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Facts
The appeal concerns a penalty levied under Section 270A of the Income Tax Act for alleged under-reporting of income. The penalty was imposed on account of disallowance of expenditure claimed by the appellant company, which resulted in a reduced loss. The appellant argued that no tax was payable due to accumulated losses, and the expenditure was genuine.
Held
The Tribunal held that the penalty could not be sustained. Although the expenditure was recognized in a particular year, its genuineness was not doubted by the authorities. Furthermore, due to the company's substantial losses, the timing of the expenditure recognition did not result in any tax evasion or benefit.
Key Issues
Whether penalty under Section 270A is leviable for under-reporting income when the expenditure is genuine, no tax is payable, and the issue is only about the timing of recognition of expenditure leading to a reduced loss carry-forward.
Sections Cited
270A, 270A(7), 270A(2)(g)
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Income Tax Appellate Tribunal, Mumbai “A” Bench, Mumbai.
Before: Smt. Kavitha Rajagopal (JM) & Shri Omkareshwar Chidara (AM)
In the above cited case, the only issue involved is whether penalty under section 270A of the Income Tax Act is to be levied when the appellant did not file an appeal on the addition made by the Ld. AO in the assessment order with respect to disallowance of claim of expenditure relating to construction and finance costs against the revenue earned from sale of flats. The Ld. AR submitted that no appeal was filed against the addition made because the appellant company has huge losses which are being carried forward and there is no tax payable. The following Grounds of Appeal are taken by appellant company :-
1. The Ld. CIT(A) erred in confirming the AO's order imposing a penalty of Rs.2,32,21,387/- u/s 270(A)(7) of the Income Tax Act, 1961 for under- reporting of income
2. Ld. CIT(A) failed in appreciating that there was no case of under- reporting by the Appellant as the Appellant had debited bonafide expenses under consideration to the P&L account I only upon completion of the said construction project as in the earlier year, the method of Project Completion was accepted and assured by the AO.
2 M/s. Ajmera Housing Corporation 3 The Ld. CIT(A) erred in confirming the penalty on the ground that the expenses in relation to the said project were incurred I prematurely, which was not so as the project was already I complete and the expenses claimed during the year were a spill over of the project already assured.
The Ld. AO made the disallowance of expenditure in assessment order holding that there is no nexus between the Revenue offered and expenditure claimed. There is no appeal on this assessment order by appellant because there are huge losses which are to be carried forward and set off. As there is no Revenue impact/tax payable due to disallowance/addition in the assessment order, the Ld. AR of the appellant submitted that appeal was not filed on addition made. But, subsequently the Ld. AO levied penalty under section 270A of the Act invoking the provisions of section 270A(2)(g) of the Act and aggrieved by the penalty order of Ld. AO, the present appeal was filed. It was argued by Ld. AR of the appellant before ITAT that the genuineness of expenses was not doubted nor there is no tax evasion. The Ld. AO has levied penalty by saying that the expenditure should have been claimed in subsequent years and reduction of loss also amounts to “under- reporting” under section 270A of the Act. The Ld. CIT(A) has also categorically held in his order at para 6.2.8 of the appeal that the genuineness of the expenses is not in dispute and the penalty is levied for incorrect recognition/timing and not for bogus expenditure. Since there is neither concealment nor malafides, penalty should not have been levied/ confirmed by lower authorities and hence the levy of penalty may be deleted, it was argued by Ld. AR.
The Ld. DR has stated that due to incorrect treatment of cost resulted in an artificial increase in loss and section 270A(2)(g) of the Act was correctly invoked by ld. AO and confirmed by Ld. CIT(A) because as per the provisions of this section, even reduction in loss also amounts to under-reporting and penalty levied should be upheld.
3 M/s. Ajmera Housing Corporation 4. Heard both sides. There is considerable force in the arguments of Ld. AR of the appellant and penalty cannot be levied because of the following :- a) Even after the addition made by Ld. AO, there is still huge loss in the current year and in the earlier years/subsequent years which would be carried forward and set off. There is no incentive for appellant company to show an artificial loss. b) For this project, the Ld. AR of appellant has incurred a loss of Rs. 46.63 crore till A.Y. 2024-25 and the lower authorities have agreed with the contention of company that they are following project completion method. c) There is a categorical finding by Ld. AO/Ld. CIT(A) that the expenditure claimed is genuine and penalty was levied only because this expenditure claimed in the present year should have been in subsequent years. The appellant company has incurred losses continuously and even if this expenditure is claimed in subsequent year, it is Revenue neutral. There is no further tax payable either in this year or in subsequent years. As the Ld. CIT(A) gave a categorical finding that the genuineness of expenditure is not doubted, the penalty levied cannot be sustained.
So, the levy of penalty by Ld. AO is deleted. The appeal of appellant company is allowed.
Order pronounced in the open Court on 24/11/2025.