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Facts
The Revenue appealed against the deletion of penalty imposed under section 270A of the Income Tax Act, 1961, by the CIT(A). The assessee, a charitable trust, had claimed excess expenditure, leading to a penalty. The assessee contended that the excess claim was an inadvertent error and within the statutory limit for accumulation.
Held
The Tribunal upheld the order of the CIT(A) that the penalty under section 270A was not leviable. The Tribunal found that none of the conditions for under-reporting of income as specified in section 270A(2) were met. The Tribunal also noted that the excess claim was within the permissible limit of 15% statutory accumulation.
Key Issues
Whether the conditions for imposing penalty for under-reporting of income under Section 270A of the Income Tax Act were met by the assessee, and if the excess claim of expenditure fell within the permissible statutory limits for accumulation.
Sections Cited
12A, 11(1), 270A, 274, 143(3), 143(1)(a), 115JB, 115JC
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Income Tax Appellate Tribunal, PUNE “B” BENCH : PUNE
Before: SHRI MANISH BORAD & Ms. ASTHA CHANDRA
ORDER PER MS. ASTHA CHANDRA, JM:
The appeal filed by the Revenue and the Cross Objection filed by the assessee are directed against the order dated 03.06.2024 of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)”], whereby Ld. CIT(A) deleted the penalty amounting to Rs. 90,63,723/- imposed by Addl./Jt./ACIT/ITO, NFAC, Delhi (“AO”) under section 270A of the Income Tax Act, 1961 (the “Act”) pertaining to Assessment Year (“AY”) 2017-2018. For the sake of convenience, the appeal filed by the Revenue and the Cross Objection filed by the assessee were heard together and are being disposed of by this common order.
2 ITA.No.1642/PUN./2024 & CO No.01/PUN/2025 2. Briefly stated the facts of the case are that assessee is a charitable and educational trust. The assessee is registered u/s 12A of the Act and therefore claiming its income as exempt under the provisions of section 11(1) of the Act. For the A.Y. 2017-18, the assessee filed its return of income on 06/11/2017 declaring total income of Rs. NIL. The case of the assessee was selected for scrutiny under CASS. During the course of assessment proceedings, the Ld. AO found that the assessee has claimed excess expenditure towards the application of income and seeked explanation from the assessee. Pursuant thereto, the assessee filed revised computation showing the application of income to the extent of Rs. 52,40,60,509/- as against the income of Rs. 58,75,26,422/-. The assessee contended before the Ld.AO that non-application of income u/s 11(1)(a) of the Act is within the permissible limit of 15%. The assessee also contended that even otherwise, the assessee inadvertently claimed excess application of income to the extent of Rs. 6,34,65,822/- and the same has no tax effect as the income of the assessee is fully exempt. The contentions of the assessee were not found to be acceptable by the Ld. AO. However, the Ld.AO vide his order dated 30/12/2019 passed u/s 143(3) of the Act assessed the income of the Assessee at Rs. NIL allowing excess claim of expenditure of Rs. 6,04,24,824/- and initiated penalty proceedings under section 270A of the Act for under-reporting of income.
2.1 During the penalty proceedings, in response to show-cause notice issued u/s 274 r.w.s. 270A of the Act, the assessee vide its reply dated 30/12/2021 submitted as under:- “While the return of income was filed, it was inadvertently taken the amount of Rs. 548212549/- as the assessee's revenue expenditure for the purpose of application of income since the assessee was eligible to exemption u/s 11 of the Act, Such expenditure claimed was purely an error committed without proper appreciation of the various expenditure incurred while filing the return of income. However, your honor may kindly appreciate during the assessment proceedings the Ld. Assessing Officer has appreciated the said mistake committed "Inadvertently" by the assessee, when he had accepted the correct computation filed before him while explaining Point No. 2 of his query raised, wherein the correct revenue expenditure had been claimed as application of income u/s 11(1)(a) excluding depreciation of Rs. 487787634/-. It is humbly submitted that after giving credit to the said application of income alongwith the capital expenditure for the objects of the trust also as application u/s 11 of the Act, there was only surplus left of Rs. 63465913/-
3 ITA.No.1642/PUN./2024 & CO No.01/PUN/2025 Though the assessee was eligible to accumulate and set apart sine die an amount of Rs. 88128963/-being 15% of the gross receipts as declared in the Income & expenditure account of Rs. 587526422/- but such accumulation was taken only to the extent of Rs. 63465913/-, considering the facts of the case of the assessee, there cannot be said any under reporting and / or misreporting of facts which was committed absolutely out of inadvertent error". The assessee has further response dated 11-01-2022 by his letter dated 07/01/2022 is also taken in to consideration.”
2.2 The above submission of the assessee were considered but not found tenable by the Ld. AO. The Ld. AO observed that the addition was made on account of incorrect entries recorded in the books of account of the assessee which clearly reflected under-reporting of income and therefore, the assessee is liable to pay penalty u/s 270A of the Act. He levied penalty of Rs. 90,63,723/- @ 50% of the amount of tax of Rs. 1,81,27,447/- payable on under-reporting income of Rs.6,04,24,824/- as per the provisions of 270A of the Act.
3. Aggrieved, the assessee filed appeal before the Ld. CIT(A) challenging the penalty of Rs. 90,63,723/- imposed by the Ld.AO u/s 270A of the Act. Before the Ld. CIT(A), the assessee furnished its written submissions which are recorded by the Ld. CIT(A) in para 6.4 of his appellate order. The Ld.CIT(A), after considering the submissions of the assessee, deleted the penalty imposed by the Ld. AO observing that for levy of penalty u/s 270A of the Act, assessed income should be greater than the processed income u/s 143(1)(a), however, in the present case of the assessee, the assessed income is not exceeding the income determined u/sec. 143(1)(a) of the Act. The Ld. CIT(A) further observed that the assessee himself filed revised computation of income showing the correct revenue expenditure. Also, the excess claim of expenditure is falling within the statutory limit of accumulation @ 15% on Rs. 58,75,26,422/- (declared as per income and expenditure account). The relevant observations and findings of the Ld. CIT(A) are reproduced below:- “6.4. During the appellate proceedings, the appellant has furnished written submissions by stating that it has filed ITR declaring total income at Rs. Nil, return is processed u/s.143(1)(a) by assessing income at Rs. Nil and as per assessment order u/s.143(3) by assessing taxable income also at Rs. Nil". The submission of the appellant with respect to levy of penalty as per sub-section 2 of section 270A is reproduced hereunder: "270A. (2) A person shall be considered to have under- reported his income, if-
4 ITA.No.1642/PUN./2024 & CO No.01/PUN/2025 (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 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. It will be seen that: 1. 270A(2)(a) is NIL as income assessed is not exceeding Income determined u/s 143(1)(a). 2. 270A(2)(b) Return is filed therefore sub section is not applicable. 3. 270A(2)(c) It is not a case of reassessment, hence not applicable. 4. 270A(2)(d) Sec 115JB/115JC not applicable to assessee, hence subsection is not applicable. 5. 270A(2)(e) Not a case of non filing Return hence not applicable. 6. 270A(2)(f) Provisions of Sec 115JB or 115JC is not applicable to the trust. 7. 270A(2)(g) - Income Assessed or reassessed has no effect on reducing loss or conversion of loss into income. In Trust's case, there is no concept of loss and deficit is not/adjustable to subsequent years" As can be seen from the above, for levy of penalty u/s. 270A of the Act the assessed income should be greater than the processed income u/s. 143(1)(a) of the Act. But, in the instant case, the assessed income is not exceeding the income determined u/s. 143(1)(a). After considering facts and circumstances of the case, it is held that the appellant himself filed a revised/correct computation of total income by taking the correct revenue expenditure of Rs.48,77,87,634/- and also the excess claim of Rs.6,04,24,824/- is 5 ITA.No.1642/PUN./2024 & CO No.01/PUN/2025 within the limit of statutory accumulation @15% on Rs.58,75,26,422/- (declared as per Income & Expenditure A/c) comes to Rs.8,81,28,963/- and hence the AO is directed to delete the levy of penalty amounting to Rs.90.63,723/-.”
4. Dissatisfied by the impugned order of Ld. CIT(A), the Revenue is in appeal before this Tribunal by raising the following grounds of appeal:-
01. On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the penalty imposed under section 270A of the Income Tax Act, 1961, without considering the intentional over reporting of expenditure in the profit and loss account by the assessee.
02. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the penalty solely stating that the assessed income should be more than the income processed under section 143(1), whereas on purposive interpretation the income assessed can be treated as more than what could have been determined on processing and alternatively Ld. CIT(A) has erred in not appreciating the fact that provisions of section 270A(2)(g) are squarely applicable if the statutory intent is interpreted in consideration of ratio propounded by Hon'ble Apex Court in the case of Commissioner of Customs (Import) v. Dilip Kumar and Company [2018] 95 taxmann.com 327 giving strict interpretation to the statutory language and interpreting the statute in the favour of revenue in cases of any ambiguity.
03. On the facts and circumstances of the case, the Ld. CIT(A) wrongly interpreted that the excess claim of Rs. 6,04,24,824/- falls within the statutory accumulation limit of 15% under section 11(1)(a). The correct interpretation should account for the potential future expenditure requirements of the trust, which was not duly considered.
04. On the facts and circumstances of the case, the Ld. CIT(A) failed to consider the potential for tax evasion inherent in the assessee's initial claim. The discrepancy between the claimed and actual revenue expenditure indicates a deliberate attempt to under-report income, justifying the imposition of penalty under section 270A.
05. On the facts and circumstances of the case, the Ld. CIT(A) did not adequately consider the fact that the correction was made only because the case was selected for scrutiny through the CASS. If the case had not been selected, the misrepresentation might have gone undetected, leading to a significant understatement of taxable income.
06. On the facts and circumstances of the case, the Ld. CIT(A) failed to appreciate that after inserting of section 270A, the necessity of substantiating tax sought to be evaded has been replaced by' tax on under reported income' and if so being the case, the Ld. CIT(A) has erred in not appreciating that reducing the liability to report funds to be expended in subsequent years, the applicability of section 270A(2)(g) gets triggered.
07. On the facts and circumstances of the case, the Ld. CIT(A), has erred in accepting the contention of the assessee that even after 6 ITA.No.1642/PUN./2024 & CO No.01/PUN/2025 enhancing the revenue expenditure to the tune of Rs. 6,04,24,824/- and reducing the amount to be accumulated, there is no under reporting of income just because the excess claim of revenue expenditure is within the 15% of total receipts and if so being the case the CIT(A) has erred to adjudicate that it is only when such enhancement of revenue expenditure exceeds 15% of total receipt that there will be income of the assessee and there will be penal provisions.
8. On the facts and circumstances of the case, the Ld. CIT(A), has failed to appreciate that allowing adventure to claim erroneous revenue expenditure without any penal implication would render other provisions of the Act as regards filing of form 9A, Form 10 & monitoring of the other accumulated amounts including deemed application of 15% and liability of the assessee to adhere to such provision in jeopardy and such inference may not be in concurrence with harmonious interpretation of the statute.
9. On the facts and circumstances of the case, the Ld. CIT(A), has failed to appreciate that by mechanically and artificially reporting other expenses as Rs. 53,37,80,514/- in Schedule ER of the ITR and not expressly reporting the amounts under depreciation and amortization column, there was a deliberate attempt to camouflage the depreciation under the guise of revenue expenses and such facts could only be revealed because of initiation of assessment proceedings and if so being the case, the element of bonafide belief was miserably absent.”
The Ld. DR submitted that the Ld. CIT(A) is not justified in deleting the penalty imposed by the Ld. AO. Relying on the order of the Ld. AO, he submitted that under the present facts and circumstances of the assessee‟s case, penalty has rightly been imposed by the Ld. AO on account of under-reporting of income by the assessee under the provisions of sec. 270A of the Act.
The Ld. AR, on the other hand, supported the observations and findings of the Ld. CIT(A) in his appellate order (reproduced above). He reiterated the submissions made by the assessee before the Ld. CIT(A) and contended that the Ld. CIT(A) has rightly cancelled the penalty after analyzing that none of the conditions specified u/s 270A(2) of the Act constituting under-reported income, has been met in the assessee‟s case. The Ld. AR further submitted that the assessee declared „Nil‟ income in its original return and revised computation of income. The income processed u/s 143(3) of the Act is also „Nil‟ and therefore, it cannot be alleged by the Ld. AO that there is under-reporting of income by the assessee so as to levy the penalty u/s 270A of the Act.
7 ITA.No.1642/PUN./2024 & CO No.01/PUN/2025 7. We have heard the Ld. Representatives of the parties and perused the material on record. We find that the Ld. AO though has assessed the income of the assessee at Rs. „nil‟ allowing assessee‟s claim of exemption u/sec. 11(1)(a) of the Act, he levied penalty of Rs. 90,63,723/- on the assessee u/s 270A of the Act for under-reporting of income. The Ld. CIT(A) deleted the penalty imposed by the Ld. AO for the reasons reproduced above. A perusal of the Ld. CIT(A)‟s order reveals that the Ld. CIT(A) has allowed the appeal of the assessee observing that the provisions of section 270A(2) of the Act are not applicable in assessee‟s case so as to levy the penalty for under-reporting of income. We note that the Ld. CIT(A) has considered all the clauses- (a) to (g) of sub-section (2) of section 270A of the Act and thereafter arrived at the finding that there is no under-reporting of income by the assessee. On going through the provisions of section 270A(2), we find some force in the arguments advanced by the Ld. AR before us that none of the conditions specified under clause (a) to (g) of the said section required for levy of penalty for underreporting of income, are met in the case of the assessee. Further, the Revenue also seems to be aggrieved by the finding of the Ld. CIT(A) that the excess claim of expenditure made by the assessee is within the permissible statutory limit of 15% u/s 11(1)(a) of the Act. The contention of the Revenue is that the discrepancy between the claimed and actual revenue expenditure indicates a deliberate attempt on the part of the assessee to under-report income and therefore, the Ld. CIT(A) was not justified in deleting the penalty imposed by the Ld. AO. We do not find any substance in this argument of the Revenue as admittedly the assessee itself filed a revised computation of total income by taking the correct revenue expenditure of Rs.48,77,87,725/- as against Rs.54,82,12,549/- which was inadvertently taken at the time of filing the return of income. We, therefore, do not find any infirmity in the order of Ld. CIT(A) and uphold his findings. The grounds No.1 to 9 raised by the Revenue are accordingly dismissed.
In the result, appeal of the Revenue is dismissed.
C.O. No. 01/PUN/2025
The assessee has filed the Cross Objection raising the following grounds:- “1. Cross Objector objects the grounds by Revenue as Argumentative.
8 ITA.No.1642/PUN./2024 & CO No.01/PUN/2025
Cross Objector supports CIT(A) order cancelling penalty.
Cross Objector objects ground No.2 as to sec. 270A(2)(g). Cross Objector prays that in case of trust assessment there is „no loss‟ but deficit and deficit is not allowed to be carried forward.
Cross Objector prayer to add, alter, amend.”
At the outset, the Ld.AR submitted that the Cross Objection has been filed by the assessee only in support of the Ld. CIT(A)‟s order. The Ld. DR fairly conceded.
In view of the above submission of the parties and since we have dismissed the appeal of the Revenue in by our above order of even date, the grounds of Cross Objection raised by the assessee become infructuos and accordingly dismissed as such.
In the result, the appeal filed by the Revenue in and the Cross Objection filed by the assessee in CO No. 01/PUN/2025 are dismissed.
Order pronounced in the open Court on 08.05.2025.