M/S. AVM PRODUCTIONS,CHENNAI vs ACIT, NON CORPORATE CIRCLE-20(1), CHENNAI

Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI

Before: SHRI ABY T. VARKEY & MS. PADMAVATHY. S

Hearing: 16.02.2026Pronounced: 04.03.2026

आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the

Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter in

short "the Ld.CIT(A)”), Delhi, dated 03.07.2025 for the Assessment Year

(hereinafter in short "AY”) 2017-18 confirming the penalty of ₹6,82,606/-

levied u/s.270 of the Income Tax Act, 1961 (hereinafter in short "the

Act”).

Brief facts of the case as discussed from the penalty order of the AO

are that the assessee e-filed its return of income for the A.Y. 2017-18 on

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30.10.2017 admitting loss of Rs.1,62,38,803/-. The case was taken up for

scrutiny under CASS and the AO issued statutory notices, In compliance

to the notices, the assessee uploaded the details called for from time to

time through E-asst proceeding module.

The AO noticed that assessee has claimed depreciation in the

relevant year, which issue is permeating from AY 2007-08. The AO noted

from the assessment records of earlier A.Y 2007-08, that the assessee

had claimed depreciation on Rs 3 crores qua "building block" which the

assessee had paid to one Sri M. Balasubramanian (on 27.01.2007)

consequent to compromise-deed entered into by the assessee with the

said person. The assessee's explanation for making the depreciation claim

was that the Sri M. Balasubramanian had filed a writ petition before the

Hon'ble Madras High Court objecting to the construction raised by the

assessee and obtained stay against the construction. And he withdrew the

same consequent to payment of Rs.3 crores after entering into the ibid

compromise agreement. So, the assessee's claim was that without

payment of the above amount of Rs 3 crores, its construction could not

have been completed. The Assessing Officer opined that payment of the

above amount didn’t lead to acquisition of any right etc in assessee's

favour and hence depreciation on the same was not allowable.

Accordingly, the AO disallowed depreciation of Rs.15 lacs (@5% of Rs.3

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Crores; since put to use for less than 180 days) claimed by the assessee.

On appeal filed by the assessee, the Ld CIT(A) upheld the order of the

AO. On further appeal filed before Tribunal, the Tribunal vide its

consolidated order in ITA No.982 & 983/Mds/12 dtd05.09.2012 for A.Ys

2007-08 and 2008-09 upheld the order of the Ld CIT(A) on the above

issue.

In view of the foregoing, the assessee was asked to furnish the

particulars of consequential depreciation claimed in respect of the above

addition to building block from A.Y 2007-2008 and onwards. On

verification of the particulars filed by the assessee, the AO found that the

depreciation claimed by the assessee attributable to the above addition of

Rs.3 Cr worked out to Rs.11,04,148/- for A.Y 2017-18. In view of the

reasons given by the AO while finalizing scrutiny assessment for A.Y

2007-08, the depreciation claimed of Rs.11,04,148/- attributable to the

compensation paid of Rs.3 Cr was disallowed and added to the loss

returned by the assessee. Accordingly, penalty proceedings u/s 270A of

the Income Tax Act, 1961 was initiated vide notice u/s.270A of Act dated

25.10.2019 for mis-reporting of income and after hearing the assessee’s

objection is noted to have imposed penalty of ₹6,82,606/- viz 200% of

the amount of tax payable on misreporting income, vide penalty order

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dated 25.02.2024. On appeal, the Ld.CIT(A) confirmed the action of the

AO. Aggrieved, the assessee is before us.

The Ld.AR, inter-alia, has assailed the action of the Ld.CIT(A)

confirming the order of the AO u/s.270A of the Act and pointed out that

the AO while levying penalty has not applied his mind and the penalty

order doesn’t specify as to which part of sub-section of (9) of sec.270A

was attracted in this case to warrant levy of penalty for misreporting its

income. And the Ld.AR drew our attention to the penalty order and

submitted that the AO has not made out a case against the assessee that

assessee had misreported its income. In order to appreciate the

aforesaid submissions of the Ld.AR, it would be gainful to reproduce the

relevant part of the impugned penalty order of the AO levying penalty

which is reproduced as under:

Analysis of issues involved Description of issue: The Assessing Officer noticed that the assessee had added an amount of Rs 3 crores qua "building block" alleged to have been paid to Sri M. Balasubramanian on 27.01.2007 consequent to compromise deed entered into by the assessee with the above person. The assessee's explanation offered in support thereof was that the M.Balasubramanian had filed a writ petition before the Hon'ble Madras High Court as he objected to the construction raised by the assessee and obtained stay against the construction. He withdrew the suit consequent to payment of Rs.3 crores and entering into a compromise agreement. So, the assessee's claim was that without payment of the above amount of Rs 3 crores, its construction could not have been raised. The Assessing Officer opined that payment of the above amount had not led to acquisition of any right etc. in assessee's favour and hence depreciation on the same was not allowable. Accordingly, the assessing officer disallowed depreciation of Rs.15 lacs (@5% of Rs.3 Crores; put to use for less than 180 days) claimed by the assessee. On appeal filed by the assessee, the CIT(A) upheld the order of the assessing officer. On further appeal filed before ITAT, the Hon'ble ITAT vide its consolidated order in ITA No.982 & 983/Mds/12 dtd05.09.2012 for A.Ys 2007-08 and 2008-09 upheld the order of the CIT(A) on the above issue In view of the foregoing, the assessee was asked to furnish the particulars of consequential depreciation

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claimed in respect of the above addition to building block from A.Y 2007-2008 and onwards. On verification of the particulars filed by the assessee, it is found that the depreciation claimed by the assessee attributable to the above addition of Rs.3 Cr worked out to Rs. 11,04,148/-for A.Y 2017-18 .In view of the reasons detailed above by the assessing officer while finalizing scrutiny assessment for A.Y 2007-08, the depreciation claimed of Rs.11,04,148/- attributable to the compensation paid of Rs.3 Cr is disallowed and added to the loss returned by the assessee. The assessee has filed appeal before Ld.CIT(A) against the assessment order.

The Ld. CIT(A) stated that the appellant in its grounds of appeal has assailed the AO in following the Assessment Order for AY 2007-08, AY 2008-2009 AY 2009-2010, AY 2010-2011 and AY 2011-2012 and AY 2013-14 which are contested in appeal by the Appellant and in concluding that the payment of compensation had not resulted in acquisition of any right to the Appellant. The appellant stated that the AO ought to have considered the fact payment of Compensation resulted in Capital Expenditure of enduring benefit, in the form of a building that was constructed by the Appellant, which has been capitalized along with cost of the building. The appellant further submitted that the AO has erred in in not considering the fact that the delayed interest on remittance of TDS is not a tax. The facts of the case are analyzed and the submission made by the appellant is examined. Since the issue under consideration has been examined by my preceding CIT (A) and that the Hon'ble ITAT has upheld the order of the AO and the CIT(A) and the Tribunal the last fact-finding authority has upheld the findings of the AO. And that the appeal of the appellant is in Hon'ble High Court and is pending adjudication. Therefore, the order of the ITAT is binding unless overturned by the Hon'ble HC. And as the facts emerges that the appeal is pending. Therefore, following the legacy of the case, the action of the AO is upheld and the grounds of appeal are dismissed.

Synopsis of all submissions of the assessee relating to the issue indicating the dates of submission: A show cause notice u/s. 274 read with section 270A was issued to the assessee on 25.10.2019 asking the assessee to show cause as to why an order imposing penalty u/s. 270A should not be passed for mis- reporting of income Another show cause notice u/s. 274 r.w.s 270A was issued to the assessee on 13.02.2024 giving one more opportunity to present his case. In response to the same, the assessee has submitted the reply.

Synopsis of submissions made during personal hearing through VC, if any: Assessee has not opted for personal hearing.

Conclusion drawn for Imposition of Penalty:

The assessment was completed u/s. 143(3) on 22.10.2019 determined the loss.

During the course of penalty proceedings a show cause notice was issued on 13/02/2024

In response to the same the assessee has submitted that a) The issue of depreciation on the compensation capitalized by the Assessee is pending in the Madras High court and it has claimed the, as this is a pending issue and the issue is also covered in earlier years cannot be considered as under Reported income. b) Further it is submitted that the issue is pending and the claim is made on bona fide belief that the issue is pending in Madras high court by no stretch of imagination be considered as Under reporting of Income. c) Further the payment of compensation is not disputed, assessee treated the

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compensation as capital expenditure and claimed depreciation, as without the payment of compensation the Building block in respect of depreciation claimed on Compensation paid towards easementary rights amounting to Rs.3,00,00,000/- capitalized with Buildings on the grounds that the said payment did not result in acquisition of any asset which is contested in appeal by the Assessee.

It is further submitted that the depreciation issue is not also misreporting of income and further that the Assessee had furnished all details of the transaction relating to disallowance of depreciation which is an earlier issue and this cannot be concluded as misreporting or under reporting and no limb of section 270A can be attracted and thus Notice of penalty be dropped.

The submission made by assessee is considered, however, it is not acceptable as the Ld. CIT(A) has confirmed the action of AO for denial of claim of depreciation. Therefore, addition which is confirmed by Ld. CIT(A), it is held that the assessee had mis- reporting the income and hence liable for imposition of penalty u/s.270A, which is accordingly being imposed.

In this context, relevant extract of Section 270A is reproduced as under:

"270A. Penalty for under reporting misreporting of income, etc.-

(1) If the Assessing Officer or the Commissioner (Appeals) or Principal Commissioner or Commissioner may during the course of any proceeding under this act, direct that any person who has under reported his income shall be liable to pay a penalty in addition to tax, if any, on the under reported income.

(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

(3) The amount of under reported income shall be-

(i) in a case where income has been assessed for the first time-

a) if return has been furnished, the difference between the amount of income assessed and the amount of income determined under clause (a) of sub-section(1) of section 143.

Therefore, it is clear that the assessee has mis-reporting the particulars of income and in my opinion, it is a fit case for imposition of penalty and accordingly. Hence, for the reasons discussed above, I am satisfied that the assessee has without any reasonable cause mis-reporting the particulars in respect of income amounting to Rs. 11,04,541/- and had rendered himself liable for penalty u/s 270A of the Act.

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A reading of the penalty order u/s.270A of the Act, would reveal

that the AO has merely reproduced sub-section (1), (2) & (3), wherein,

Legislature has newly inserted Section 270A of the Act w.e.f. 01.04.2017.

Section 270A provides for levy of penalty in case of underreporting and

misreporting of income. Sub-section (1) provides that the AO or

authorities specified therein, during the course of any proceedings under

the Act may levy penalty, if a person has under-reported income. Sub-

section (2) provides that a person shall be considered to have under-

reported his income if the income assessed/reassessed falls in one of the

seven instances given therein at clause (a) to (g). The amount of under-

reported income shall be calculated in different scenarios as discussed in

sub-section (3) of Section 270A of the Act. It can be noticed from the

penalty order that the AO after reproducing the aforesaid sections of

section 270A of the Act, has not discussed about the provisions which

spells out instances where a person’s case may attract misreporting of

income, which infraction/dereliction/charge, he has alleged against the

assessee; and then, the AO thereafter, abruptly concludes “……therefore,

it is clear, that assessee has misreporting the particulars of income and in

my opinion, it is a fit case for imposition of penalty and accordingly.

Hence for the reason discussed above, I am satisfied that the assessee

has without any reasonable cause misreporting the particulars in respect

of income amounting to ₹11,04,541/- and rendered himself for penalty

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u/s.270A of the Act.” Accordingly, he held assessee to be an assessee in

default u/s.270A of the Act for misreporting its income. We don’t

countenance the action of the AO levying penalty for the simple reason

that there was total failure on part of AO to apply his mind to hold

assessee to be an assessee in default u/s.270A of the Act for misreporting

its income. Merely reproducing sub-section (1) to (3) of section 270A of

the Act, which is relating to underreporting income, the AO is noted to

have imposed penalty @200% for ‘underreporting in consequence of

misreporting income’, which is a distinct lapse/infraction spelled out in

sub-section (8) & (9) of Section 270A of the Act. It would be gainful to

reproduce sub-section (8) & (9) of Section 270A of the Act, which reads

as under:

(8) Notwithstanding anything contained in sub-section (6) or sub-section (7) where under-reported income is in consequence of any misreporting thereof by any person, the penalty referred to in sub-section (1) shall be equal to two hundred per cent of the amount of tax payable on under-reported income.

(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.

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As noted, the AO has not given any reason as to how the assesee’s

case, its alleged ‘infraction/lapse/charge’ falls in the ken of sub-section

(9) of section 270A of the Act to warrant imposition of penalty for

‘underreporting in consequence of misreporting income’. Non-application

of mind is discernable from perusal of the penalty order itself, since there

is no whisper as to which limb of sec.270A(9) is attracted; and how the

ingredient of sub-section (9) of Sec.270A has been satisfied. We find that

there is failure on the part of the AO to specify which part of sub-section

(9) of section 270A of the Act is attracted in this case. Therefore, penalty

levied by the AO can’t be sustained for the reason that the order is not a

speaking order. The AO has made more or less a computerized approach

while levying penalty, which action cannot be countenanced. Hence, we

don’t countenance the action of the AO holding assessee to be an

assessee in default u/s.270A of the Act for misreporting its income.

In this context, it has to be borne in mind that ‘reason’ is the heart-

beat of every judgment, without the same, it become life less (refer Ram

Phal v. State of Haryana & Ors reported in [2009] (3) SCC 258). The

AO’s action of levy of penalty without giving any reason is arbitrary

exercise of power and abuse of process of law. Application of mind is

demonstrated by disclosure of mind, and disclosure of mind is

demonstrated by recording reasons (refer Maya Devi v. Raj Kumari Batra

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reported in (2010) 9 SCC 486, failure to give reasons amounts to denial

of justice (refer Mangalore Ganesh Beedi Works v. CIT AIR 2005 SC 1308.

Merely reproducing the facts of the case as stated in assessment order, or

appellete order, will not suffice. The AO is duty bound to speak through

his order, how the assessee’s act/omission would fall in one of the limb of

sub-clause (a) to (f) of sub-section (9) of Section 270A of the Act.

Therefore, in the light of the aforesaid discussion, we find that penalty

levied by the AO suffers from the infirmity of non-application of mind and

therefore, the impugned action of Ld CIT(A) can’t be sustained in the eyes

of law and therefore, it is set-aside and consequently, we direct the AO to

delete penalty levied u/s.270A of the Act.

In the result, appeal filed by the assessee is allowed. Order pronounced on the 04th day of March, 2026, in Chennai.

Sd/- Sd/- (प�ावती .एस) (एबी टी. वक�) (PADMAVATHY. S) (ABY T. VARKEY) लेखा सद�य/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER चे�ई/Chennai, �दनांक/Dated: 04th March, 2026. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF

M/S. AVM PRODUCTIONS,CHENNAI vs. ACIT, NON CORPORATE CIRCLE-20(1), CHENNAI