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Facts
The assessee company, engaged in construction, filed its return of income declaring Rs.44,60,670/-. During scrutiny, it was noted that service tax liability of Rs.37 lakh and employee's PF contribution of Rs.11,556/-, which were not paid by the due date, were not added back to the income. The Assessing Officer made additions for these amounts and initiated penalty proceedings under Section 270A for misreporting.
Held
The Tribunal held that the non-addition of service tax liability and PF contribution was due to an inadvertent oversight, not misrepresentation or suppression of facts. Relying on various High Court and Supreme Court decisions, the Tribunal found that the penalty was not sustainable as the facts were available in the tax audit report and there was no intention to conceal income.
Key Issues
Whether penalty under Section 270A is leviable when non-compliance arises from an inadvertent oversight and not from misrepresentation or suppression of facts, especially when relevant information is available in the tax audit report.
Sections Cited
143(1), 143(2), 142(1), 43B, 36(1)(va), 2(24)(x), 270A, 274, 143(1), 43CA, 56(2)(x), 270AA, 40A(7), 14A
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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI R. K. PANDA & SHRI VINAY BHAMORE
This appeal filed by the assessee is directed against the order dated 24.03.2024 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2017-18.
There is a delay of 192 days in filing of this appeal before the Tribunal, for which the assessee has filed a condonation application along with an affidavit explaining the reasons for such delay. After considering the contents of the condonation application filed along with the affidavit and after hearing the Ld. DR, the delay in filing of the appeal is condoned and the appeal is admitted for adjudication.
Facts of the case, in brief, are that the assessee is a company registered under the Companies Act and engaged in the activity of construction. It filed its return of income on 31.10.2017 declaring total income of Rs.44,60,670/-. The return was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) on 16.12.2017. Subsequently, the case was selected for scrutiny under CASS and statutory notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee, in response to which the AR of the assessee appeared before the Assessing Officer from time to time and filed the requisite details.
During the course of assessment proceedings the Assessing Officer noted that in the tax audit report the auditor has shown the service tax liability of Rs.37 lakh which was not paid on or before the due date. The assessee while filing the return of income was supposed to add back the above amount which was not done. The Assessing Officer, therefore, asked the assessee to explain as to why the said amount of the liability of Rs.37 lakh has not been added back to the total income of the assessee. Rejecting the various explanations given by the assessee and invoking the provisions of section 43B of the Act, the Assessing Officer made addition of Rs.37 lakh to the total income of the assessee.
Similarly, on account of late payment of employees’ contribution to PF and ESI, the Assessing Officer, invoking the provisions of section 36(1)(va) r.w.s. 2(24)(x) of the Act made addition of Rs.11,556/- to the total income of the assessee. The assessee accepted the above additions and no appeal was filed.
In the meantime, the Assessing Officer initiated penalty proceedings u/s 270A of the Act on account of under-reporting of its income in consequence of mis-reporting to the extent of Rs.37 lakh and Rs.11,556/- respectively. Rejecting the various explanations given by the assessee, the Assessing Officer levied penalty of Rs.22,93,742/- being 200% of the tax payable on such under-reporting income as per the provisions of section 270A of the Act.
7. Before the Ld. CIT(A) / NFAC, it was submitted that the addition made by the Assessing Officer was on account of mis-match of disallowance u/s 43B of the Act reported in the tax audit report which was by mistake not added back to the total income of the assessee while filing of the return of income. It was submitted that this mistake was an apparent casting and error effect by the tax auditor and the company never had any intention of evading the tax. It was submitted that the company had already accepted the order demanding the tax on this mismatch and paid the tax. It was brought to the notice of the Ld. CIT(A) / NFAC that the service tax liability of Rs.37 lakh was subsequently paid on various dates which are as under: 1. 12.03.2019 Rs.1,55,000/- 2. 26.03.2019 Rs.2,68,901/- 3. 26.03.2019 Rs.1,71,440/- 4. 20.02.2020 Rs.31,76,561/-
It was accordingly requested to delete the penalty so levied by the Assessing Officer. However, the Ld. CIT(A) / NFAC was not satisfied with the arguments advanced by the assessee and upheld the action of the Assessing Officer by observing as under: “5. Findings: The Grounds of appeal, the facts and circumstances of the case, the submissions of the assessee, the case laws adduced have been carefully considered. The facts of the case are that in the tax audit report, the Audit report, the Auditor had shown service tax liability of Rs.37,00,000/- which was not paid on or before the due date. The assessee, while filing the return of income was supposed to add back the said amount, which was not done. The said amount was added back to income and in view of underreporting of income in consequence of misreporting. Penalty proceedings u/s 270A were initiated. Further, the assessee did not pay Employees contribution towards Provident fund Rs.11,556/- to the government account within the time limit due. The amount was accordingly disallowed and penalty proceedings initiated separately. In penalty proceedings, AO imposed 200% of the amount of tax payable on under- reported income as per section 270A for under reporting of income in consequence of mis-reporting. Aggrieved, assessee is in appeal. In appeal, assessee has pleaded that they have made unintentional mistake erroneously. The submission of the assessee is unacceptable because the assessee is a company and is assisted by professionals in work related to tax matters. Any possible purported "mistake" would have been caught at various stages by professionals if not at the time of filing of return, then subsequently and assessee could have corrected the purported "mistake" by filing belated return. In this case, what was pointed out by auditor has been omitted by the assessee There is no way in which such a purported "error" or "mistake" can be made when the facts have been pointed out by the Audit report. Had the case not been taken up in scrutiny and misreporting resulting in underreporting by the assessee detected, assessee would have got away with misreporting resulting in under reporting of income Accordingly, Grounds of appeal are hereby dismissed.”
Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds:
1. The learned CIT(A) NFAC erred in law and on facts in upholding the action of learned AO levying penalty @ 200% on the amount of tax payable on under-reported income considering it to be on account of misrepresentation or suppression of facts without considering the fact that there was no misrepresentation or suppression of facts by the assessee.
2. The learned CIT (A) NFAC erred in law and on the facts in not considering the fact that the assessee had remained to add back the amount of disallowance by oversight and without any intention to misrepresent or suppress any facts.
3. The learned CIT(A) NFAC failed to consider the submissions made by the appellant that the amount of disallowance was already pointed out by the Auditors in their report and there was no suppression of fact
4. The appellant craves leave to add, alter, modify or substitute any ground of appeal at the time of hearing.
The Ld. Counsel for the assessee at the outset submitted that it was due to a technical mistake on the part of the assessee that the amount of service tax liability not paid before the due date could not be added to the total income of the assessee. Referring to page 14 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the intimation issued u/s 143(1) of the Act dated 16.12.2017 and submitted that no such adjustment has been made by the CPC. Referring to the notice issued u/s 274 r.w.s. 270A of the Act dated 15.10.2019, copy of which is placed at page 26 of the paper book, she submitted that although the notice speaks of under-reporting / mis-reporting of income, however, the notice is silent regarding under which limb or clause of section 270A of the Act such penalty has been levied, since the same is missing. Referring to the show cause notice issued u/s 270A dated 27.02.2021 copy of which is placed at pages 27 and 28 of the paper book, she submitted that here also no clause or limb of section 270A has been mentioned in the penalty notice.
Referring to the decision of the Hon’ble Delhi High Court in the case of Schneider Electric South East Asia (Hq) Pte Ltd. vs. ACIT vide W.P.(C) 5111/2022 & C.M. Nos.15165-15166/2022, order dated 28.03.2022, she submitted that the Hon’ble Delhi High Court in the said decision has held that in absence of any whisper as to which limb of section 270A of the Act is attracted and how the ingredient of sub-section (9) of section 270A is satisfied, the penalty levied by the Assessing Officer is not in accordance with law.
Referring to the decision of the Delhi Bench of the Tribunal in the case of ACIT vs. Mahashian Di Hatti Pvt. Ltd. vide dated 08.08.2024, she submitted that under somewhat similar circumstances the Tribunal upheld the action of the Ld. CIT(A) / NFAC in deleting the penalty levied u/s 270A of the Act and the appeal filed by the Revenue was dismissed.
Referring to the decision of the Hon’ble Delhi High Court in the case of Prem Brothers Infrastructure LLP Vs NFAC (2022) 142 taxmann.com 38 (Delhi) she submitted that the Hon’ble High Court in the said decision has held that where penalty was levied on assessee under section 270A alleging misreporting of income, however, fact that assessee had furnished all details of transactions relating to disallowance made under section 14A and Assessing Officer as well as assessee had used same details to arrive at different quantum of disallowances, this by no stretch of imagination could be held to be 'misreporting' and further, in absence of details as to which limb of section 270A was attracted, penalty order was quashed.
Referring to the decision of the Hon'ble Supreme Court in the case of Price Waterhouse Coopers (P) Ltd. vs. CIT (2012) 348 ITR 306 (SC), she submitted that the Hon'ble Supreme Court in the said decision has held that where in tax audit report filed by the assessee, it was indicated that provision towards payment of gratuity was not allowable but assessee failed to add said provision to total income, no penalty could be imposed for such mistake. She accordingly submitted that in view of the binding decision of the Hon'ble Supreme Court where the facts are identical to the facts of that of the assessee, penalty levied by the Assessing Officer and sustained by the Ld. CIT(A) / NFAC being not in accordance with law, should be deleted.
The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC. He submitted that but for the selection of the case for scrutiny assessment the assessee would not have paid the taxes on the unpaid amount of service tax liability and late payment of employees’ contribution towards PF. The assessee in the instant case has not filed any revised return and not voluntarily offered the amount to tax. Therefore, the Ld. CIT(A) / NFAC was fully justified in sustaining the penalty levied by the Assessing Officer.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that in the tax audit report the auditor had reported the service tax liability of Rs.37 lakhs which was not paid on or before the due date. Similarly, employees’ contribution to PF of Rs.11,556/- was also not paid to the government account within the due time. Accordingly, these two amounts were disallowed which was accepted by the assessee. Thereafter penalty proceedings were initiated u/s 270A of the IT Act, 1961. Rejecting the various explanations given by the assessee, the Assessing Officer levied penalty @ 200% of the amount of tax payable on under-reporting of income in consequence of mis-reporting as per the provisions of section 270A of the Act. We find the Ld. CIT(A)/ NFAC sustained the penalty so levied by the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that in the intimation issued u/s 143(1) of the Act, no such adjustment has been made. Further, notice issued u/s 274 r.w.s. 270A of the Act, dated 15.10.2019 and the show cause notice issued u/s 270A dated 27.02.2021 do not show as to under which limb of section 270A of the Act, such penalty proceedings have been initiated. It is also her submission that all the details were available in the audit report and therefore, it cannot be held that there is mis- representing of any income. It is also her submission that in view of the decision of the Hon'ble Supreme Court in the case of Price Waterhouse Coopers (P.) Ltd. vs. CIT (supra) that penalty could not be imposed for a mistake on account of failure on the part of assessee to add the provision towards payment of gratuity which was not allowable as per tax audit report, the non-inclusion of such service tax liability and belated payment of employees’ contribution to PF does not call for levy of penalty u/s 270A of the Act.
We find some force in the above arguments of the Ld. Counsel for the assessee. It is an admitted fact that the audit report contained service tax liability of Rs.37 lakh which was not paid on or before the due date. Similarly, the audit report also contained the non-payment of employees’ contribution towards PF amounting to Rs.11,556/- to the government account within the statutory due time. Thus, both the amounts were already available in the audit report which is the basis for disallowance by the Assessing Officer. Therefore, in view of the decision of the Hon’ble Delhi High Court in the case of Prem Brothers Infrastructure LLP Vs NFAC (supra), it cannot be held to be mis-reporting. It is also an admitted fact that there is complete absence of details as to which limb of section 270A of the Act was attracted in initiating the penalty proceedings.
We find the Hon'ble Supreme Court in the case of Price Waterhouse Coopers (P.) Ltd. vs. CIT (supra) has held that where in tax audit report filed by the assessee, it was indicated that provision towards payment of gratuity was not allowable but assessee failed to add said provision to total income, no penalty could be imposed for such mistake. The relevant observations of the Hon'ble Supreme Court from para 17 onwards read as under: “17. Having heard learned counsel for the parties, we are of the view that the facts of the case are rather peculiar and somewhat unique. The assessee is undoubtedly a reputed firm and has great expertise available with it. Notwithstanding this, it is possible that even the assessee could make a "silly" mistake and, indeed this has been acknowledged both by the Tribunal as well as by the High Court 18. The fact that the Tax Audit Report was filed along with the return and that it unequivocally stated that the provision for payment was not allowable under section 40A(7) of the Act indicates that the assessee made a computation error in its return of income. Apart from the fact that the assessee did not notice the error, it was not even noticed even by the Assessing Officer who framed the assessment order. In that sense, even the Assessing Officer seems to have made a mistake in overlooking the contents of the Tax Audit Report.
The contents of the Tax Audit Report suggest that there is no question of the assessee concealing its Income. There is also no question of the assessee furnishing any inaccurate particulars. It appears to us that all that has happened in the present case is that through a bona fide and inadvertent error, the assessee while submitting its return, failed to add the provision for gratuity to its total income. This can only be described as a human error which we are all prone to make. The calibre and expertise of the assessee has little or nothing to do with the inadvertent error That the assessee should have been careful cannot be doubted, but the absence of due care, in a case such as the present does not mean that the assessed is guilty of either furnishing inaccurate particulars or attempting to conceal its income.
We are of the opinion, given the peculiar facts of this case, that the imposition of penalty on the assessee is not justified. We are satisfied that the assessee had committed an inadvertent and bona fide error and had not intended to or attempted to either conceal its income or furnish inaccurate particulars.
21. Under these circumstances, the appeal is allowed and the order passed by the Calcutta High Court is set aside. No costs.”
19. We find the Delhi Bench of the Tribunal in the case of ACIT vs. Mahashian Di Hatti Pvt. Ltd. (supra) while dismissing the appeal filed by the Revenue upheld the order of the Ld. CIT(A) cancelling the penalty levied by the Assessing Officer by observing as under: “5. We have heard rival submissions and perused the material available on record. The learned CIT(Appeals) has deleted the penalty levied u/s 270A of the Act, inter alia, by observing as under: “6.1 On the given facts, I find that this is clearly a case of inadvertent mistake on part of the appellant, in as much as an incorrect figure for opening WDV of block of assets has been adopted for the purpose of computing the admissible depreciation. The mistake is purely an oversight. because both the figures i.e. the closing WDV of block of assets as per the Income Tax Act and the closing WDV of block of assets as per the Companies Act, for the immediately preceding year, were available on record; but the incorrect figure was adopted by mistake by the Tax Auditor, and the same was relied upon by the appellant while filing its return of income. This oversight resulted in an excess claim of depreciation as per the return for an amount of Rs. 1.63 Crore. The appellant company has a declared Turnover to the tune of Rs. 978 Crore and returned income to the tune of Rs. 383 Crore for the year under consideration. The excess claim of depreciation made, as a result of this oversight, is less than even one percent of the returned income. The appellant company has been declaring returned income of more than Rs. 100 Crore and paying substantial taxes over the years. On considering the totality of facts, I am inclined to concur with the view that this cannot be a case of deliberate under reporting of income on part of the appellant. 6.2 Furthermore, I also note that the appellant has been consistent in offering explanation with regard to the said inadvertent error in computing the depreciation admissible under the provisions of Income Tax Act; in the course of assessment proceedings, penalty proceedings as also during the appellate proceedings. I find that the explanation offered by the appellant, having regard to the nature and quantum of the income alleged to be under reported, is bona fide within the meaning of sub-section (6) of section 270A, and the appellant has disclosed all the material facts to substantiate the said explanation. 6.3 In the present case, AO has levied penalty at a higher rate of 200 percent, under sub-section (8) of section 270A in respect of the under reported income, holding the same to be in consequence of misreporting of income. The instances of misreporting of income have been enumerated under clause (a) to clause (f) of sub-section (9) of section 270A. AO has not specifically mentioned the relevant clause of sub-section (9) of section 270A, which is sought to be invoked in this case. AO has only mentioned that the appellant has committed default of misrepresentation and suppression of facts. However, in view of the facts stated above, I am constrained to disagree with the findings of AO in this regard. The excess
claim of depreciation, which is the subject matter of addition, was a result of oversight in adopting an incorrect figure for the opening WDV for block of assets. It has already been brought out in preceding paragraphs that both the figures of opening WDV for block of assets, i.e. as per the Companies Act and as per the Income Tax Act, were clearly available on record (in audited financial statements, the tax audit reports and the return of income). In fact, the correct figure of opening WDV to be adopted for the purpose of claim of depreciation was the closing WDV for the immediately preceding year; and the same was available in the return of income filed for that year. In other words, the relevant and material fact in respect of the alleged under reporting of income, i.e. the correct figure of opening WDV was available both with the Department and the appellant. Rather, it was not even possible for the appellant to misrepresent or suppress this relevant and material fact. Therefore, I find that by no stretch of imagination this case would fall under clause (a) of sub-section (9) of section 270A, as there was clearly no misrepresentation or suppression of facts. It is further noted that the other clauses, i.e. clause (b) to clause (f) of sub-section (9) of section 270A, are also not applicable to the facts of the present case. 6.4 Hon'ble High Court of Rajasthan in the case of Chambal Fertilizers and Chemicals Ltd. Vs Pr. CIT (2024) (158 taxmann.com 184) (Rajasthan) has held that where during scrutiny assessee realized aspect of merging GST Input Credit with expenses and same was suo-moto surrendered by assessee by revising its return, however revenue imposed penalty under section 270A and thereafter, rejected application of assessee under section 270AA, since revenue wasn't sure whether it was a case of misrepresentation or suppression of facts or claim of expense and application under section 270AA was rejected in a wholly cursory manner indicating that case of assessee was within ambit of clause (a) and (c) of section 270A(9) and without giving any cogent reasons, same could not be sustained. 6.5 Hon'ble ITAT, Mumbai Bench in the case of Alrameez Construction (P.) Ltd. Vs NFAC (2023) (152 taxmann.com 382) (Mumbai Trib.) has held that where Assessing Officer made addition under section 43CA read with section 56(2)(x), case of assessee did not fall in category of under reporting of income and moreover since in penalty notice under section 270A revenue had failed to specify limb "under-reporting" or "misreporting" of income, under which penalty proceedings had been initiated, entire proceeding was not only erroneous but also arbitrary and bereft of any reason. 6.6 Hon'ble Delhi High Court ("the jurisdictional High Court") in the case of Prem Brothers Infrastructure LLP Vs NFAC (2022) (142 taxmann.com 38 (Delhi) has held that where penalty was levied on assessee under section 270A alleging misreporting of income, however, fact that assessee had furnished all details of transactions relating to disallowance made under section 14A and Assessing Officer as well as assessee had used same details to arrive at different quantum of disallowances, this by no stretch of imagination could be held to be 'misreporting' and further, in absence of details as to which limb of section 270A was attracted, impugned penalty order was to be quashed and revenue was to be directed to grant immunity under section 270AA.
In view of the facts and circumstances of the case, and the prevailing position of law, I find that this is a not a case of under-reporting or misreporting of income, within the meaning of section 270A of the Act. The alleged under-reporting by way of excess claim of depreciation was made purely as a result of oversight, for which a bona fide explanation was offered by the appellant. This is not a case of misrepresentation of suppression of facts, as all the relevant and material facts were already on record. Therefore, the action of AO in levying penalty under section 270A (8) at the rate of 200 percent of tax payable on under-reported income is not sustained. The Jurisdictional Assessing Officer (JAO) is directed to delete the penalty of Rs. 1,13,76,592/- levied on this account.”
6. The assessee‟s stand in the case in hand is that the difference between the assessed income and the returned income was on account of depreciation, where inadvertently the opening written down value (WDV) of the assets was taken at book value in the audited annual accounts prepared under the Companies Act instead of written down value (WDV) under the Income-tax Act by the auditors in their tax audit report u/s 44AB of the Act. Both the accounts and the said report were submitted with the return of income. The learned First Appellate Authority in the impugned order has discussed the issue elaborately and in deleting the penalty levied u/s 270A of the Act has relied on the ratio of decision of the Hon‟ble Jurisdictional High Court in the case of Prem Brothers Infrastructure LLP Vs NFAC (2022) (142 taxmann.com 38 (Delhi). Learned DR has not been able to prove the case of assessee on different footing. Thus, in the light of binding precedents we do not see any infirmity. It is well said „to err is human‟ a bona fide error cannot be basis of imposition of penalty. Under the peculiarity of the facts of the present case the impugned action of the learned CIT(Appeals) is justified in deleting the impugned penalty, same is hereby affirmed. Grounds taken by the Revenue are dismissed.”
20. We further find in the intimation issued u/s 143(1) of the Act dated 16.12.2017, no such adjustment on account of non-payment of service tax liability and employees’ contribution to PF before the due date has been added. In view of the above discussion and respectfully following the decisions cited (supra), we are of the considered opinion that it is not a fit case for levy of penalty u/s 270A of the Act. We, therefore, set aside the order of the Ld. CIT(A) / NFAC and direct the Assessing Officer to cancel the penalty. The grounds raised by the assessee are accordingly allowed.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open Court on 15th January, 2025.