JYOTHI KODENKIRI,BANGALORE vs. DCIT, CIRCLE3(3)(1), BANGALORE

In this appeal, the assessee has raised the following grounds: -

We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that the assessee is an individual and, for the year under consideration, filed her return of income. The return filed by the assessee was selected for scrutiny, and vide order dated 07.03.2024 passed under section 143(3) of the Act, the total income of the assessee was assessed at Rs. 58,39,670/-, inter alia, after disallowing the deductions claimed by the assessee under Chapter VIA of the Act. In the meanwhile, penalty proceedings under section 270A of the Act were initiated for under-reporting of income, which is in consequence of misreporting thereof for the year under consideration. After considering the submissions filed by the assessee, the Assessing Officer (“AO”) vide order dated 27.09.2024 passed under section 270A of the Act levied a penalty of Rs. 6,77,651/-, i.e. at 50% of the amount of tax payable on under-reported income on the basis that the assessee has under-reported income to the tune of Rs. 30,55,000/-.

The learned CIT(Appeals), vide impugned order, dismissed the appeal filed by the assessee and upheld the levy of penalty under section 270A of the Act. Being aggrieved, the assessee is in appeal before us.

During the hearing, the learned Authorised Representative (“learned AR”) submitted that the assessee claimed certain deductions under Chapter VIA, which were disallowed by the AO during the scrutiny assessment proceedings. The learned AR submitted that the disallowance made by the AO was not challenged by the assessee before the learned CIT(A) in quantum proceedings. It was further submitted that the proceedings for the levy of penalty under section 270A of the Act were initiated on the basis that the assessee had under-reported its income, which is in consequence of misreporting thereof. However, the penalty was ultimately levied @50% for under-reporting of income. Thus, the learned AR submitted that the penalty in the present case is vague.

On the other hand, the learned Departmental Representative vehemently relied upon the order passed by the lower authorities.

Having considered the submissions of both sides and perused the material available on record, we find that, as per the provisions of section 270A of the Act, a penalty is levied for under-reporting of income at 50% of the amount of tax payable on under-reported income and for misreporting of income at 200% of the amount of tax payable on under-reported income which is consequence of misreporting. Further, the provisions of section 270A of the Act specifically enumerate the circumstances in sub-section (2) under which a person shall be considered to have under-reported his income and the circumstances which shall be considered as misreporting of income are specifically mentioned in sub-section (9) of section 270A of the Act. From the perusal of the record, it is evident that penalty proceedings were initiated vide notice issued under section 274 r.w.s. 270A of the Act on 07.03.2024 for under-reporting of income, which is in consequence of misreporting thereof. However, the AO levied the penalty under section 270A of the Act on the basis that the assessee has under-reported its income and thus levied penalty @50% of the amount of tax payable on under-reported income. Therefore, it is evident that the charge on the basis of which penalty proceedings under section 270A were initiated was not the basis for ultimately levying the penalty on the assessee. Therefore, we are of the considered view that since the assessee was not made aware of the actual charge on which penalty under section 270A shall be levied, the entire penalty proceedings under section 270A of the Act are vitiated. Accordingly, the penalty order passed under section 270A of the Act is quashed.

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