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Facts
The assessee, a company engaged in importing and selling chocolates, filed its return of income. During scrutiny, the AO disallowed a claim for deduction under Section 80IAC, initiated penalty proceedings under Section 270A, and levied a penalty equal to 200% of the tax payable for underreporting due to misreporting.
Held
The Tribunal held that the AO failed to establish how the assessee's case fell under the specific instances of misreporting defined in Section 270A(9). The incorrect claim was withdrawn suo moto by the assessee and did not fall under any of the specified clauses for misreporting.
Key Issues
Whether the penalty levied under Section 270A for underreporting in consequence of misreporting is sustainable when the assessee suo moto withdrew the claim and the AO failed to specify the exact limb of misreporting under Section 270A(9).
Sections Cited
270A, 270AA(2), 80IAC, 115BAA, 142(1), 143(2), 274, 154, 271(1)(c)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SMT. BEENA PILLAI & SMT. RENU JAUHRI
Per: Smt. Beena Pillai, J.M.: The present penalty appeal filed by the assessee is against order passed by NFAC, Delhi vide order dated 20/03/2025 for assessment year 2022-23 on following grounds of appeal :
A.Y. 2022-23 Cococart Ventures Private Limited “1. The Ld. CIT(A) erred in confirming the levying of penalty under section 270A of the Income Tax Act, 1961 of Rs. 30,28,172/-.
The Ld. CIT(A) further erred in holding that the case of the appellant falls under the under-reporting of income in consequence of misreporting thereof as per provisions of section 270A(9)(a) of the Income tax Act, 1961.
The Ld. CIT(A) further erred in not considering the fact that, due to an error on the part of the Appellant company, the deduction under Section 80IAC of the Income-tax Act, 1961 was wrongly claimed, when the Appellant company having opted for taxation under Section 115BAA of the Income-tax Act, 1961, under which such a deduction is not allowable.
4. The Ld. CIT(A) further erred in not considering the fact that the appellant company has already filed application under Section 270AA(2) of the Income Tax Act, 1961 in Form 68, for the grant of immunity from Imposition of penalty under Section 270A of the Income Tax Act, 1961.
5. The Ld. AO further erred in levying a penalty under section 270A of the Income Tax Act, 1961, without specifying limb in the notice whether the penalty was levied for concealment of the particulars of income or for furnishing of inaccurate particulars of such income.
6. The Appellant craves leave to add to, amend, alter or delete all or any of the foregoing grounds of appeal.” Brief facts of the case are as under:
2. The assessee is a company and is in the business of importing branded chocolate and selling them to confectionary retail shops and distributors. For the year under consideration the assessee filed its return of income on 30/11/2022 declaring book profit of Rs.97,05,683/-. Assessment was picked up for scrutiny and notice u/s.142(1) and 143(2) was issued to the assessee. Authorised Representative of the assessee appeared before the Ld.AO and filed requisite details as called for. The Ld.AO sought for details in respect of; high liabilities in the A.Y. 2022-23 Cococart Ventures Private Limited balance sheet as compared to low income declared in the ITR; purchases shown in the ITR is less than the invoice value of imports shown in the in export import data, large value receipt or payment of loans other than through banking channels and details of deduction claimed during the year under consideration. The assessee vide its reply dated 15/11/2023 and 12/02/2024 furnished relevant data regarding the issues sought to be verified by the Ld.AO. 2.1 After perusal of the details furnished by the assessee, the Ld.AO disallowed the claim of assessee u/s.80IAC of the Act of Rs.95,76,126/-. The Ld.AO also initiated penalty proceedings u/s.270A of the Act, for under reporting in consequence of misreporting of income. 2.2 The Ld.AO initiated penalty u/s. 274 r.w.s. 270A of the Act, by issuing notice dated 22/03/2024, for under reporting of income. The said notices placed at page 203 of the paper book filed by the assessee. The assessee made application u/s.270AA(2) of the Act in Form no. 68 on 19/04/2024, seeking immunity from imposition of penalty u/s. 270A of the Act. It was submitted that, the assessee made payment of demand raised along with assessment order dated 22/03/2024 and also did not file any appeal before the Ld.CIT(A) simultaneously, it is submitted that, the assessee filed rectification application u/s.154 of the Act seeking rectification of mistake that was apparent from record in the computation sheet. The Ld.AO however while passing penalty order levied penalty equalant to 200% of the amount and tax payable for under reporting of income in consequence of misreporting.
3. The assessee before the Ld.CIT(A) submitted that, the claim of 80IAC was withdrawn by the assessee suo moto vide its reply dated 15/03/2024. The assessee accepted that it wrongly claimed deduction u/s 80IAC of Rs. 95,76,126/-. It was submitted that, in the AY 2021-22 the assessee adopted new tax regime u/s 115BAA. It was that the assessee received certificate of 80IAC from Income tax department on 22/09/2022. On this basis the assessee claimed deduction u/s 80 IAC during the year under consideration by erroneously adopting old tax regime. The assessee submitted that as per the Income Tax Act, once the assessee being a company opts for new tax regime, it cannot opt out of the same u/s 115BAA. However by the time the assessee realized this mistake on its part, notice u/s 142(1) for the AY 2022-23 was issued and the assessee company was unable to file ITR-U i.e, Updated return to rectify the error and withdraw the deduction claimed and pay tax thereon. 3.1 The assessee thus prayed for immunity from the levy of penalty u/s.270A of the Act. The Ld.CIT(A) however, confirm the penalty levied by the Ld.AO.
Aggrieved by the order of the Ld.CIT(A) the assessee is in appeal before this Tribunal.
The Ld.AR submitted that, there was no misreporting of income within the meaning of section 270A(9), as there was no deliberate misstatement, falsification of accounts, or omission of facts. The deduction was wrongly claimed due to an inadvertent A.Y. 2022-23 Cococart Ventures Private Limited error, which was rectified by the assessee on realising vide written submission dated 12.02.2024 and 15.03.2024, filed during assessment proceeding. 4.1 In this regard, reliance is placed on the judgment of the Hon'ble ITAT Mumbai in the case of Saltwater Studio LLP vs. NFAC (2023) 157 taxmann.com 749, wherein it is held that, "Where Assessing Officer had levied penalty of 200% tax payable on under-reported income considering it as misreporting, and since Assessing Officer failed to establish how assessee's case fell within instances of misreporting mentioned in sub-section (9) of section 270A, impugned penalty levied for misreporting was unsustainable due to lack of application of mind and violation of principles of natural justice. 4.2 Similarly, in the case of Schneider Electric South East Asia (HQ) Pte. Ltd. vs. ACIT (2022) 145 taxmann.com 665, the Hon'ble Delhi High Court held that "Immunity from penalty, interest and other proceeding u/s.270AA deserves to be considered if the assessment order is silent on how the ingredients of sub- section(9) of section 270A is satisfied. Hon’ble Court noted that in penalty notice, respondent had failed to specify limb of 'underreporting' or 'misreporting' of income, under which penalty proceedings was initiated.
On the contrary, the Ld.DR submitted that, had the assessment not picked up for scrutiny assessee would have not rectified the claim. He thus submitted that, the assessee has under reported its income that led to misreporting and therefore penalty levied of 200% deserves to be upheld.
A.Y. 2022-23 Cococart Ventures Private Limited We have perused the submissions advance by both sides in the light of record placed before us.
Admittedly the assessee accepted the addition made during the original assessment proceedings and paid the taxes due. It is also admitted position that, the assessee suo moto accepted its incorrect claim of deduction u/s. 80IAC and agreed to disallow the same. The same was communicated to the assessing officer vide its reply dated 12/02/2024 and 15/03/2024. 6.1 The Ld.AR submitted that, the assessee adopted new tax regime u/s.115BAA. However, for the year under consideration it wrongly filed its return of income under the old regime which was not allowed under the Act for companies. It was submitted that, as the old regime allowed the assessee to claim deduction as per the certificate issued by the charted accountant, it claimed deduction u/s.80IAC amounting to Rs.95,76,216/-. 6.2 Subsequently, by the time assessee realised its mistake notice u/s.142(1) was issued for the year under consideration and therefore the assessee withdrew the claim during the assessment proceedings. 6.3 The Ld.AR submitted that, the assessee thus do not satisfy requirements of any of the conditions under sub section (9) of the section 270A for misreporting of income. 6.3.1 The Ld.AR placed reliance on the decision of Hon’ble Delhi High Court in case of Schneider Electric South East Asia (HQ) (PTE) Ltd. Vs. ACIT (supra) and on the decision of the Hon’ble Supreme Court in case of Price Water House Coopers Pvt. Ltd. vs. CIT reported in (2012) 25 taxmann.com 400 wherein the Hon’ble Supreme Court while considering the provisions of section A.Y. 2022-23 Cococart Ventures Private Limited 271(1)(c) held that, where was no wilful separation of facts, but genuine mistake or omission which was corrected by the assessee during the assessment proceedings, penalty could not be levied. 6.4 The moot question in the above facts is, whether the action of Ld.AO to levy penalty u/s 270A for underreporting in consequence of misreporting, is sustainable in the present facts of the case. In order to examine, it is necessary to consider the relevant provisions of Section 270(8) &(9) of the Act that reads as under: - "Penalty for under-reporting and misreporting of income. 270A. (1)........................ (8) Notwithstanding anything contained in sub-section (6) or sub-section (7), where under-reported income is in consequence of any misreporting thereof by any person, the penalty referred to in sub-section (1) shall be equal to two hundred per cent of the amount of tax payable on under- reported income. (9) The cases of misreporting of income referred to in sub-section (8) shall be the following, namely:— (a) misrepresentation or suppression of facts; (b)to record investments in the books of account; (c)claim failure of expenditure not substantiated by any evidence; (d)recording of any false entry in the books of account; (e)failure to record any receipt in books of account having a bearing on total income; and (f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply."
It is noted that, the Ld.AO levied a penalty of 200% of the tax payable. The Ld.AO then has to establish a case under any of A.Y. 2022-23 Cococart Ventures Private Limited the limbs of sub-section (9) of section 270A of the Act. However, upon examining the reasons provided by the Ld.AO, it is apparent that he has failed to specify how the assessee's case falls under any of the instances given in clauses (a) to (f) of sub- section (9) of section 270A. Since the Ld.AO did not bring the suo moto withdrawal of the claim under section 80IAC during the assessment proceedings, and it does not fall under any of the limbs of (a) to (f) of sub-section (9), it is a well-established principle that penalty provisions must be strictly interpreted. Considering the facts and circumstances of the case, we find no merit in the levy of penalty under section 270A of the Act. The penalty imposed for underreporting due to misreporting cannot be sustained. Accordingly grounds raised by the assessee stands allowed. In the result the appeal filed by the assessee stands allowed. Order pronounced in the open court on 30/06/2025