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Facts
The assessee filed a return declaring a loss, which was processed by the CPC under Section 143(1), leading to an addition of Rs. 27,72,271/- for delayed PF contributions. Subsequently, the Assessing Officer (AO) completed a scrutiny assessment under Section 143(3), reiterating the same disallowance. A penalty under Section 270A was levied, which the assessee challenged, arguing that the AO made no new additions beyond what the CPC had already done, thus no 'under-reported income' existed.
Held
The Tribunal held that since the disallowance was already made by the CPC under Section 143(1) and merely repeated by the AO in the scrutiny assessment, there was no difference between the income assessed by the AO and the income determined by the CPC under Section 143(1)(a). Therefore, the conditions for 'under-reporting of income' under Section 270A, specifically Section 270A(2)(a), were not met, rendering the penalty unsustainable. The Tribunal also noted that the issue of belated PF payment was a bona fide claim until settled by the Supreme Court.
Key Issues
Whether a penalty under Section 270A for under-reporting of income is leviable when the Assessing Officer's addition is merely a repetition of an adjustment already made by the CPC under Section 143(1)(a), and no new variation in income exists between the CPC and AO assessments.
Sections Cited
270A, 143(1), 143(3), 36(1)(va), 148, 115JB, 115JC, 139(1), 156, 90, 90A
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Income Tax Appellate Tribunal, Hyderabad ‘ DB-B ‘ Bench, Hyderabad
Before: Shri Vijay Pal Rao, Vice-Shri Manjunatha, G.
(िनधा�रण वष�/Assessment Year: 2017-18) BHEL LCC Society Ltd Vs. Dy.CIT Hyderabad Circle 8(1) PAN:AAATB6430D Hyderabad (Appellant) (Respondent) िनधा��रती �ारा/Assessee by: CA Sri Sai Keerthana राज� व �ारा/Revenue by:: Shri Dr. Sachin Kumar, Sr.AR सुनवाई की तारीख/Date of hearing: 01/09/2025 घोषणा की तारीख/Pronouncement: 04/09/2025 आदेश/ORDER
Per Vijay Pal Rao, Vice President
This appeal by the assessee is directed against the order dated 27/02/2025 of the learned CIT (A)-NFAC Delhi, arising from the penalty order passed u/s 270A of the I.T. Act for the A.Y.2017-18.
The assessee has raised the following grounds of appeal:
The learned Counsel for the assessee submitted that the assessee filed its return of income for the year under consideration on 31/10/2017 declaring loss of Rs.22,68,825/-. The return was initially processed u/s 143(1) by the CPC on 27/03/2019 whereby an addition/adjustment of Rs.27,72,271/- was made on account of delayed payment of Employees Contribution to PF. The case of the assessee was subsequently selected for scrutiny under CASS and the Assessing Officer completed the assessment u/s 143(3) of the Act on 26/12/2019 at a total income which was determined by the CPC while processing the return of income u/s 143(1) of the Act. Thus, the learned Counsel for the assessee has submitted that in view of the provisions of section 270A of the Act, when the Assessing Officer has not made any addition to the income determined by the CPC u/s 143(1)(a) of the Act, then the assessee cannot be considered as having under reported income. The learned Counsel for the assessee has relied upon the following decisions:
On the other hand, the learned DR has submitted that the assessee has reported loss in the return of income whereas the Assessing Officer has assessed the total income of the Page 3 of 12 assessee by making an addition of Rs.27,72,271/- and therefore, it amounts to under reporting of the income on the part of the assessee attracting the provisions of section 270A of the I.T. Act. He has referred to clause (g) of sub section 2 of section 270A and submitted that the income assessed or re-assessed as fact of reducing the loss or converting the said loss into income will be considered as under reporting. He has relied upon the orders of the authorities below.
We have considered the rival contentions as well as the relevant material available on record. At the outset, we note that the return of income filed by the assessee was processed u/s 143(1) of the Act on 27/03/2019 whereby the CPC has made an addition/adjustment of Rs.27,72,271/- by making disallowance u/s 36 which is debited by the assessee to the P&L Account towards Employees Contribution to PF. This disallowance/adjustment were made by the CPC as under:
6. Thus, the claim of the assessee towards the Employees Contribution to PF paid after the due date specified in the respective Act was disallowed by the CPC while processing the return u/s 143(1) of the Act vide order dated 27/03/2019. Thereafter, the Assessing Officer has also passed a scrutiny
Page 4 of 12 assessment order on 26/12/2019 whereby made an addition in para 4 as under:
7. Therefore, the Assessing Officer has not made any separate addition but repeated the addition on account of disallowance u/s 36(a)(va) of the I.T. Act towards belated payment of Employees Contribution to PF. Section 270A provides penalty for under reporting and misreporting of the income. For ready reference the said section 270A is quoted as under:
Page 5 of 12 x x x x x x x x x x x x x x x x 8. Thus,, sub-section (2) provides the circumstances under which a person shall be considered to have under reported his income. Clause (a) of sub-section (2) of section 270A specifically provides the situation where the income assessed is greater than the income determined in the return processed u/s Page 6 of 12 143(1)(a) of the Act. Similarly, sub-section (3) also provides the under reporting instances if there is a difference between the amount of income assessed and the amount of income determined u/s 143(1)(a) of the Act. As it is manifest from the record that the disallowance of Rs.27,72,271/- was already made by the CPC while processing the return vide order dated 27/03/2019 and therefore, while passing the scrutiny assessment on 26/12/2019, the Assessing Officer has only repeated the said disallowance/addition as already made by the CPC. Hence, there is no difference in the total income assessed by the Assessing Officer and the income determined by the CPC while processing the return u/s 143(1)(a) of the Act. Accordingly, the case of the assessee does not fall in any of the conditions provided u/s 270A of the Act attracting the levy of penalty. Once the condition as stipulated u/s 270A are not satisfied, the penalty levied by the Assessing Officer vide the impugned order is not sustainable and liable to be deleted. The Hon'ble Gujarat High Court in case of Pr.CIT vs. Prafullbhai Vallabhdas Fuletra (Supra) has upheld the order of the Tribunal in Para 4 to 4.2 as under: “4. Reading the order of the Tribunal would indicate that the Tribunal while confirming the order of the CIT(A) found that the conditions specified in Section 270A of the Act could not be invoked and so also regarding levy of penalty. The Tribunal noticed that the case is not covered under the provisions of section 270A(2)(a) of the Act for the reason that the income assessed and the income processed u/s.143(1)(a) are same or in other words, income assessed was not greater than the income determined in return processed u/s.143(1)(a) of the Act. As per provisions of section 270A(3)(i)(a) of the Act as there was no difference between the amount of income assessed and amount of income determined u/s.143(1)(a) of Page 7 of 12 the Act, there was no case of under reporting of income as per provisions of section 270A(2) and (3) of the Act. 4.1 With regard to misreporting of income as per provisions of section 270A(9), the Tribunal observed that the case of the assessee does not fall in any of the clauses specified at (a to (f). Neither any misrepresentation of suppression of facts has occurred nor there was any false entries in the books of accounts as mentioned in various clauses of 270A(9) of the Act. During the year under consideration search was carried out at the premises of the third party where from on the basis of seized documents the assessee's on-money transactions were found. These transactions were duly offered for taxation by the assessee and his brother in their return of income filed u/s. 139 of IT Act. Since the return of income was not due as on the date of search carried out on 10.08.2016 and the accounting year was not ended also therefore the books of accounts were not up-dated. Therefore, the assessee's case does not fall under the category of misreporting of income. 4.2 The Tribunal therefore held that the provisions of Section 270A(9) are inapplicable as it is neither the case of misreporting of income nor the case of under reporting of income.”
Even otherwise, this issue of disallowance on account of belated payment of Employees Contribution towards PF/ESI was a highly debated issue at the relevant point of time until it was finally settled by the Hon'ble Supreme Court in case of Checkmate Services (P) Ltd vs. Pr. CIT reported in (2022) 143 Taxmann.com 178. Therefore, the claim of the assessee before the issue was settled by the Hon'ble Supreme Court was a bonafide claim. We further note that the Visakhapatnam Bench of the Tribunal in case of Dy. CIT vs. Shri Murali Krishna Vadi reported in 2025 (4) TMI 1622 has considered this issue in para 5 to 9 as under:
Page 8 of 12 5.We have considered the rival submission as well as relevant material available on record. The Assessing Officer while passing the assessment order u/s 143(3) of the Act denied the claim of Foreign Tax Credit of Rs.37,63,898/-. The Assessing Officer noted that for the year under consideration, the assessee filed Form-67 on 10/02/2021 after the due date of filing the ITR, therefore, as per Rule 128 of the I.T. Rules, the credit of foreign tax shall be allowed only on furnishing the details and documents in Form 67 before the due date of filing the return u/s 139(1) of the I.T. Act, 1961. Accordingly, the Assessing Officer has disallowed the claim of Foreign Tax Credit and added the same to the total income of the assessee. The concluding part of the assessment order is as under: “Therefore, the assessee claimed tax relief u/s 90/90A (2 of schedule TR) amounting to Rs.37,63,898/- is added to the total tax of the assessee because the assessee filed Form-67 after due date of filing the Income Tax Return and the penalty u/s 270A(9) of the I.T. Act, 1961 is initiated”.
The Assessing Officer then initiated the proceedings to levy the penalty u/s 270A of the Act which contemplates a penalty in addition to tax, if any, on under reported income. Sub-section (2) of section 270A envisage the situation under which a person shall be considered to have under reported his income as under: Section 270(A)… “(2)A person shall be considered to have under-reported his income, if— (a)the income assessed is greater than the income determined in the return processed under clause (a) of sub- section (1) of section 143; (b)the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished or where return has been furnished for the first time under section 148; (c)the income reassessed is greater than the income assessed or reassessed immediately before such reassessment; (d)the amount of deemed total income assessed or reassessed as per the provisions of section 115JB or section Page 9 of 12 115JC, as the case may be, is greater than the deemed total income determined in the return processed under clause (a) of sub-section (1) of section 143; (e)the amount of deemed total income assessed as per the provisions of section 115JB or section 115JC is greater than the maximum amount not chargeable to tax, where no return of income has been furnished or where return has been furnished for the first time under section 148; (f)the amount of deemed total income reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income assessed or reassessed immediately before such reassessment; (g)the income assessed or reassessed has the effect of reducing the loss or converting such loss into income.”
Sub-section (9) of section 270A of the Act enumerates the instances of misreporting of income as under: “(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)failure to record investments in the books of account; (c)claim 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.”
Therefore, the cojoint reading of sub-section (2) & (9) of section 270A leads to the inference that if the income is assessed greater than the income reported in the return of income or determined in the return processed u/s 143(1)(a) and the addition in the total income of the assessee is due to the reason of misrepresenting or suppressing of facts, failure to record the investment in the books of account,
Page 10 of 12 unsubstantiated claim of expenditure disallowed, recording false entries in the books of account, failure to record any receipt in the books of account having bearing on the total income and failure to report any international transaction or specified domestic transactions. In the case in hand, though the Assessing Officer has not enhanced the total income of the assessee while passing the assessment order, but the tax liability of the assessee was increased due to the reason that the claim of credit of foreign tax was denied by the Assessing Officer due to the reason of delay in filing Form- 67. Thus, it is clear from the facts that the case of the assessee does not fall in the category of misreporting of income as envisaged in sub-section (2) and (9) of section 270A of the I.T. Act, 1961. The learned CIT (A) has deleted the penalty levied by the Assessing Officer in para 5 as under:
9.Accordingly, in the facts and circumstances as discussed above, we do not find any error or illegality in the impugned order of the learned CIT (A) deleting the penalty u/s 270A of the I.T. Act, 1961.”
Thus, the case of the assessee does not fall either in the category of under reporting of the income as per sub-section (2) or in the misreporting of income as referred in sub-section (9) of section 270A of the Act due to the reason that the assessed income is not more than the income determined in processing of Page 11 of 12 the return u/s 143(1) of the Act. In the facts and circumstances as discussed above and in view of the various caselaws on the point, we are of the considered opinion that the penalty levied u/s 270A of the Act is not sustainable and liable to be deleted. We order accordingly.
In the result, appeal filed by the assessee is allowed.