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Facts
The assessee, a charitable trust, inadvertently claimed depreciation and interest on TDS/PF as application of income in its original return, leading to disallowances by the Assessing Officer. Although the assessee later furnished a revised computation accepting the disallowances, the AO levied a penalty of Rs.15,37,922/- under Section 270A for under-reporting income due to misreporting of facts, which was subsequently upheld by the CIT(A).
Held
The ITAT found that the assessee's error in claiming both depreciation and capital expenditure was bonafide, with no malafide intention, and did not result in any tax loss to the Revenue as the assessee remained in an overall deficit. Following a similar precedent, the Tribunal concluded that no penalty under Section 270A was warranted.
Key Issues
Whether penalty under Section 270A for under-reporting income due to misreporting of facts is attracted when a charitable trust inadvertently claims depreciation and interest as application of income, later corrects it during assessment, and there is no tax impact due to an overall deficit.
Sections Cited
270A, 11(6), 37(1), 12A, 80G
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), vide order no. ITBA/NFAC/S/250/2024-25/1067126954(1), dated 30.07.2024 respectively, passed against the penalty order by National Faceless Assessment Centre, Delhi, u/s. 270A of the Income-tax Act (hereinafter referred to as the “Act”), dated 10.12.2021 for Assessment Year 2018-19.
The Cathedral Vidya Trust, AY 2018-19 2. The issue involved is in respect of levy penalty of Rs.15,37,922/- u/s. 270A on account of under reporting of income in consequence of misreporting thereof.
Brief facts of the case are that assessee is a trust registered as a charitable organisation with Charity Commissioner and CIT(E), Mumbai, u/s.12A for the registration No.TR/42158, dated 31.03.2009 and with Charity Commissioner, Mumbai vide registration No. E- 25131(Bombay). Assessee also obtained approval u/s. 80G vide approval No. DIT(E)/MC/80-G/636/2009-10, dated 09.12.2009. Assessee had set up its international school “Cathedral Vidya School” at Lonavala, imparting education from standard IV to XII under syllabus accredited by ICSE, IGCSE and IB for various courses. Assessee filed its return of income on 30.09.2018 in Form ITR-7, reporting deficit of Rs.4,31,96,651/-, after claiming application of income of Rs.18,50,72,382/- which included inter alia depreciation of Rs.30,57,710/- and interest of TDS and PF of Rs.790/-. According to the ld. Assessing Officer, these were not allowable as per the law. Assessment was completed by assessing the total loss at Rs.4,01,38,141/- by making the following disallowances/additions: i. Depreciation of Rs.30,57,710/- ii. Disallowance u/s.37(1) amounting to Rs.790/-
In the course of assessment proceedings, assessee submitted its reply by furnishing income computation wherein it added back the depreciation so claimed, since it had already claimed capital expenditure pursuant to section 11(6) of the Act. In respect of interest on TDS and PF of Rs.790/-, ld. Assessing Officer observed that pursuant to section 37(1), this amount is not allowable. On both these disallowance/additions, ld. Assessing Officer initiated penalty 4.1. In the penalty proceedings, assessee submitted that there was a bonafide error in claiming depreciation which was though added back while computing total income, however, inadvertently missed to be included in the return of income. It was further submitted that such a disallowance, even otherwise does not have any impact on the taxability of the assessee, since the assessee had deficit which got reduced by making the said disallowance. According to the assessee, it is a bonafide error of not considering the disallowance in the return of income with there being no malafide intention. On the submission made by the assessee, ld. Assessing Officer observed that assessee could have filed the revised return of income before the case was selected for scrutiny. Assessee had merely furnished a revised computation during the course of assessment proceedings for making suo moto disallowance/addition on the two above noted items. Thus, he concluded that assessee had under reported its income to the extent of Rs.30,58,500/- by wrong claim of expenses for which even appeal was not filed by the assessee. He thus, proceeded to levy penalty at the rate of 200% u/s.270A amounting to Rs. 15,37,922/-
Before the ld. CIT(A), assessee reiterated the submissions made before the ld. Assessing Officer. It was further submitted that assessee had included capital expenditure amounting to Rs.63,92,998/- and capitalised the same under the head “Furniture and Fixtures and other movable assets” in its balance sheet as on 31.03.2018. Assessee claimed depreciation on this of Rs.30,57,710/- which was reduced while computing the net block. Assessee had correctly accounted for the capital expenditure and depreciation in its books of accounts.
The Cathedral Vidya Trust, AY 2018-19 However, when the return of income was filed, assessee inadvertently omitted to reduce depreciation, since it had already claimed capital expenditure as application incurred. Similar was the case in respect of amount of interest on TDS and PF of Rs.790/- which was added back while computing its income for the year and inadvertently it did not reflect in the return filed. Assessee demonstrated that it, on its own had furnished revised computation of income with correct calculations vide letter dated 28.12.2020 in the course of assessment proceedings. The said suo moto disclosure on the disallowances made by the assessee were accepted by the Assessing Officer and the assessment was accordingly completed which resulted in reduction of the deficit claimed by the assessee originally in its return.
5.1. Assessee strongly submitted that penalty ought not to be levied, since it had suo moto filed audited financial statements for the year along with revised computation of income reflecting the disallowances and it was a bonafide mistake that the same were not disallowed in the return of income filed by the assessee. Assessee also asserted that there is no loss to the Revenue on account of the disallowance, since it is a case where the deficit claimed by the assessee in its return has been reduced to the extent of disallowance so made. After considering the submissions made by the assessee, ld. CIT(A) dismissed the same by upholding the levy of penalty.
Before us, ld. Counsel for the assessee reiterated the submissions made before the authorities below, which have already been discussed above. He specifically pointed out that in the return Form ITR-7 filed by the assessee, there is no specific column/row which required to fill this amount of disallowance towards depreciation. Contrary to this, he referred to income-tax return form The Cathedral Vidya Trust, AY 2018-19 for the subsequent year, i.e. Assessment Year 2019-20, wherein at Row No.14, there is a specific item wherein depreciation and amortization cost of which is not already claimed as application in same or any other previous year is to be reported. By referring to the two return forms for two years, it was submitted that there was no occasion for the assessee to separately report this amount in the return for the year under consideration and hence it would be not justifiable to levy a penalty on this account. He also referred to the revised computation of income which was furnished by the assessee in the course of assessment proceedings, whereby suo moto disallowance of the two items were added back and net deficit was reduced to that extent which was ultimately accepted by the assessee on the completion of the assessment. It was thus, prayed that inadvertent claim made by the assessee itself cannot lead to levy of penalty. Per contra, ld. Sr. DR placed reliance on the orders of the authorities below.
We have heard both the parties and perused the material on record. The facts discussed above are undisputed. We also take note of the amendment brought in by way of section 11(6) w.e.f. 01.04.2015, i.e., effective from Assessment Year 2016-17, according to which charitable trust cannot claim both depreciation as well as application of funds towards investment in capital assets. Assessee had inadvertently claimed both, depreciation alongwith investment in capital assets which it revised in the course of assessment proceedings and accepted the correct claim. It is also fact on record that there is a deficit in the hands of the assessee, both prior to this disallowance and after the disallowance so made.
The Cathedral Vidya Trust, AY 2018-19 7.1. Considering the facts on record and the material placed before us, as well as following the decision of Coordinate Bench of ITAT Mumbai in the case of Fayz E Husayni Trust in /2023, dated 21.02.2024, where in similar issue has been addressed while deleting the penalty, we find that assessee has claimed depreciation inadvertently without any malafide intention having any adverse effect on the Revenue, since total taxable income remains Nil. Considering the amendment brought in Assessment Year 2016-17 and assessee in its fairness accepting the mistake committed by it, in the course of assessment, we do not seek any reason to impose the penalty based on facts brought before us. Accordingly, we delete the penalty so levied, u/s. 270A. Ground raised by the assessee in this respect is allowed.
In the result, appeal of the assessee is allowed.