for the assessment year 2018-19 on 18.03.2019 declaring total income of Rs.5,10,760/-. The assessment has been completed u/s.143(3) r.w.s. 143(3A) & 143(3B) of the Income Tax Act, 1961, on 12.04.2021 and determined total income at Rs.5,73,760/-. During the course of assessment proceedings, on the basis of information submitted by the assessee, the Assessing Officer noticed that the assessee has computed loss from ‘income from house property’ and carried forward house property loss of Rs.15,05,253/- to subsequent assessment years. On verification of details filed by the assessee, the Assessing Officer noticed that the assessee has wrongly claimed total interest paid on loan borrowed for acquiring self-occupied house property as against maximum limit of Rs.2 lakhs and carried forward loss of Rs.15,05,253/-. Therefore, restricted loss from income from house property at Rs.2.00 lakhs and disallowed carried forward losses amounting to Rs.15,05,253/-.

The learned DR Shri P.Sajit Kumar, supporting order of the learned CIT(A), submitted that it is a clear case of misreporting or suppression of facts, as per section 270A(9) of the Act, which is clear from the facts brought on record by the Assessing Officer that the assessee has computed excessive loss under the head ‘income from house property’ and carry forward loss to subsequent assessment years. The arguments of the assessee that he did not claim set off of loss in subsequent year does not hold good for levy of penalty, because, the moment income computed results in excess income over and above income returned or reduces loss, then penalty u/s.270A is applicable. The Assessing Officer has rightly levied penalty and the Ld.CIT(A) after considering 7 relevant facts has rightly confirmed the penalty levied by the Assessing Officer and hence, their orders should be upheld.

We have heard both the parties, perused material available on record and gone through orders of the authorities below. There is no dispute with regard to fact that the assessee has computed excess loss of Rs.15,05,253/- under the head ‘income from house property’ in respect of self-occupied house property. As per the provisions of the Act, interest paid on borrowed capital for self-occupied house property is allowable as deduction upto maximum limit of Rs.2.00 lakhs per annum.

In our considered view, the Assessing Officer has misunderstood the provisions of section 270A(9), while interpreting levy of penalty for under reporting of income. The concept of underreporting of income should be understood in the context of claiming any deduction or expenses, which is otherwise not allowable for computing loss, which is not otherwise as per law, which resulted in reduction in taxable income for relevant assessment year. Even if you want to apply sub-clause (a) of sub-section (9) of section 270A of the Act, same needs to be understood with the context of reduction in income or reduction in loss computed by the assessee for 9 relevant assessment year. In the present case, parameters prescribed for levy of penalty u/s.270A is not satisfied, because the assessee neither claimed excessive loss, which resulted in reduction in taxable income or reduction in loss to be adjusted against income either in the impugned assessment year or subsequent assessment years. Therefore, explanation offered by the assessee that he has computed excessive loss under the head ‘income from house property’ in respect of self- occupied house property needs to be understood in the above context of underreporting of income. Since, the assessee has neither claimed any benefit of loss against any other income for the impugned assessment year, nor has taken set off of said loss against income from house property in subsequent assessment years, in our considered view, the Assessing Officer has completely erred in considering loss computed by the assessee as underreporting of income on account of mis reporting of income. Thus, we are of the considered view that the Assessing Officer has completely erred in levying penalty u/s.270A(8) of the Income Tax Act, 1961, in respect of loss computed under the head ‘income from house property’. The ld. CIT(A) without appreciating relevant facts has simply 10 sustained penalty levied by the Assessing Officer and thus, we set aside order passed by the Ld.CIT(A) and direct the Assessing Officer to delete penalty levied u/s.270A of the Income Tax Act, 1961.

In the result, appeal filed by the assessee is allowed.