KRISHNA PRABHA SUNDARAPANDY,KANCHIPURAM vs. DCIT, CORPORATE CIRCLE-6(2), CHENNAI

The assessee is an individual and employed with Citi Corp. Services India Pvt. Ltd. The assessee filed the return of income for A.Y 2022-23 declaring a total income of Rs. 8,42,700/-. The assessee subsequently revised the return on 14.08.2022 declaring total income of Rs. 9,22,063/-. The case was selected for scrutiny and the statutory notices duly served on the assessee. The A.O noticed that the assessee has claimed huge amount as deduction under Chapter-VIA. The assessee submitted before the A.O that the amount claimed is not correct and has been erroneously mentioned by the Chartered Accountant who filed the return of the assessee and paid the tax on the amount excess clained. The A.O while completing the assessment u/s 143(3) of the Act disallowed the amount excess claimed under Chapter-VIA. Subsequently, the A.O initiated penalty proceedings u/s. 270A of the Act stating that the assessee has underreported income which is inconsequence of misreporting thereof. The assessee submitted before the A.O that the claim has been made erroneously by the C.A and that the assessee has no intention of misreporting in any way. The assessee further submitted that the tax due on the amount wrongly claimed has been paid by the assessee even before the assessment was completed after noticing the erroneous claim and therefore, there is no intention to evade tax. The assessee accordingly prayed that the penalty proceedings be dropped. The A.O did not accept submissions of the assessee stating that the assessee's plea of ignorance of law cannot be accepted and the assessee should have noticed that when the tax has been correctly deducted by the employer, the return has been filed claiming huge amount as refund. Accordingly, the A.O levied a penalty at 200% of tax payable amounting to Rs.14,50,800/-. On further appeal, the CIT(A) confirmed the levy of penalty. Krishna Prabha Sundarapandy :- 3 -:

The Ld. AR submitted that the assessee being a salaried employee was solely dependent on the tax consultant for filing return of income and that the assessee was not aware of the incorrect claim made under Chapter-VIA. The Ld. AR further submitted that during the course of assessment the assessee came to know of the wrong claim and immediately conceded before the A.O and has also paid tax on the same. The Ld. AR further submitted that the assessee has no intention of evading any tax and that the claim was due to the negligence of the C.A which is beyond the control of the assessee. Accordingly, the Ld. AR argued that the levy of penalty u/s. 270A of the Act is not warranted in assessee's case. The Ld. AR in this regard relied on the decision of the Mumbai Bench of the Tribunal in the case of Archana Achyut Sail v. ITO (2025) 173 taxmann.com 52 (Mum.), where it has been held that:

It is contended on behalf of the appellant that in Chakradhar Contractors and Engineers (P.) Ltd. (supra) a co-ordinate Bench of this Tribunal at Pune has held that where neither in assessment order nor in notice issued under Section 274 read with Section 270A of the Act the Assessing Officer has specified as to under which limb of the provisions of Section 270A(2) or 270A(9) of the Act the assessee had misreported or under-reported his income, no penalty under Section 270A of the Act was leviable. Krishna Prabha Sundarapandy :- 4 -:

We find that the appeal has to succeed on the ground that the phraseology as used in Section 270 of the Act makes it discretionary/directory for the Assessing Officer to impose the penalty. In CIT vs Dodsal Ltd., 312 ITR 112 (Bombay), which was a case arising out of block assessment in a search case, the Bombay High Court has held that the use of word ‘may’ in Section 158BFA(2) [which is similarly worded to Section 270A(1)] confers discretion on the Assessing Officer to direct payment of penalty. Albeit such a discretion is not arbitrary and has to be guided by well-established principles depending upon the facts and circumstances of each case. In the present case, we find that the appellant-assessee is a retired employee of MTNL and had relied upon TRP to file her return. In the return filed in response to notice under Section 148 of the Act, the appellant has made a voluntary disallowance and paid taxes on the amount of HRA. Considering the overall circumstances, we find that this is a fit case where the Assessing Officer could have exercised the discretion not to impose penalty. At the cost of repetition, we make it clear that the exercise of such discretion would depend upon the facts of each case and there cannot be any straightjacket formula in this regard. In that view of the matter, the appeal deserves to succeed.”

The ld. DR on the other hand, vehemently argued that the assessee had made the claim not only in the original return of income, but also in the revised return of income and therefore, the claim of the assessee that she is ignorant of the erroneous claim cannot be accepted. The Ld. DR thus prayed that the penalty levied for misreporting of income be sustained.

We have heard the parties and perused the materials available on record. The AO has levied penalty u/s.270A @ 200% stating that the assessee has under-reported income is in consequence of any misreporting thereof. Subsection (9) of section 270A contains the list of such instances and the relevant provisions read as under – “(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. Krishna Prabha Sundarapandy :- 5 -:

The contention of the revenue is that the assessee should have noticed the incorrect claim when the return is filed with a huge refund. Clauses (a) to (f) enumerate the instances of misreporting of income attracting penalty under the said subsection. Accordingly, it must be examined whether, on the facts of the present case, the assessee’s case falls within any of the sub-clauses of Section 270A(9) of the Act so as to justify levy of penalty there under. In the present case, the CA of the assessee while filing the return of income has made erroneous claims under various sections of the Chapter VIA. The assessee during assessment when questioned on the claim admitted that it is an erroneous claim and paid the taxes on the same before completion of assessment. Therefore in our view the erroneous claim which is subsequently admitted for payment of tax, will not fit in any of the instances under subsection (9). Further in the case of Archana Achyut Sail (supra) the coordinate bench has laid down the ratio that the discretionary power to levy penalty u/s.270A is not arbitrary and has to be guided by well-established principles depending upon the facts and circumstances of each case. Considering the facts and circumstances of the present case we are of the considered view that the AO ought to have exercised the discretion not to Krishna Prabha Sundarapandy :- 6 -:

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