BAJAJ HOUSING FINANCE LIMITED,PUNE vs. ITO, WARD-8(1), PUNE, PUNE

2.2. Not appreciating the fact that adjustment was only pertaining to reclassification of income from the head 'Profits & Gains from Business or Profession' to the head 'Capital Gains', which had been suo-moto reclassified the head of income and also offered to tax by the Appellant, 2.3. Disregarding the accepted legal position that penalty cannot be levied merely on account of change in head of Income which is also affirmed by the various Courts and Tribunals

3. Ground No. 3 - Confirming the order of learned AO without providing any reasoning on the issue on merits 3.1 The Hon'ble CIT(A) while passing the order has failed to provide any reasoning on the issue on merits and accordingly, the order passed by the Hon'ble CIT(A) is not in compliance with the provisions of section 250(6) of the Act, thereby the order is void-ab-initio

4. Ground No. 4 - Non consideration of application filed by the Appellant under section 270AA of the Act 4.1 Without Prejudice to above grounds and merits of case, the Hon'ble CIT(A) erred in upholding the penalty order passed by the learned AO without appreciating that the application for seeking immunity under the provisions of section 270AA of the Act duly filed by the Appellant was not acted upon, resulting in deemed acceptance of the same. Consequentially, the levy of penalty under section 270A stands invalidated and is liable to be quashed The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide this appeal according to law.”

5. Ld. Counsel for the assessee firstly referred to the compliance made by the assessee before ld.AO as well as before ld.CIT(A) and stated that all the replies filed before has not been considered by both the lower authorities. He further submitted that it is not a case of under reporting of income because the assessee has already disclosed this transaction in its regular books of account as business income and after considering the judicial precedents has declared it as short term capital gain and offered it to tax. He also submitted that reclassification of income cannot be made liable for penalty and further it is a bonafide case and there is no concealment of particulars of income. He further submitted that even on legal ground in absence of specifying sub-clause 270A(9) of the Act initiation and levy of penalty proceedings deserves to be quashed. Decisions referred and relied on by the ld. Counsel for the assessee are as under :

“Re-classiciation of income is not liable for penalty : 1. Hiralal Doshi Vs. CIT [2017] 79 taxmann.com 371 (Bombay HC) 2. D.C. Polyester Ltd. [2023] 157 taxmann.com 753 (Mumbai - Trib.) 3. Commissioner of Income-tax-1, Mumbai vs. Bennett Coleman & Co. Ltd. [2013] 33 taxmann.com 227 (Bombay HC)

Penalty not leviable in case of bona fide cause : 4. Jaypee Cement Corporation Ltd. vs. ACIT [2023] 157 taxmann.com 757 (Delhi-Trib.) [11-09-2023] Penalty not leviable in case of in absence of specifying the sub-clause of section 270A(9) of the Act 5. DCIT vs. Chakradhar Contractors and Engineers (P.) Ltd. [2025] 171 taxmann.com 133 (Pune - Trib.) [26-12-2024]

6. Santosh Ashokrao Barhanpurkar Vs. (ITO & 2132/PUN/2024) [18-02-2025] 7. Schneider Electric Southeast Asia (11Q) Pte. Ltd. vs. Asst. Commissioner of Income-tax [2022] 145 taxmann.com 665 (Delhi HC) [28-03-2022)

6. On the other hand, Ld. Departmental Representative vehemently argued supporting the order of ld.CIT(A).

8. So far as the observation of both the lower authorities that assessee failed to comply to the notices of hearing, I find that the assessee has made sufficient compliance to the notice issued by the authorities and the same is depicted in the following chart :

8.1 Going through the above details, I find that the assessee has made all the necessary submissions and therefore I do not find it justified to remit back the issue to the file of lower authorities.

10. I further observe that during the year under consideration, the assessee has not generated any revenue from its operation and only derived profit on sale of investments in mutual funds. Such profit from sale of investments is Rs.43,78,251/- which is duly recorded in the books of account has been offered as ‘business income’ However, due to other expenditure incurred during the year the net income is declared as Nil on account of brought forward losses. However, during the course of assessment proceedings, assessee has suo motu filed the revised computation of income and the profit from sale of investments has been re-classified as income under the head ‘capital gain’ and offered to tax as ‘short term capital gain’. It is not the case of Revenue that ld. AO has detected this transaction to have been taxed under wrong head but the assessee itself has offered it as income from ‘capital gain’ as has been originally declared it as ‘business income’ in the books. It is clearly a case of re-classification of income and cannot be considered as under reporting or misreporting of income.

11. Though assessee has referred various decisions in the case law paper book referred (supra), I however taking note of the decision of Coordinate Bench, Delhi in the case of Jaypee Cement Corporation Ltd. Vs. ACIT (2023) 157 taxmann.com 757 (Delhi – Trib.) where both the aspects relating to merits of the case as well as legal issue has been dealt with and I notice that in the decision of Jaypee Cement Corporation Ltd. (supra) the issue relates to applicable depreciation rate which the assessee has claimed @100% however the assessee was actually eligible @15% of depreciation u/s.32AC of the Act and therefore the claim of depreciation was reduced. Relevant finding of the Tribunal reads as under :

“4. We have heard the rival submissions and perused the material available on record. The assessee is engaged in the business of manufacturing and sale of cement, manufacturing and sale of asbestos sheets, heavy engineering workshop and foundry. The assessee filed its return of income electronically for AY 2017-18 on 31.10.2017 declaring loss of Rs. 641,08,95,408/-. The assessment was completed u/s 143(3) on 01.10.2019 declaring loss of Rs. 4,49,80,57,749/-. In the return, the assessee claimed deduction u/s 32AC of the Act in the sum of Rs. 225,03,97,246/- which is the gross amount of investment in new plant or machinery as against its claim of 100% deduction u/s 32AC of the Act. The ld AO granted deduction u/s 32AC of the Act only to the extent of 15% of gross amount of investment in new plant and machinery which worked out to Rs. 33,75,59,587/-. For the differential disallowance of deduction u/s 32AC of the Act, the ld AO initiated penalty proceedings u/s 270A of the Act on the ground that the assessee had underreported or misreported its income to the extent of Rs. 191,28,37,659/- (Rs. 2,25,03,97,246 – Rs. 33,75,59,587).

7. The first notice u/s 142(1) of the Act was issued by the ld AO seeking clarification regarding claim of deduction u/s 32AC of the Act was only on 13.09.2019. Before this date itself, the assessee vide its letter dated 02.04.2019 had already withdrew the excess claim of deduction u/s 32AC of the Act as stated (supra). In response to the notice u/s 142(1) of the Act dated 13.09.2019, the assessee vide letter dated 18.09.2019 duly submitted the workings for claim of deduction u/s 32AC of the Act together with the revised computation of taxable income and a certificate from the tax auditor dated 06.03.2019 certifying the correct figure of claim of deduction u/s 32AC of the Act. The assessment u/s 143(3) of the Act dated 01.10.2019 was ultimately completed at the same income at the same loss figure of Rs. 449,80,57,749/- as was disclosed by the assessee in the revised computation of total income filed on 18.09.2019.

9. It was pointed out that the cases of misreporting of income are covered u/s 270A(9) of the Act 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.

(6) The under-reported income, for the purposes of this section, shall not include the following, namely:— (a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered; (b) the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom; (c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or disallowance; (d) the amount of under-reported income represented by any addition made in conformity with the arm's length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X, and, disclosed all the material facts relating to the transaction; and (e) the amount of undisclosed income referred to in section 271AAB.

12. It was also pointed that as per section 270A(7) of the Act, the penalty under sub-section (1) of Section 270A shall be a sum equal to 50% of amount of tax payable of underreported income. Hence, for underreporting of income, penalty leviable would be 50% of tax of underreported income as per section 270A(7) of the Act and in case of underreported income in consequence of misreporting of income, penalty leviable shall be 200% of tax payable of underreported income as per section 270A(8) of the Act. It was submitted that assessee‘s explanation was bona fide and there was a genuine error committed in the tax audit report which stood rectified by the assessee on its own volition before it could be detected by the AO during the course of assessment proceedings. Accordingly, it was prayed that penalty shall not be leviable in the facts of the instant case. The ld AO however, did not heed to these submissions of the assessee and proceeded to ultimately levy penalty by stating the assessee has underreported income in consequence of misreporting thereof to the tune of Rs. 191,28,37,659/- (being the differential amount of claim of deduction u/s 32AC of the Act) and levied penalty in terms of section 270A(8) and (9) of the Act at @200% of tax of underreported income which worked out to Rs. 132,39,89,710/-. This action of the ld AO was upheld by the ld CIT(A).

13. At the outset, we find that it is bounden duty of the ld AO to bring on record whether: (a) assessee has underreported his income in terms of section 270A(2) of the Act; (b) whether the assessee has misreported his income in terms of section 270A(9) of the Act; (c) whether the explanation given by the assessee falls under any of the exceptions provided in section 270A(6) of the Act ; and (d) whether the assessee has underreported his income in consequence of misreporting of income thereon so as to be invited with higher rate of penalty in terms of section 270A(8) of the Act. In the instant case from the facts narrated and sequence of events narrated hereinabove, it is very clear that the assessee had indeed claimed deduction u/s 32AC of the Act @100% value of investment in new plant and machinery in the return of income based on the figure mentioned thereon in tax audit report by the Tax Auditor. However, on noticing the mistake that had happened in the return and in view of the fact that the time limit for filing revised return has expired, the assessee voluntarily withdrew the excess claim of deduction u/s 32AC of the Act vide its letter dated 02.04.2019 wherein, clearly stating that the correct claim of deduction u/s 32AC of the Act would @15% of plant and machinery which worked out to Rs. 33,75,59,587/-. Further, the assessee also enclosed a certificate from the Tax Auditor dated 06.03.2019 wherein, Tax Auditor had duly admitted inadvertent mistake that had been committed in the tax audit report and also certified the correct figure of claim of deduction u/s 32AC of the Act to be Rs. 33,75,59,587/- only. It is pertinent to note that though several notices were issued u/s 142(1) of the Act by the ld AO dated 28.01.2019, 06.02.2019, we find no query regarding the claim of deduction u/s 32AC of the Act was even asked by the ld AO. The first query regarding the claim of deduction u/s 32AC of the Act was raised by the ld AO only vide notice u/s 142(1) of the Act on 13.09.2019, before which date, the assessee had already withdrawn the excess claim of deduction u/s 32AC of the Act by way of written letter dated 02.04.2019. The assessee again in response to notice u/s 142(1) of the Act dated 13.09.2019 had filed a reply letter dated 18.09.2019 before the ld AO wherein, it categorically stated that claim of deduction u/s 32AC of the Act would be only Rs. 33,75,59,587/- and enclosed a certificate from the tax auditor to that effect and further filed revised computation of total income wherein, the withdrawal of excess claim of deduction was duly reflected. It is absolutely not in dispute in the instant case that assessee is indeed entitled for deduction u/s 32AC of the Act in view of the investment made in new plant and machinery. In fact the ld AO on being satisfied about the eligibility of the assessee to claim deduction u/s 32AC of the Act had indeed granted deduction @15% of value of new plant and machinery. Hence, the preliminary objection raised by the ld DR in this regard that assessee is not eligible to claim deduction u/s 32AC of the Act, does not have any legs to stand in the eyes of law and we hold that the ld DR is trying to make out a new case before the Tribunal which is not even the case of lower authorities. All these facts collectively go to prove that the assessee had come forward voluntarily before the ld AO to withdraw the excess claim of its deduction u/s 32AC of the Act before any detection by the Income Tax Department. Hence, in our considered opinion, the assessee‘s case would squarely fall under the exception provided u/s 270A(6)(a) of the Act wherein, the assessee had given its bona fide explanation and had disclosed all the material facts that are relevant for the explanation offered. In view of the exception provided in section 270A(6)(a) of the Act, we hold that the present facts does not make the revenue eligible to levy penalty u/s 270A of the Act.

14. We find that the ld AR also made argument on the ground that there was absolutely no mala fide intention on the part of the assessee to claim excess deduction u/s 32AC of the Act in the facts of the instant case as even after the withdrawal of the differential 85% claim of deduction in the sum of Rs. 191 crores, the assessee still has brought forward losses to the tune of Rs. 2698.95 crores as is evident from the schedule CFL (details of loss to be carry forward) in the ITR filed for AY 2017-18. We are in agreement with this argument of the ld AR which proves the intention and behaviour of the assessee to withdraw the claim of deduction voluntarily by the assessee.

Order pronounced on this 09th day of October, 2025.