SERMADEVI YEGNASWAMY RAMAKRISHNAN,BENGALURU vs. INCOME TAX OFFICER WARD-3(3)(1), BENGALURU

The brief facts of the case are that the assessee is a retired engineer and earned income through pension and from other sources and filed his return of income. The return was processed u/s. 143(1) and an intimation was sent to him. Later on, the AO found that the assessee had also received interest income from his foreign bank account but not reported in the return of income and therefore a notice u/s. 148 was issued. Subsequently, the assessee filed his return of income by including the interest income also and paid the tax dues along with the applicable interest. The AO had accepted the return and proposed to initiate penalty u/s. 270A(9) of the Act. Later on, the AO issued a notice u/s. 274 r.w.s. 270A of the Act on 24/03/2022 in which the AO had alleged that the assessee had under reported income which is in consequence of misreporting thereof. The assessee also filed their response and explained that since the bank account was maintained while he was in service in a foreign country, he was under the impression that the said income need not be disclosed while filing the return of income. The assessee also submitted that the deposits are made by him while he was a non- resident and therefore on the bonafide belief that the said interest income from the said foreign bank would not be a taxable income in India. The case of the assessee was transferred to the Jurisdictional AO and therefore a revised notice was issued by the ITO, Ward – 3(3)(1), Bangalore proposing to impose penalty u/s. 270A of the Act. The assessee also filed his submissions to the second notice also. The AO without considering the said submissions, had confirmed the penalty proposals and imposed penalty at 200% on income which was underreported in consequence of misreporting.

As against the said order, the assessee filed an appeal before the Ld.CIT(A). The assessee explained the circumstances under which the interest income earned from the said foreign bank was not reported to the department and also contended that the notice issued u/s. 274 r.w.s. 270A of the Act is not a valid notice and therefore the consequential penalty order is also invalid. The assessee also raised a ground that the AO had failed to mention under which limb of the section 270A(9) the misreporting of income was happened and under which limb of section 270A(2) of the Act, the same was treated as underreporting of income, to impose the maximum penalty at 200%. The Ld.CIT(A) had not considered the various submissions made by the assessee as well as the plea of the invalid notice, had confirmed the penalty imposed by the AO.

As against the said order, the present appeal has been filed by the assessee before this Tribunal.

At the time of hearing, the Ld.AR submitted that the facts and circumstances for not reporting the interest income received from the foreign bank was properly explained and therefore without considering the said submissions and also without considering the fact that there is no willful intention to evade the income, had mechanically confirmed the penalty order. The Ld.AR further submitted that the notice issued by the AO u/s. 274 r.w.s. 270A of the Act has not mentioned the limb under which the misreporting of income happened and the underreporting of income was made by the assessee and therefore submitted that the said order is bad in law. The Ld.AR also filed a paper book compilation in which the two notices issued by the AO had been enclosed to show that the notices does not contain the limb under which the underreporting as well as misreporting has been committed by the assessee and therefore the notice itself is bad in law and consequently the penalty order is not sustainable. The Ld.AR also filed a case law compilation enclosing several judgments of the Hon’ble High Courts as well as the orders of the Coordinated Benches of this Tribunal. The Ld.AR also enclosed the copies of the orders of the Ld.CIT(A) in which the penalty levied u/s. 271(1)(c) of the Act in respect of the subsequent assessment years were cancelled and prayed that a similar approach may also be taken in respect of the current year and prayed to allow the appeal. The Ld.AR also filed a written submission.

The Ld.DR submitted that the interest income was reported by the assessee based on the notice issued u/s. 148 of the Act and therefore there are ingredients available to impose penalty u/s. 270A of the Act. The Ld.DR also relied on the judgment of the Hon’ble Kerala High Court reported in 246 ITR 218 in the case of CIT vs. A.P. Madhusudhanan and the judgment of the Hon’ble Supreme Court reported in 251 ITR 99 and submitted that the Hon’ble Supreme Court had confirmed the judgment of the Hon’ble Kerala High Court and therefore prayed to dismiss the appeal.

We have heard the arguments of both sides and perused the materials available on record.

The facts involved in the appeal are that the assessee, while working in a foreign country, had opened a bank account there and his salary was credited into the said bank account and while returning to India, he has not closed the said bank account and based on the policy of the said bank, the said account was closed and the money available in the said account was deposited in a fixed deposit and interest income was earned through the said deposit. It is the case of the assessee that since the amount was deposited into his bank account while he was an NRI, he was under the bonafide belief that he need not disclose this income while filing his return of income in India. Immediately on receipt of the 148 notice, the assessee disclosed the said interest income by filing a return and also paid the tax dues along with the interest. It is the further case of the assessee that he was unable to file a revised return since the time limit for filing the revised return was over. Therefore, the assessee submitted that there is no intention to defraud the revenue for invoking the penal provisions.

We have considered the said facts and before deciding the issue on merits, we are taking up the plea raised by the assessee that the notice issued u/s. 274 r.w.s. 270A is bad in law. The assessee had submitted that the first notice dated 24/03/2022 issued by the National Faceless e-Assessment Centre does not contain the limb under which the misreporting and underreporting has been committed by the assessee. Similarly, the second notice issued by the Jurisdictional AO also does not contain any such circumstances warranting to impose penalty u/s. 270A of the Act. We have also gone through the above said notices and in both the notices, the AO had mentioned that the assessee had underreported income which is in consequence of misreporting. We have also gone through the provision 270A(2) and (9) in which several limbs were given by the legislature. Therefore, the contention of the assessee that no limb has been mentioned in the notices, merits consideration. We have also gone through the judgments and the orders relied on by the assessee for the proposition that unless the correct limb has been mentioned in the show cause notice, the notice itself is bad in law and therefore the consequential penalty order confirming the penalty is also bad in law. The following judgments as well as the orders of the various Tribunals are relied on by the assessee. a) GE Capital US Holdings Inc [2024] 468 ITR 746 (Del) b) Prem Brothers Infrastructure LLP [2022]142 taxmann.com 38 (Del) c) Nateshan Sampath (Order dt. 22.01.2025 in ITA 1779/B/2024) d) IIFL Samasta Finance Ltd. (Order dt. 27.09.2024 in ITA 1054/B/2024) e) Saltwater Studio LLP [2023] 157 taxmann.com 749 (Mumbai -Trib) f) Shri Holehucheshwar Co-operative Credit Society (Order dt. 28.08.2024 in ITA 1148/B/2024) g) L. Javerchand Jewellers P. Ltd. (Order dt. 09.01.2025 in ITA 1542/B/2024) h) Essae Suhagraja P. Ltd. [2025] 181 taxmann.com 302 (Bang-Trib) i) Chambal Fertilizers & Chemicals Ltd. [2024] 462 ITR 4 (Raj) j) Schneider Electric South East Asia (HQ) Pte. Ltd. [2022] 145 taxmann.com 665 (Del) k) Jaipur Telecom (P.) Limited (2024) 165 taxmann.com 289 (Jaipur -Trib) l) Enrica Enterprises (P.) Ltd. (2024) 163 taxmann.com 105 (Chenn-Trib.) m) Archana Achyut Sail (2025) 173 taxmann.com 52 (Mumbai -Trib) n) Parulben Vijayku ma r Patel [2024] 163 taxmann.com 191 (Ahd.-Trib.)

We have also considered the orders of the Coordinate Bench of this Tribunal which was filed in the case law compilation, in which the Tribunal had taken a view that the non mentioning of the limb under which the penalty has been imposed is fatal to the proceedings. In one of the orders of the Coordinate Bench of this Tribunal reported in (2025) 181 taxmann.com 302 (Bangalore) in the case of Essae Suhagraja (P.) Ltd. vs. DCIT which was relied on by the assessee, it was held that, “penalty can be levied on six types of acts on behalf of the assessee. The Ld.AO neither in the assessment order nor even otherwise has stated that under which sub- clause of section 270A of the Act, penalty is levied.”

The Tribunal relied on the judgment of the Hon’ble Delhi High Court reported in (2024) 163 taxmann.com 146 (Delhi) in the case of GE Capital US Holdings Inc. to arrive the above said conclusion and deleted the penalty.

In another order of this Tribunal in ITA No. 1148/Bang/2024 dated 28/08/2024, the Tribunal had relied on the order of the Coordinate Bench of this Tribunal in the case of Shri Chiguruvada Dileep Kumar in ITA No. 832/Bang/2023 dated 27/05/2024 and deleted the penalty levied u/s. 270A(9) of the Act since the proceedings does not mention about the limb under which the penalty has been proposed and levied.

We have also considered the judgment of the Hon’ble Delhi High Court reported in (2024) 468 ITR 746 (Delhi) in the case of GE Capital US Holdings Inc. vs. DCIT (IT) wherein it was held that the failure to specify under which limb, the assessee is being tried on an allegation of underreporting or misreporting of income is bad in law and therefore the assessee is entitled for immunity u/s. 270AA of the Act. A similar view was taken by the very same Hon’ble Delhi High Court in the judgment reported in (2022) 145 taxmann.com 665 (Delhi) in the case of Schneider Electric South East Asia (HQ) Pte. Ltd. vs. ACIT.

Considering the facts of the case and also the principles laid down by the various Hon’ble High Courts and the Coordinate Bench of this Tribunal, we are also inclined to delete the penalty levied u/s. 270A of the Act since the notice as well as the order has not pointed out under which limb the mischief has been committed by the assessee to levy penalty under the said provision. Therefore, we are setting aside the order of the lower authorities and allow the appeal filed by the assessee.

We are deciding the appeal on the legal issue and allowed the appeal and therefore we are not adjudicating the other grounds raised by the assessee on merits.

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