DEPUTY COMMISSIONER OF INCOME TAX, CEN. CIR.-1(1), KOLKATA, KOLKATA vs. M/S. S S NATURAL RESOURCES PRIVATE LIMITED, KOLKATA

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ITA 509/KOL/2026Status: DisposedITAT Kolkata25 June 2026AY 2022-2311 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the Commissioner (Appeals)'s decision to quash the penalty. The Tribunal found that the issue was debatable and the assessee had disclosed primary facts, thus not being guilty of misrepresentation or suppression of facts.

What were the facts?

The assessee claimed a deduction for interest expenditure incurred on loans for strategic acquisition. The Assessing Officer (AO) disallowed this expenditure and initiated penalty proceedings under Section 270A for under-reporting due to misreporting.

What were the issues?

Whether penalty under Section 270A is leviable when the disallowance of interest expenditure is based on a debatable interpretation of law and the assessee has disclosed primary facts.

Which sections of the Income-tax Act were involved?

Section 270A,Section 36(1)(iii),Section 37

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, KOLKATA‘D’ BENCH, KOLKATA

Before: SHRI RAJESH KUMAR & SHRI PRADIP KUMAR CHOUBEY

For Appellant: Shri Akkal Dudhewala, CA
For Respondent: Shri Naman Garg, CIT-DR
Hearing: 11.05.2026Pronounced: 25.06.2026

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA‘D’ BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI PRADIP KUMAR CHOUBEY, JUDICIAL MEMBER I.T.A. No.509/KOL/2026 (Assessment Year:2022-23) DCIT, M/s S.S. Natural Resources Pvt. Central Circle – 1(1), Vs. Ltd., S.S. Chambers, 2nd Floor, 5 CR Kolkata Avenue, Kolkata – 700072, West Bengal [PAN: AAVCS3271M] (Appellant) .. (Respondent) Appellant by : Shri Akkal Dudhewala, CA Respondent by: Shri Naman Garg, CIT-DR Date of Hearing 11.05.2026 Date of Pronouncement 25.06.2026

O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: This is an appeal preferred by the Revenue against the order of the Commissioner of Income-tax (Appeals), Kolkata-20 (hereinafter referred to as the “Ld. CIT(A)”] dated 02.05.2025 for the AY 2022-23.

2.

At the outset, we observe from the appeal folder that there is a delay of 163 days in filing the appeal by the department and in support of this a condonation petition was filed. It was stated in the condonation petition that the delay has occurred due to obtaining the administrative approval from the competent authorities, which took quite a long time and accordingly, the delay may be condoned. The ld. AR, on the other hand, did not oppose the condonation of delay.

ITA No.509/Kol/2026/AY 2022-23 M/s S.S. Natural Resources Pvt. Ltd. Considering the reasons cited before us, we are inclined to condone the delay and admit the appeal for hearing.

3.

The only issue raised by the assessee in this appeal relates to the levy of penalty of ₹5,17,80,820/- u/s 270A of the Act on account of under-reporting as a consequence of misreporting.

4.

Brief facts of the case are that, the assessee is a private limited company formed with the purpose of conducting business activity of exploration and mining of coal and related minerals. The assessee is related to the Shyam Sel Group and was nominated to participate in the IBC process for acquiring M/s Ramsarup Industries Limited, a company engaged in the business of iron and steel. The resolution plan submitted by the assessee was accepted by the Hon’ble NCLT on 04.09.2019, however due to litigation filed by erstwhile promoters, the acquisition got stalled and the matters travelled to Hon’ble Supreme Court who decided in favour of the assessee. In the meantime, the assessee had availed loan from the group concerns for making payment(s) of security deposit with Banks, and obligations payable to the various stakeholders of M/s Ramsarup Industries Limited, as agreed in the resolution plan. The assessee had accordingly incurred interest expenditure of Rs.7,75,53,350/- during AY 2022-23 on the loans utilized for the strategic acquisition of M/s Ramsarup Industries Limited, which was debited to P&L A/c and claimed by way of business expenditure in the return of income for AY 2022-23. The assessee had filed its return of income on 06.11.2022 for A.Y. 2022-23 declaring business loss of Rs.(-) 7,74,32,299/-. The case of the assessee was selected for regular scrutiny and in the course of assessment proceedings, the ld. AO called upon the assessee to explain as to why interest cost of Rs.7,75,53,350/- debited in the P&L A/c should not be disallowed. The assessee has furnished the details of finance cost incurred during the year and claimed that the interest was paid towards expansion of business. The AO however was not agreeable to the explanation offered by the assessee and therefore disallowed the same and assessed the total income at Rs.1,21,053/-. The AO is noted to have initiated penalty proceedings u/s 270A(9) of the Act in relation 2

ITA No.509/Kol/2026/AY 2022-23 M/s S.S. Natural Resources Pvt. Ltd. to the aforesaid disallowance, for which notice u/s 274 of the Act was issued on 24.01.2024. Not being satisfied with the submissions of the assessee, the AO held that the assessee had misrepresented or suppressed the facts and therefore levied penalty at 200% of the tax payable on the addition of Rs.7,75,53,350/-. 5. In the appellate proceedings, the ld. CIT(A) has quashed the penalty levied by the AO after taking into account the submissions and arguments of the assessee, by observing as under: “4. Decision: Ground No.-1 & 2- 4.1 I have carefully considered the facts of the case and submission of the appellant. Assessee had filed original return of income for the assessment year 2022-23 u/s. 139(1) of the I.T. Act on 06.11.2022 declaring current year's loss of Rs. 7,74,32,299/-. The return was processed u/s 143(1) of the IT Act, 1961 on 06.11.2022, accepting the returned loss. The case was selected under CASS for scrutiny assessment for AY 2022-23. It was observed that the appellant had debited finance cost to the tune of Rs. 7,75,53,350/-in its P/L account, though revenue from operation as well as profit and gains from business and profession is shown as NIL. The AO disallowed the amount of Rs. 7,75,53,350/- u/s 37 of the Income Tax Act, 1961. The appellant availed deduction of the amount of interest paid in respect of capital borrowed for the purpose of acquiring a company and claimed the same while computing income from business and profession in its computation of total income. However, quoting the provisions of section 36(1) (ii) of the IT Act, 1961, the AO made the addition of Rs. 7,75,53,350/. The provision of section 36(1)(iii) states as under: "the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset (whether capitalized in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction.]" Consequent to assessment proceeding and the disallowances made by the AO, the appellant has not filed any appeal before the CIT (Appeals) regarding the addition of Rs.7,75,53,350/- and hence, the AO initiated penalty proceedings stating under reporting of the income u/s 270A and imposed a penalty of Rs.5,17,80,820/-. The appellant further submits that the section 270A begins with the word 'may' and not 'shall'. The word 'may' indicate that a discretion is available with the AO, CIT (Appeals), PCIT not to levy penalty, having regard to the bona fide conduct of the assessee, co-operation shown in the completion of the assessment and general 3

ITA No.509/Kol/2026/AY 2022-23 M/s S.S. Natural Resources Pvt. Ltd. conduct of the assessee in the course of assessment proceedings. The addition/disallowance is a technical mistake. The assessee has not even made any claim on the basis of any false evidence, as the same is part of the books of account of the appellant. Appellant submitted the following case laws in support that there was no ill motive for such omission. It is only a mistake, said income deserves to be excluded from under reporting of income as per section 270A(6)(a) of the Act. The case should be treated as a bona-fide mistake, relying on the Hon'ble Supreme Court decisions:- 1. [Dilip N. Shroff Vs. CIT (291 ITR 519) (SC)] 2. [Dharmendra Textile Processors (306 ITR 277) (SC)] 3. [Reliance Petro Products (P) Ltd. (322 ITR 158) (SC)) 4.2 As per appellant, while filing the return it claimed a deduction as interest cost to the tune of Rs. 7,75,53,350/-. The appellant availed deduction of the amount of interest paid in respect of capital borrowed for the purpose of acquiring a company namely; M/s Ramsarup Industries Pvt. Ltd. and claimed the same while computing income from business and profession in its computation of total income. The appellant has borrowed loan to acquire the company and for the purpose of making payment to various stakeholders of M/s Ramsarup Industries Ltd. However, due to some litigation in the company the loan amount could not be capitalized but interest on the loan was paid. Hence, in lack of awareness the appellant has deducted the interest paid on the loan amounting to Rs. 7,75,53,350/- as capital loss/interest cost in the return. Finding the above deduction as misreporting of income the AO has imposed the penalty of Rs. 5,17,80,820/. Further appellant submits that mere non-filing of appeal against quantum order does not automatically attracts penalty proceeding sand also discussed the following judicial judgements-  Hon'ble Supreme Court in case of Sir Shadilal Sugar Mills (168 ITR 7051)  Hon'ble Karnataka High Court in case of CIT v. Manjunatha Cotton & Ginning Factory (2013 35 taxmann.com 250)  Hon'ble Delhi Bench of ITAT in the case of Rai Industrial Power Pvt. Ltd. Vs DCIT (ITA 4862/Del/2013)  Hyderabad Tribunal in case of Kalpalatha v. ACIT (66 TAXMAN 111 (HYD.)) 4.3 Appellant further submitted on 29-04-2025 that in terms of the requirements of each clause of the said sub section (9) of Section 270A is analyzed and explained by the appellant, Assessing Officer has not specified anywhere in the penalty order as to under which clause of section 270A (9) the case of the assessee falls. Nor these details were specified in the show cause notice or discussed in the assessment order. Assessing Officer has not specified in respect of this disallowance also as to under which clause of section 270A(9) the same is covered. Appellant submitted the following case laws where penalty cannot be imposed u/s 270A(9) where AO has not mentioned the limb/clause of sub-section (9) of section 270A in which assessee falls-

ITA No.509/Kol/2026/AY 2022-23 M/s S.S. Natural Resources Pvt. Ltd. (i)HIGH COURT OF RAJASTHAN Chambal Fertilizers and Chemicals Ltd. v. Office of the Principal Commissioner of Income-tax [2024] 158 taxmann.com 184 (Rajasthan) (ii) In the case of Schneider Electric South East Asia (HQ) PTE Ltd. v. ACIT [2022] 443 ITR 186 (Delhi), (iii) ING Saltwater Studio LLP vs. MENT s. NFAC, Delhi [2023] 157 taxmann.com 749 (Mumbai - Trib.)[22-05-2023] (iv) 2023] Kishor Digambar Patil vs. Income-tax Officer [2023] 149 taxmann.com 502 (Pune - Trib.)[30-03-2023] (v) IN THE ITAT PUNE BENCH 'A' DCIT v. Chakradhar Contractors and Engineers (P.) Ltd. [2025] 171 taxmann.com 133 (Pune Trib.) (vi) IN THE ITAT MUMBAI BENCH 'D' Manish Manohardas Asrani v. INT Tax [2025] 170 taxmann.com 792 (Mumbai - Trib.)” 6. The Ld. DR for the Revenue contended that the assessee had not disputed the quantum disallowance of ₹7,75,53,350/- made by the AO. He submitted that the assessee had mispresented by claiming deduction for interest expense which otherwise was not allowable and therefore the legal consequence u/s 270A of the Act was that the assessee had misreported the income. The Ld. DR submitted that the AO had specified in the assessment order as well as the penalty notice that the penalty was sought to be levied for under-reporting of income as a consequence of mis-reporting and therefore there was no infirmity in the manner of initiation of penalty proceedings u/s 270A of the Act. The ld. DR prayed before us to reverse the order of the Ld. CIT(A) and restore the penalty levied by the AO.

7.

The Ld. AR, on the other hand, placed strong reliance on the above findings of the Ld. CIT(A) and submitted that the order is reasoned and well-founded and that the Ld. CIT(A) had rightly deleted the penalty. He further submitted that impugned disallowance was not a consequence of any misrepresentation or suppression of any facts. He showed us that, the details of borrowing, finance cost, utilization of funds etc. were disclosed on the face of the Profit & Loss Account and that the deduction for interest claimed by the assessee was a considered legal view

ITA No.509/Kol/2026/AY 2022-23 M/s S.S. Natural Resources Pvt. Ltd. taken on the basis of several judicial precedents. The Ld. AR took us through the background facts relating to the assessee and its acquisition of M/s Ramsarup Industries Limited through the IBC process and he explained that, the interest paid on borrowings for acquiring strategic investments has been held to be an allowable deduction by several judicial forums. In support, he cited the decisions of the Hon’ble Supreme Court in the cases of S A Builders Ltd. vs. CIT (158 Taxman 74), Hero Cycles Pvt. Ltd. vs. CIT (63 taxmann.com 308), Sharp Business System vs. CIT (181 taxmann.com 657). The ld.AR submitted that the AO had disagreed with this legal position adopted by the assessee and made the impugned disallowance of interest. He submitted that, though the assessee had a valid claim but since the disallowance led to assessed income of only Rs.1,21,503/- and that the disallowed business loss had not been set-off in future years, it was only to avoid time and cost involved in litigation that the assessee did not pursue this matter in appeal. The Ld. AR submitted that the penalty proceedings are independent of the assessment proceedings and that it was open for the assessee to show that the interest claimed in the return of income was justified and that only because the claim was found to be a debatable one on which two views were possible, it cannot be viewed to be a case of misrepresentation or suppression of facts to levy penalty for alleged mis- reporting of income. The Ld. AR relied upon the following decisions wherein it was held that, penalty cannot be levied u/s 270A of the Act where the claim made was a bonafide one and debatable in nature. In defence of his arguments, the ld. AR relied on the following decisions: CIT vs Gurdaspur Co-operative Sugar Mills Ltd (35 taxmann.com 395) [P&H HC] - CIT v. IFCI Ltd (9 taxmann.com 114) [Del HC] - GM Modular (P.) Ltd. vs PCIT (185 taxmann.com 495) [Bom HC] - Essae Suhagraja (P.) Ltd. vs DCIT (181 taxmann.com 302) [ITAT Bang] - - Bharatkumar Jaishinh Soni vs ITO (179 taxmann.com 421) [ITAT Mum] 8. We have heard rival submissions and perusing the materials available on record, we find that the sole issue for our adjudication is whether the ld.CIT(A) was justified in deleting the penalty imposed by the AO u/s.270A of the Act for the impugned assessment year. It is a settled proposition of law that initiation of penalty

ITA No.509/Kol/2026/AY 2022-23 M/s S.S. Natural Resources Pvt. Ltd. proceedings must be in strict conformity with the statutory mandate prescribed u/s.274 of the Act. The issuance of a proper and legally sustainable notice u/s.274 of the Act is sine qua non for the valid assumption of jurisdiction to impose penalty. It has been consistently held that a legally valid notice necessarily connotes that the assessee must be clearly apprised of the precise default, contravention, or charge forming the foundation of the proposed penalty proceedings. Failure to specify the relevant charge or default reflects non-application of mind on the part of the authority and thereby vitiates the very initiation of penalty proceedings. Now let us examine the final show cause notice issued by the AO on 24.01.2024 which is extracted below for ready reference:

ITA No.509/Kol/2026/AY 2022-23 M/s S.S. Natural Resources Pvt. Ltd. 9. On a careful perusal of the above show cause notice, it is evident that, the show-cause notice issued by the AO suffered from a fundamental defect inasmuch as it is vague, uncertain, and lacked the requisite particulars. In the present case, the impugned notice does not delineate which particular limb or clause of section 270A(9) of the Act is attracted. Sub-section (9) of Section 270A of the Act enumerates various instances that amount to "misreporting of income" such as misrepresentation or suppression of facts, failure to record investments, recording of false entries, or claim of expenditure not substantiated, etc. Each of these instances constitutes a distinct and independent ground, carrying serious penal consequences. We are in agreement with the ld. CIT(A) that it was incumbent upon the AO to state in clear and unambiguous terms which of these specific defaults was being attributed to the assessee, along with the manner in which the ingredients of the alleged default stood satisfied in the facts of the case. The failure to so specify renders the notice fundamentally defective.

10.

Apart from the judicial precedents relied upon by the ld. CIT(A), we find that the similar issue had come up for consideration before the ITAT, Chennai in Prakashchand Jain v. Dy. CIT (ITA No.68/Chny/2024 dated 07.03.2025), wherein following the another decision of the co-ordinate bench of this Tribunal in Enrica Enterprises (P.) Ltd. v. Dy. CIT [2024] 163 taxmann.com 105 (Chennai-Trib.), it was held as under: "9. According to us, the assessee should be informed in the show-cause notice with certainty and accuracy of the exact nature of the fault alleged against him. In this case, it has been noted that the impugned notice issued by the Assessing Officer is silent about which limb/clause of subsection (9) of section 270A of the Act has been attracted in the facts of the case so as to deserve levy of penalty, and how the ingredients of subsection (9) of section 270A are satisfied. Therefore, the show-cause notice proposing penalty is found to be vague and does not meet the requirement of law to legally impose penalty. Consequently, the levy of penalty is fragile in the eyes of law and is held to be ab initio bad in law." 11. Following the decision (supra), we are of the considered view that the ld. CIT(A) had rightly appreciated the aforesaid legal position and quashed the penalty levied by the AO u/s270A of the Act. 8

ITA No.509/Kol/2026/AY 2022-23 M/s S.S. Natural Resources Pvt. Ltd.

12.

Alternatively, even on merits, it is noted that, the assessee had claimed deduction for interest of Rs.7,75,53,350/- paid on loans utilized in the process of acquisition of strategic investment, M/s Ramsarup Industries Limited through CIRP process of NCLT for furtherance of the business objectives of the assessee. It is observed that the details of finance cost, the utilization of borrowings and its deployment was discernible from the face of the audited financials. As pointed out by the ld. AR, some Courts have held that, the interest relatable to the borrowings which was utilized to make investments in the same line of business as that of the assessee, may be viewed as expenditure incurred for the purposes of business and thus allowable as deduction u/s 36(1)(iii) of the Act. We find that the facts involved in the present case are somewhat similar to the judicial precedents cited by the Ld. AR to justify the claim of interest expenditure. According to us therefore, the impugned issue on which the disallowance was made by the AO was a debatable one involving interpretation of the provisions of Section 36(1)(iii) of the Act. It is seen that, the primary facts had been disclosed by the assessee and the disallowance was made on account of a bona fide legal claim made by the assessee. Hence, we are of the view that the assessee cannot be held to be guilty of misrepresentation or suppression of facts and thus the ingredients contemplated u/s 270A(9)(a) of the Act is found to be missing. Our view is supported by the decision of the ITAT, Bangalore in the case of Essae Suhagraja (P.) Ltd (supra) wherein it was held as under:- “22. We have carefully considered the rival contention and perused the orders of the learned lower authorities. Briefly stated the fact shows that the assessee has claimed deduction of Rs.50 lakhs towards the Keyman insurance premium paid which is allowed to the extent of the insurance content and to the extent of the investment sum of Rs.4,646,000 was disallowed. The assessment order also speaks about the initiation of penalty u/s. 270 A of the Act. Accordingly, penalty at the rate of 200% of the tax was charged at Rs.2,338,610. In fact, we find that Keyman insurance premium payable by the assessee with respect to the life of its director is held to be allowable u/s. 37 (1) of the Act by several judicial precedents. The expenses itself are held to be allowable by some of the Benches of the Tribunal, the issue becomes highly debatable and divergent views are available that where the keyman insurance policy is allowable as deduction or not. The penalty has been levied on such disallowance. However, as the issue of disallowance has already been concluded and not at all before us, it is only 9

ITA No.509/Kol/2026/AY 2022-23 M/s S.S. Natural Resources Pvt. Ltd. a matter that on such disallowance whether the penalty can be levied under the provisions of section 270A of the Act or not? We find that when the disallowance itself is a debatable issue, no penalty could have been levied. Similarly, it is also the claim before us that penalty proceedings are initiated for under-reporting of income in consequence to misreporting of income. Penalty can be levied on 6 types of acts on behalf of the assessee. It is also true that ld. AO, neither in the assessment order nor even otherwise has stated that under which subclause of 270A of the Act penalty is levied. The Hon'ble Delhi High Court in GE Capital US Holdings Inc. [2024] 163 taxmann.com 146 (Del) has categorically held that it is incumbent upon the AO to ascertain the provisions of section 270A stood attracted either on account of under- reporting or misreporting of the income. A finding misrepresentation is required to be written and recorded in the assessment order. In the absence of the same, penalty deserves to be deleted. Accordingly, we allow the appeal of the assessee and direct the ld. Ao to delete the penalty levied of Rs.23,38,610 being 200% of tax of Rs.11,69,305 on disallowance of keyman insurance premium expenditure of Rs.46,46,000 in the hands of the assessee.” 13. For the reasons discussed above, we hold that the AO was unjustified in levying the penalty u/s 270A of the Act and thus, uphold the order of Ld. CIT(A) deleting the same by dismissing the appeal of the revenue.

14.

In the result, the appeal of the Revenue is dismissed.

The order is pronounced in the open Court on 25/06/2026.

Sd/- Sd/- (Pradip Kumar Choubey) (Rajesh Kumar) JUDICIAL MEMBER ACCOUNTANT MEMBER Kolkata, Dated: 25/06/2026 SAMANTA

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BY ORDER, // TRUE COPY // Asstt. Registrar, ITAT, Kolkata

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