PRAVINBHAI NAROTTAMDAS PATEL,VISNAGAR vs. INCOME TAX OFFICER, WARD-1, MEHSANA, MEHSANA

The brief facts of the case are that the assessee had filed his return of income for A.Y. 2023-24 on 26.09.2023 declaring total income of Rs.1,32,99,350/-. The case was selected for scrutiny under CASS to examine low net profit as compared to total revenue from operations. The

Aggrieved with the penalty order of the AO, the assessee had filed an appeal before the first appellate authority, which was decided by the learned CIT(A) vide the impugned order and the appeal of the assessee was dismissed. Th

Now the assessee is in second appeal before us. The following grounds have been taken in this appeal:

Shri Rushin Patel, the Ld. AR of the assessee submitted that the difference of Rs.3,10,028/- on account of commission and insurance commission as reflected in the accounts of the assessee vis-à-vis Form No. 26AS was due to the reason that the assessee had issued bills for this amount in the next year and this difference was accounted for by the assessee in the financial year 2023-24. He submitted that due to addition of Rs. 3,10,028/- made by the AO in the A.Y. 2023-24, this amount was subjected to double taxation i.e. in A.Y. 2023-24 as well as in the A.Y. 2024-24. The Ld. AR submitted that there was no suppression of any facts on the part of the assessee and, therefore, the AO was not correct in imposing penalty u/s. 270A of the Act for misreporting of income. He explained that the assessee did not challenge the addition made in the A.Y. 2023-24 for the reason that credit for TDS on the entire commission amount was claimed in this year only. However, the assessee had made a request to rectify the assessment for A.Y. 2024-25 as the amount of Rs.3,10,028/- was already subjected to tax in the A.Y. 2023-24, but the same was also rejected by the AO. According to the Ld. AR there was neither any underreporting nor misreporting of the income, as the facts were duly disclosed by the assessee. He submitted that the assessee’s case was covered under clause 270A(6)(a) of the Act, as the assessee had disclosed all the material facts and the explanation of the assessee was also bona-fide.

Per Contra, Shri Santosh Kumar, the Ld. SR-DR, supported the order of the Assessee Officer. He explained that the assessee was not correct in claiming credit for the entire TDS amount in the current year without offering the corresponding income to tax. He submitted that assessee had accepted misreporting of income in its ITR and no appeal was filed against the assessment order. Therefore, the penalty for misreporting of income was rightly levied by the AO in the present case.

We have considered the rival submissions. So far as addition of Rs.3,10,028/- on account of suppression of commission and insurance commission is concerned, there is no dispute. The assessee has accepted this addition and no appeal has been preferred in the current year. The precise question to be decided is whether there was any underreporting or misreporting of income in the current year. The assessee had also admitted that it had claimed credit for TDS on the entire commission/insurance commission, including the amount of Rs.3,10,028/- which was added by the AO in the course of assessment. According to the assessee this amount of Rs. 3,10,028/- was reflected in the accounts of next financial year. If that is so, the assessee has not explained as to why did he take credit for TDS on this amount in the current year. The TDS credit and taxability of income go together and the credit for TDS is required to be taken only in the year in which the corresponding income is offered to tax. In this regard, it will be relevant to refer to Rule 37BA(3) of the Income Tax Rules, 1962, which is as under:

As per Rule 37BA, where income is assessable over a number of years, the credit for TDS is to be claimed across the years in the same proportion in which the income is offered to tax. Thus, when the assessee had taken credit for the entire TDS amount, it was obligatory upon him to offer the entire commission/insurance commission for which TDS credit was taken, as income in the current year itself. By taking credit for the entire TDS amount but not offering the entire corresponding income, the assessee had certainly underreported his income. The contention of the assessee that his case was covered under clause 270A(6)(a) of the Act, as he had disclosed all the material facts and his explanation was also bona-fide, is also not found correct,. The assessee has not given any explanation for claiming credit for entire TDS amount while not offering the entire corresponding receipt as income, in the current year. Therefore, the AO had rightly imposed the penalty u/s. 270A of the Act. At the same time, the AO was not correct in imposing the penalty for mis-reporting of income. There was no suppression of facts or failure to record investment in the books of account or any false entry in the books of account, to categorize it as misreporting of income. The quantum of TDS along with the corresponding income was already available on record in Form No. 26AS. This was the case of a mere under-reporting of income as the assessee did not offer the entire amount as per Form 26AS, for which TDS credit was taken, as his income. Under the circumstances, the AO is directed to modify the penalty imposed u/s. 270A of the Act, for under- reporting of income. The ground taken by the assessee is partly allowed.

In the result, the appeal of the assessee is partly allowed.