INDIAN ACADEMY EDUCATION TRUST ,BENGALURU vs. DEPUTY COMMISSIONER OF INCOME TA(EXEMPTIONS), BENGALURU

The Assessee is aggrieved and is in Appeal before us.

The main grievance of the Assessee is that the Ld. CIT(A) has confirmed levy of the penalty holding that underreporting of income which is in consequence of

The briefly stated the facts show that the Assessee is a trust running a school regularly filing its return of income filed its return of income on 29.10.2018 at Rs. Nil/- on 05.03.2019. The Assessee made inadvertent mistake in the revised return claimed depreciation of Rs. 1,73,05,132/-and claimed capital expenditure on the assets. That the revised income as well as the original income remained the same. Thus, the Assessee has claimed double deduction of depreciation as well as acquisition of capital asset as application of income.

The case of the Assessee was selected for limited scrutiny for verification of depreciation claim and necessary notices were issued. At the first instance, on 24.12.2020, Assessee requested that the claim of depreciation may kindly be ignored and may be kindly treated as withdrawn. The Ld. Assessing Officer passed an Assessment Order on 15.02.2021 disallowing the depreciation of Rs. 1,73,05,132/- and determined the returned income at Rs. Nil/-. Further, the Ld. Assessing Officer initiated penalty proceedings u/s. 270A of the Act holding that Assessee has misreported the income in the return of income and therefore along with the Assessment Order issued penalty notices u/s. 274 r.w.s. 270A of the Act.

The above Assessment Order admittedly not challenged before the higher forum. Therefore, the Ld. Assessing Officer proceeded with the penalty proceedings which was contested by the Assessee stating that Assessee on its own as per para no. 6 of the letter dated 24.12.2020 has withdrawn the claim of the depreciation. It was further stated that even without such claim of depreciation, the Assessee trust has applied 85% of gross assets. Thus, there is no case of misreporting of total income. The Ld. Assessing Officer rejected the contention of the Assessee and levied a penalty u/s. 270A of the Act holding that Assessee has underreported the total income which is in consequence of

The Assessee challenged the same before the Ld. CIT(A). The Ld. CIT(A) relying upon the decision of the Deputy Commissioner of Income Tax (Exemptions) v/s. Rashtrotthana Parishatin ITA No. 1666/Bang.2024 confirmed the penalty. Thus, the Assessee is in Appeal before us.

The claim of the Assessee is that there is no misreporting of income, the decision relied upon by the Ld. CIT(A) has already been recalled and subsequently penalty in that case is also deleted. It was further stated that the Ld. Assessing Officer has failed to invoke any of the clauses of section 270A(9) of the Act and therefore penalty is vitiated. The Assessee further relied upon the decision of the Deputy Commissioner of Income Tax v/s. Sasan Power Limited 157 taxmann.com 763 (Mumbai) wherein penalty was deleted on excess claim of depreciation. The Assessee further relied on the decision of ITA No. 1779/Bang/2024 dated 22.01.2025 wherein on account of disallowance of unsubstantiated claim of expenditure the penalty levy of misreporting of the income stands deleted. The Ld. Authorized Representative further relied upon the decision of the Coordinate Bench in Gujarat Energy Development Agency v/s. DCIT (Exemption) 179 taxmann.com 629 wherein it is held that the Assessing Officer is duty bound to specify which specific clause of section 270A(9) of the Act was attracted. Where none of the clause are found applicable, penalty imposed u/s. 270A for misreporting of income is liable to be cancelled. The Ld. Authorized Representative further relied on the decision of the Delhi High Court in Schneider Electric South East Asia (HQ) Pte Ltd. v. ACIT(IT) (2022) 443 ITR 186 (Delhi) wherein it is held that if the Assessee is not aware about which clause of section 270A(9) is invoked for levy of penalty, the penalty notice and the penalty order are required to be quashed. Decision of the Deputy Commissioner of Income Tax (Exemptions) v/s. Rashtrotthana Parishat in ITA No. 1666/Bang.2024 which is made basis for levy of penalty by the ld CIT (A) was later on recalled in MA and subsequently penalty got deleted.

We have carefully considered the rival contentions and perused the Assessment Order, Penalty Order and the order of the First Appellate Authority confirming the penalty u/s. 270A for underreporting of income representing misreporting of income. According to provisions of section 270A, the Assessing Officer during Assessment Proceedings direct that any person who has underreported his income shall be liable to pay a penalty of such underreported income. Provisions of sub section 2 refer to 7 instances of underreporting of income. According to sub section 8, if the underreported income is a consequence of any misreporting thereof the penalty shall be 200% of the amount of tax payable on underreported income. Further sub section 9 gives the 6 instances of what is misreporting of income. Therefore, if the Assessee is being penalized for misreporting of income, the Assessing Officer is duty bound to let the Assessee know about under which limb of the offence of the Assessee falls. The Assessee may be made aware about a particular clause of misreporting of income by knowing the same in a form of satisfaction in the Assessment Order or may also be communicated to the Assessee in notice u/s. 274 of the Act. In the present case, neither the notice nor the Assessment Order speaks about the limb out of 6 limbs of misreporting of income as per section 270A(9) of the Act. The Hon’ble Delhi High Court in Schneider Electric South East Asia (HQ) Pte Ltd. v. ACIT(IT) (2022) 443 ITR 186 (Delhi) in para no. 7 has held that where there is not a whisper of which limb of section 270A of the Act is attracted and how he ingredients of sub section 9 of section 270A is satisfied, in absence of such mere reference to the word misreporting by the Ld. Assessing Officer in the Assessment Order makes the order manifestly arbitrary. The Hon’ble Delhi High Court further strengthened the above view in the decision of GE Capital US Holdings Inc. vs. Deputy Commissioner of Income-tax (International Taxation) [2024] 163 taxmann.com 146 (Delhi)/[2024] 299 Taxman 108 (Delhi)/[2024] 468 ITR 746 (Delhi)[31-05-2024]where in it is held that Where Assessing Officer had issued show cause notices under section 270A for initiating consequential penalty proceedings and application filed by assessee to avail of statutory remedy as codified under section 270AA

As in the notice issued u/s. 270A or in the Assessment Order, there is no reference of any limb invoked by the Ld. Assessing Officer for levy of the penalty, we have no hesitation in holding that the order of the penalty passed u/s. 270A(9) is not at all sustainable. Accordingly, we reverse the orders of the Ld. lower authorities, direct the Ld. Assessing Officer to delete the penalty levied u/s. 270A of the Act.

In the result, Appeal of the Assessee is allowed.