MYUMGHWA AUTOMOTIVE INDIA PVT. LTD.,KANCHIPURAM vs. ITO, CORPORATE WARD-4(1), CHENNAI

Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the ld.CIT(A) vide Form 35 dated 06.01.2022. Subsequently, notices were issued upon the assessee, who responded to the same. Thereafter, the ld.CIT(A) passed an order u/s.250 of the Act, confirming the penalty levied by the Assessing Officer.

Aggrieved by the above order of the ld.CIT(A), the assessee is in appeal before us.

Brief facts of the case emanating from the records are that the assessee is a private company and filed its return of income for the year under consideration on 27.11.2017 admitting income at Nil. Thereafter, the assessee’s case was selected for scrutiny under CASS. Upon scrutiny, it was found that the remittance of employees’ contribution towards EPF and ESI of Rs.8,55,664/- were beyond due dates and therefore, deduction claimed in respect of the same u/s.36(1)(va) of the Act were disallowed by the Assessing Officer vide order dated 16.12.2019 passed u/s.143(3) of the Act. In the said order, initiation of penalty proceedings u/s.270A of the Act was proposed and :-3-: ITA. No:2660/Chny/2025 notice in effect of the same was issued on the assessee on 16.12.2019. Thereafter a show-cause notice dated 06.04.2021 was issued for filing of written submission. In response to the same, the assessee filed its reply on 13.04.2021 wherein it was submitted that there was no mens-rea on the part of the assessee and that there was no deliberate neglect or conscious intent to conceal any income. It was further submitted that there was no misreporting of income, so as to warrant penalty at the rate of 200%. The Assessing Officer, after perusing the reply of the assessee, found it unplausible and levied penalty of Rs.5,28,800/- at the rate of 200% on the tax sought to be evaded.

Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the ld.CIT(A). In the appellate proceedings, the assessee submitted that even though remittance of PF and ESI is belated, it still qualifies to be an allowable expense and therefore, the consequent penalty u/s.270A cannot be levied. It was further submitted that when there are two views possible with respect the allowability of a claim of deduction, following one view would not come within the purview of misreporting of income and it cannot lead to levy of penalty. In support of the contention that the claim of PF/ESI is allowable, the assessee relied on the following case:  CIT V. Vinay Cement ltd (213 CTR 268).  CIT V. JH Gotla (1985) 48 CTR (SC) 363.  CIT V. Aimil ltd (2010) 321 ITR 0508.  CIT V. Industrial Security & Intelligence India Pvt Ltd (Mad HC – TCA No.585,586 of 2015).

The assessee also contended that the EPF and ESI, although remitted late in the respective Acts, but remitted within the due date of filing return of income under the Act and hence it will not be misreporting of income. Thereafter, the ld.CIT(A) passed an order dated 18.07.2025 upholding the levy of penalty u/s.270A on the basis of the decision of the Hon'ble Supreme Court in the case of M/s. Checkmate Services P. Ltd. v. CIT [TS-791-SC-2022].

Per contra, the ld.DR argued that the ld.CIT(A) was right in confirming the penalty and relied on the decision of Hon'ble Supreme Court in M/s. Checkmate Services P. Ltd (supra).

We have heard rival contention, perused the material before us and the judicial precedents relied by the assessee and the revenue. It is admitted fact that the assessee filed its return of income and declared income at Nil. Thereafter, assessee’s case was selected for scrutiny under CASS and order u/s.143(3) of the Act came to be passed on 16.12.2019 wherein a sum of Rs.8,55,664/- was disallowed u/s.36(1)(va) of the Act on the ground that the assessee remitted EPF and ESI after due dates. Consequently, penalty proceedings u/s.270A was initiated for ‘misreporting of income’ and penalty order u/s.270A of the Act dated 12.11.2021 came to be passed in which penalty of Rs.5,28,800/- at the rate of 200% on the tax sought to be evaded was levied. In the appeal before the ld.CIT(A) the assessee contended on various grounds as captioned above. Thereafter, the ld.CIT(A) upheld the penalty order of the Assessing Officer while relying on the decision of Hon'ble Supreme Court in the case of M/s. Checkmate Services P. Ltd (supra).

The question arising here is whether the penalty levied u/s.270A(9) of the Act for the reason that the assessee has remitted the EPF and ESI of the employees’ contribution, beyond due dates is correct or not. We find that the Assessing Officer had levied the penalty for misreporting of income. In order to :-5-: ITA. No:2660/Chny/2025 levy penalty for misreporting of income, the following circumstances must exist as per section 270A (9) of the Act. (9) The cases of misreporting of income referred to in sub-section (8) shall be the following, namely: —

A claim which is duly disclosed in the return of income but subsequently disallowed in the assessment proceedings cannot, by any stretch of imagination, be brought within the ambit of the clauses prescribed for “misreporting of income” u/s. 270A(9) of the Act. In the facts of the present case, none of the clauses enumerated u/s. 270A(9) are attracted.

Further, where penalty is sought to be levied u/s.270A(9) of the Act at the rate of 200% of the tax payable on the under-reported income, it is incumbent upon the Assessing Officer to clearly specify the particular clause of sub-section (9) of section 270A under which the case is alleged to fall. In the present case, the Assessing Officer has failed to specifically identify the applicable clause of section 270A(9) while levying the penalty.

In as much as the belated remittance of employees’ contribution towards PF/ESI does not fall within any of the clauses of section 270A(9) of the Act, we are of the considered view that the penalty levied u/s. 270A(9) is unsustainable in law and, accordingly, the same is directed to be deleted.

In this result, the appeal of the assessee stands allowed.