INFOANALYTICA CONSULTING PRIVATE LIMITED,AHMEDABAD vs. THE DY. CIT, CIRCLE-2(1)(1), AHMEDABAD

5. As the assessee has under reported its income which is in consequences to misreporting thereon for the year under consideration, the penalty for under reporting of income which is in consequences to misreporting thereon shall be a sum equal to 200% of the amount of tax payable on under-reported income as per provisions of the Act. section 270A(8)of Accordingly, looking to the facts s of the case, a penalty of Rs. 2,01,100/-imposed under section 270A(2) rws. 270A(9) of the Income Tax Act, 1961 on the under reported income of Rs.3,04,116/-on the basis of the merit in the case of the assessee. 4. In appeal, the Ld.CIT(A) confirmed the penalty order with the following observations: 6.2 Since the appellant failed to comply with the provisions of sec 40a(ia) coupled with the non-adherence to notification no 11/2016 dated 2nd Dec 2016 the submission of appellant that it has submitted during assessment proceedings does not relieve the appellant from penalty being levied u/s Infoanalytica Consuling Pvt. Ltd vs. DCIT Asst.Year –2017-18 - 3– 270A(9) on account of (a) misrepresentation of suppression of facts and (c) claim of expenditure not substantiated by any evidence.

5. The assessee is in appeal before us against the aforesaid order passed by the Ld.CIT(A).

6. At the outset, the Ld. Counsel for the assessee submitted that from the contents of the penalty order, it is observed that the AO is not sure as to whether the penalty have been levied for “under-reporting” of income or “mis-reporting” of income. The Ld. Counsel for the assessee relied on several judicial precedents which have held that penalty u/s.270A of the Act, requires precise classification, whether the penalty is being levied for mis-reporting of income or under-reporting of income. Secondly, the Ld. Counsel for the assessee submitted that looking into the instant facts it is not a case of mis-reporting of income attracting levy of penalty @ 200% u/s.270A(8) of the Act, since the assessee’s case is not following in any of the specific instances of mis-reporting of income provided u/s. 270A(9) of the Act.

7. In response, the Ld.DR placed reliance on the observations made by the AO and the Ld.CIT (A) in their respective orders, confirming the levy of penalty.

8. We have heard the rival contention and perused the material available on record. In this case, an assessment order was passed u/s 143(3) of the Act dated 28.11.2019 determining total income of Rs.9,90,61,310/-after making an addition of Rs.2,35,839/- on account of disallowance for late payment of Infoanalytica Consuling Pvt. Ltd vs. DCIT Asst.Year –2017-18 - 4– Employee Contribution to PF & ESI and Rs.68,227/- on account of disallowance u/s 40(a)(ia) of the Act. The Assessing officer passed the penalty order u/s 270A of the Act for the relevant assessment year dated 16.03.2022 by levying penalty amounting to Rs,2,01,000/- for “under- reporting of income which is in consequence of misreporting thereon” mentioning that the Ld. AO has recorded satisfaction for the initiation of penalty u/s 270A of the Act. Further, the AO has imposed penalty @200% on the amount of tax payable as per the provisions of Section 270A of the Act. The provisions of section 270A(2) of the Act deals with levy of penalty for under-reporting of income and this section typically involves discrepancies such as omission or inaccuracies not involving deliberate misrepresentation. In this case a lower penalty @50% of tax is levied. However, penalty u/s.270A(8)/(9) involves cases of wilful suppression or misstatement or misrepresentation of facts, thereby attracting more severe penalty @200% of the amount of tax payable. Various courts have consistently held that the penalties under section 270A of the Act, requires precise classification and income adjustment cannot attract penalty both u/s.270A(2) of the Act as well 270A(9) of the Act. It would be useful to reproduced some of the judicial precedents which have thrown useful light on the subject which are as follows: i. In the case of Kishor Digambar Patil Vs. Income Tax Officer in & 55/PUN/2023 vide order dated 30.03.2023, the ITAT has made the following observations on the issue. 6.2. Faced with the situation and in light of overwhelming material strongly supporting the assessee's case and going by stricter interpretation as per Commissioner of Customs (Imports), Mumbai vs. Dilipkumar And Co. & Ors. 2018 (9) SCC 1 (SC) (FB), I am of the view that the above stated judicial precedents regarding the "limb theory" would squarely apply even in case of failure of the Infoanalytica Consuling Pvt. Ltd vs. DCIT Asst.Year –2017-18 - 5– Assessing Officer to quote any of the six sub-limbs as well prescribed in sec.270A(9) (a) to (1) of the Act introduced by the legislature in order to rationalize and bring objectivity, certainty and clarity in the penalty provisions". And that his non-compliance to this clinching effect would not only defeat the legislative mandate but also it renders the amending provisions an otiose. I accordingly hold in these peculiar facts and circumstances that both the impugned penalties deserve to be quashed as not sustainable in the eye of law. Order accordingly. ii. In the case of Shri Manish Manohardas Asrani Vs. International Tax Ward 1(1)(1) in vide order dated 15.10.2024, the ITAT made the following observations:

8. Coming to the instant case, admittedly in the assessment order, the AO initiated the penalty proceedings u/s 270A of the Act without mentioning any sub clause of the section 270A of the Act or not specifying any limb of the penalty proposed to be levied. Further, in the penalty notice issued u/s 274 r.w.s 270A of the Act dated 11.11.2021 mentioned under reporting of the income. Subsequently during the penalty proceedings again issued the notice dated 20.12.2021 u/s 274 r.w.s 270A of the Act, without specifying any limb or sub clause of section 270A of the Act and ultimately vide order dated 22.02.2022 u/s 270A of the Act levied the penalty for misreporting of the income as well as underreporting of the income, as per provisions of section 270A(8) of the Act with the aid of section 270A(9)(e) of the Act. As the AO issued the vague notice without specifying any particular limb or sub clause for levying the proposed penalty. There is no whisper at all in the notice issued u/s 270A read with section 274 of the Act about "misreporting of income" whereas the penalty has been levied ultimately for both 'under reporting' and 'misreporting of income @ 200% in terms of section 270A(9) of the Act, for which show cause notice was never issued to the Assessee. And therefore in view of the judgment passed by the co-ordinate Bench of the Tribunal in the case of Jaina Marketing & Associates (supra), wherein the Co-ordinate Bench of the Tribunal not only analyzed the provisions of law but also considered the judgments of the Higher Courts and the Tribunal and deleted the identical penalty as involved in this case, hence respectfully following the decision of the Tribunal, we are inclined to delete the penalty under consideration. Thus, the penalty is deleted and appeal filed by the Assessee is allowed.

9. In view of the above judicial precedents, we observe that it is a well settled law that penalty cannot be sustained u/s.270A of the Act, without specifying any specific limbs of the section 270A of the Act under which the penalty is being levied. It would be useful to reproduce the show-cause notice initiating levy of penalty which reads as under:

Whereas in the course of proceedings before me for the Assessment Year 2017-18, it appears to me Under-reporting of income in consequent of misreporting.

(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 Infoanalytica Consuling Pvt. Ltd vs. DCIT Asst.Year –2017-18 - 8– (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.