DOSTI CORPORATION (PINNACLE),MUMBAI vs. THE INCOME TAX, WARD 17(2)(1), MUMBAI

The appellant submits that the appellant has not underreported/misreported any income and therefore no penalty can be levied u/s. 270A of the Act.

The CIT (A) erred in confirming the penalty levied by the AO by holding that mens rea is not an essential element for levy of penalty of civil obligation of liability

The appellant submits that the appellant has claimed the deduction following the decision of the Gujarat High Court in the case of CIT vs. Nirma Merely because the additions/disallowances were made in assessment proceedings does not entitle the AO to levy penalty u/s. 270A of the Act.

The levy of penalty by the AO is contrary to law and facts on record and required to be quashed as there was no basis for the AO to hold that the case of the appellant was covered by sub-section (8) of section 270A of the Act.

The appellant submits that the conclusion arrived at by the AO while levying penalty u/s. 270A was based purely on conjectures and inadequate, incorrect and improper interpretation of the facts and law in the case of the appellant.”

The Assessee is a partnership firm and is engaged in the business of development of properties. The assessee is notified as an industrial park and accordingly is claiming deduction under section 80IA(4)(iii) of the Income Tax Act 1961 (the Act) towards profits derived from the industrial undertaking. The assessment for AY 2018-19 was completed under section 143(3) of the Act on 3 ITA No.6410/Mum/2024 - Dosti Corporation(Pinnacle) 12/03/2021 assessing the income at Rs.6,46,529/- against the income returned at Rs.4,71,040. The assessing officer (AO) while completing the assessment denied deduction under section 80IA(4)(iii) to the extent of Rs.1,75,489/- towards income received by the assessee by renting out the lobby area. The AO denied the benefit for the reason that the impugned income does not fall within the purview of profits and gains derived from the industrial undertaking. The addition made by the AO resulted in the tax demand of Rs.3,980. The assessee did not contest the addition made by the AO due to the smallness of the amount of demand.

Subsequently the AO initiated penalty proceedings under section 270A r.w.s 274 of the Act and issued a show cause notice as to why penalty cannot be levied for misreporting. The assessee submitted before the AO stating that the addition made during assessment proceeding is arising out of denial of deduction under section 80IA(4)(iii) and that the same cannot be treated as misreporting on the part of the assessee. The assessee also relied on various judicial pronouncements in support of the contentions. The AO however, did not accept the submissions of the assessee and proceeded to levy penalty at 200% of the tax amounting to Rs.54,227. Aggrieved, the assessee preferred further appeal before the CIT(A) who confirmed the penalty stating that Mens Rea is not an essential element for levy of penalty of civil obligation of liability. The assessee is in appeal before the Tribunal against the order of the CIT(A)

We heard the parties and perused the material on record. The contention of the revenue for levying penalty is that the assessee has under reported the income which is in consequence of misreporting. In this regard it is relevant to look at the provisions of section 270 pertaining to levy penalty @ 200% for under reporting the income which is in consequence of misreporting that read as under –

From the perusal of the above section, it is clear that claim of a deduction under the Act which according to the AO is not allowable, does not fall within the purview of misreporting that has led to under reporting attracting penalty @ 200%. We notice that the Hon’ble Supreme Court, in the case of CIT vs. Reliance petro products Pvt. Ltd. (210) 322 ITR158(SC) in the context of penalty under section 271(1)(c) has laid down the ratio that a mere making of a claim which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee and that such a claim made in the return cannot amount to furnishing of inaccurate particulars. In assessee's case, deduction under section 80IA(4)(iii) of the Act is claimed towards the profits and gains derived from the industrial undertaking which included the rental income received by the assessee towards promotional activities conducted in the lobby area of the building from where the assessee is carrying on the regular course of business. The 5 ITA No.6410/Mum/2024 - Dosti Corporation(Pinnacle) AO while completing the assessment under section 143(3), denied the benefit of deduction under section 80IA(4)(iii) towards the rental income for the reason that the said income is not derived from the industrial undertaking. Accordingly in our view, it is a claim made by the assessee which in the view of the AO is not sustainable in law does not fall within purview of under-reported income is in consequence of any misreporting warranting penalty under subsection (8) of section 270A of the Act. Even otherwise in our considered view a claim which according to the AO is not accordance with law cannot be the reason for levy of as has been held by the Hon’ble Supreme Court. In view of these discussions, we are of the considered view that the penalty levied in assessee's case is not sustainable and accordingly direct the AO to delete the penalty.

In result, the appeal of the assessee is allowed.