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Facts
The assessee, Om Minerals, initially filed a return declaring a loss. However, an adjustment under Section 143(1)(a) for Rs. 3,64,90,350/- (u/s 43B disallowances) converted it to an income. This adjusted income was maintained in the subsequent scrutiny assessment under Section 143(3). The AO levied a penalty of Rs. 2,52,57,160/- under Section 270A for alleged under-reporting of income due to misreporting, which the CIT(A) later deleted.
Held
The Tribunal upheld the CIT(A)'s decision, ruling that since the income assessed under Section 143(3) was the same as the income determined under Section 143(1)(a), there was no 'under-reporting of income' as defined by Section 270A(2)(a). Consequently, the penalty levied under Section 270A for misreporting of income was not sustainable, as the disallowances made under Section 43B did not constitute misreporting in this context.
Key Issues
Whether a penalty under Section 270A for under-reporting of income is leviable when the income determined under Section 143(1)(a) is identical to the income assessed under Section 143(3), and the disallowances made under Section 43B do not fall under the definition of misreporting.
Sections Cited
Section 270A, Section 139(1), Section 143(1)(a), Section 143(3), Section 43B, Section 270A(2)(a), Section 270A(3)(ii), Section 270A(10)(c), Section 270AA, Section 270A(8), Section 270A(9), Section 274
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Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
Before: Dr. B. R. R. Kumar, Sh. Sudhir Kumar
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
1. The present appeal has been filed by the Revenue and the Cross Objection by the assessee against the order of National Faceless Appeal Centre (NFAC), Delhi dated 24.11.2023.
2. Following grounds have been raised by the Revenue:
“1. On the facts and circumstances of the case the Ld. CIT(A) has erred in law & on facts in deleting the penalty of Rs. 2,52,57,160/- imposed by the A.O. without appreciating the fact that the assessee has made willful default to the tune of Rs.3,64,90,350/- and it attracts penalty provision embedded in section 270A.
CO No. 16/Del/2024 Om Minerals 2. On the facts and circumstances of the case the Ld. CIT(A) has erred in law & on facts in deleting the penalty without appreciating the fact that the assessee was duly knowing the fact that the payments of Interest on R & R Charges amounting to Rs. 14,40,051/-, payments of Interest on Royalty amounting to Rs. 55,07,963/-, payments of Mines and Geology Charges amounting to Rs. 2,68,56,668/-, payments of R and R Charges amounting to Rs. 26,85,668 were not paid before the due date for furnishing the return of income of the previous year under section 139(1) of the I.T. Act., the assessee had claimed the above mentioned payments in the ITR which makes it evident that the assessee has misreported the income during filing Return of Income.”
The assessee has raised the following grounds of cross objection in CO No. 16/Del/2024:
“1. That Ld. CIT(A) has erred in law by not deciding on our alternative grounds of appeal
(total five grounds).
2. That Ld. CIT(A) has erred in law by not deciding on calculation of misreported income keeping in view the specific provision of section 270A(3)(ii).
3. That Ld. CIT(A) has erred in law by not deciding on calculation of tax payable keeping in view the specific provision of section 270A(10)(c).
4. That Ld. CIT(A) has erred in law by not deciding on acceptance of immunity from penalty under section 270AA.
5. That Ld. CIT(A) has erred in law by not deciding the legality of disallowance under section 43B in assessment under section 143(3) at the time of passing penalty order even if we have not filed the appeal against the assessment order. The disallowance under section 43B made in assessment order under section 143(3) is wrong and bad in law.
6. That Ld. CIT(A) has erred in law by not deciding on invocation of provisions of section 270A(8) without taking into account the provisions of section 270A(9).”
CO No. 16/Del/2024 Om Minerals 4. The assessee firm filed return of income on 30.10.2017 declaring a loss of Rs.3,47,97,855/-. The return was processed under section 143(1)(a) of the Income Tax Act, 1961 on 09.03.2019 at an income of Rs.16,92,495/-. The case was selected for scrutiny and an order was passed under section 143(3) on 26.12.2019 assessing the income at Rs. 16,92,495/-. During the assessment proceedings, the AO noted from the Audit report that the following payments were not made before the due date for furnishing the return of income of the previous year u/s 139(1) of the I.T. Act:
Interest on R & R charges 2. Interest on Royalty 3. Mines and Geology charges 4. R & R charges
On account of the above, the AO disallowed the amount of Rs.3,64,90,350/- u/s 43B of the Act and levied penalty u/s 270A of the Act for under reported income which was in consequence of misreporting thereof of the disallowances made u/s 43B of the Act.
Aggrieved, the assessee filed appeal before the ld. CIT(A) who deleted the penalty levied.
Aggrieved, the assessee filed appeal before the Tribunal.
During the course of appellate proceeding before us, the assessee reiterated the arguments taken up before the ld. CIT(A) which is reproduced as under:-
CO No. 16/Del/2024 Om Minerals “1. Conclusion in the penalty order that income has been misreported is wrong keeping in view the specific provision in section 270A(2)(a) which is reproduced below:
"A person shall be considered to have under-reported his income if the income assessed is greater than the determined in the return processed under clause (a) of sub section (1) of section 143.
You will appreciate that income assessed u/s 143(3) is the same as the income determined u/s 143(1)(a) and hence the conclusion that we have under reported the income is wrong and it is evident from plain reading of section 270(A)(2)(a).
2. That the calculation of under reported income is not done according to provision of section 270A(3)(ii) which is reproduced below:
“The amount of under reported income shall be:
(ii) In any other case, the difference between the amount of income assessed, recomputed and the amount of income assessed, reassessed or re-computed in a preceding order."
Here, the income assessed by your order dated 26.12 2019 is Rs. 16,92,495/- and the income assessed in order u/s 143(1)(a) which is the preceding order is also Rs.16,92,495/-.
So, the difference between the two orders is zero i.e. misreported income is zero. When the misreported income is zero there cannot be tax payable on misreported income.
Calculation of tax payable on under reported income is not done according to the specific method provided in section 270A(10)(c) is also zero. Provisions of law reproduced below for your ready reference:
“The tax payable in respect of the under reported income shall be- (c) in any other case, determined in accordance with the formula- (X-Y)
Where, X= the amount of tax calculated on the under-reported income as increased by the total income determined under clause (a) of sub-section (1) of section 143 or Y = the amount of tax calculated on the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order."
When the assessee has filed the application u/s 270AA for immunity from penalty and the order u/s 270AA (4) was to be passed within one month. The AO has accepted the fact that the assessee has applied for immunity under section 270AA and filed FORM-68.
In a situation where order is not passed within one month, it has to be presumed that immunity has been granted otherwise also without disposal of our application for immunity, penalty cannot be imposed.
Though the assessee has not filed the appeal against the assessment orders, the disallowances made in assessments orders should have again been considered before imposing penalty.
From a plain reading of section 43B, it is clear that none of the four disallowances made in assessment orders are not covered under section 43B i.e. tax, duty, cess or fee etc.
We quote following judgements in support of our claim: a. M/s Tamil Nadu Minerals Limited Vs JCIT, Company Range - Ill, Chennai, Hon'ble Madras High Court, Tax Case Appeal No. 1806 of 2008 dated 22.04.2019 b. CIT-II, Chandigarh Vs M/s Punjab State Forest Development Corporation Ltd., Hon'ble High Court of Punjab & Haryana, of 2009 Dated 04.10.2013 Hence, when the disallowance made is not according to the provisions of law, penalty cannot be imposed.
In view of the above submissions your are requested to please delete the penalty made by the AO in the order u/s 270AA.
We also request for personal hearing through video conferencing to explain our case.
The assessee made another submission on 14.11.2023 which is reproduced as under:
“We are in receipt of your notice dated 03.11.2023. We have received a similar notice on 19.07.2023. Notice dated 19.07.2023 was replied on 03.08.2023, which is available on e-proceeding facility.
However, we are again enclosing the same. No fresh submission is being made. We are enclosing herewith the copy of intimation under section 143(1)(a) and assessment order under section 143(3) for your ready reference.
In continuation of our submissions on 03.08.2023, we would like to further submit as under:-
The AO issued notice under section 274 read with section 27OA stating that "you have under reported income which is in consequence of misreporting thereof" but failed to substantiate how income was under reported, if underreported how the same was in consequence of misreporting thereof, keeping in view the provisions of Section 270A(2)(a) which defines under reporting. Ld. AO failed to adjudicate how the income is misreported under section 270A(2)(a).
Notice do not mention under which limb of section 270A(9) the under reporting is in consequence of misreporting.
Without prejudice to our submission in para 1 above, the AO failed to adjudicate how this is a case of misreporting keeping in view the specific provisions of section 270A(9). The AO has not discussed section 270A(9) in his order. All the additions in intimation under 143(1)(a) and assessment order under section 143(3) were based on the documents filed by us alongwith the return of income. In such a situation it is not even a case of under reporting not to say of misreporting. Hence, no penalty whether under section 270A(8) or under section 270A(7) can be imposed.
Cases relied on:
Prem Brothers Infrastructure LLP vs. National Faceless Assessment Center 2022(6) TMI 130- Delhi High Court.
We have carefully considered the facts of the case, penalty order passed u/s 270A, grounds of appeal, written submission and cited case laws furnished by the assessee during the appellate proceeding.
11. It is a fact on record that the assessee submitted that the assessee has not filed appeal against the Assessment Order and paid the due taxes. The AO invoked provision of sub-section 8 of section 270A and levied penalty of Rs.2,52,57,160/- being 200% of tax payable on under reported income in consequences of misreporting thereof.
12. It was argued that conclusion of under-reported income in penalty order is wrong in view of the provision of section 270A(2)(a) of the Act. Calculation of under reported income was not made as per provision of section 270A(3)(ii). Calculation of tax payable on under reported income comes to zero as per the method provided in section 270A(10)(c). Further appellant contended that though it has not filed appeal against the assessment order, the disallowances made in assessment order should have been considered before imposing the penalty.
Provisions of section 270A of the Act reads as under:
“270A.(1) The Assessing Officer or [the Joint Commissioner (Appeals) or] the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the course of any proceedings under this Act, CO No. 16/Del/2024 Om Minerals 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: ……………….. ……………… (3) The amount of under-reported income shall be- (i) in a case where income has been assessed for the first timer- (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; (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 underreported 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.
…………….. ……………… (b) where the total income determined under clause (a) to sub-section (1) of section 143 or assessed, reassessed or recomputed in a preceding order is a loss, the amount of tax calculated on the under reported income as if it were the total income.
(c) in any other case, determined in accordance with the formula— (X-Y) where, X = the amount of tax calculated on the under-reported income as increased by the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order as if it were the total income; and Y = the amount of tax calculated on the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order.
The assessee filed its return of income on 30.10.2017 declaring loss at Rs.3,47,97,855/-. A communication / adjustment letter dated 04.01.2019 was issued to the assessee wherein following adjustment u/s 143(1)(a) of the Act was proposed:
CO No. 16/Del/2024 Om Minerals (iv) Disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return - 143(1)(a)(iv) Sl. Particulars Amount in Amount Proposed No. Income Tax mentioned in adjustment Return Form to total Annexure income 3CD 1. Inconsistency in 36490350 36490350 amount debited to profit and loss account of the previous year but disallowable under section 43B
The proposed adjustment was agreed by the assessee. Consequently, return of income was processed u/s 143(1) of I.T. Act by CPC, Bengaluru on 09.03.2019 determining total income at Rs. 16,92,500/- making adjustment/disallowance of Rs.3,64,90,350/- u/s 43B of I.T. Act.
Thereafter the case was selected for scrutiny under CASS and in the assessment order passed u/s 143(3) 6f the Act on 26.12.2019, AO determined total income at Rs. 16,92,495/-. While computing the assessed income at Rs. 16,92,500/- the AO considered the loss of Rs.3,47,97,855/- as ‘total income u/s 143(1)’ and made disallowance of Rs.3,64,90,350/- u/s 43B of the Act. The disallowance u/s 43B of the Act so made in assessment order was already made while computing income u/s 143(1)(a) of the Act.
The ld. CIT(A) held that Section 270A(2) defines ‘under reporting of income’. As per provision of section 270A(2)(a), a person shall be considered to have under reported his income if CO No. 16/Del/2024 Om Minerals the income assessed is greater than the income determined in the retuned processed under clause (a) of sub section (1) of section 143; however in the present case, there is no under reporting of income as income assessed u/s 143(3) of the I.T. Act and income determined in return processed u/s 143(1)(a) are same. It was held that in the light of aforesaid discussion and in view of provisions of section 270A(2)(a) of Income Tax Act, this is not a case where appellant has under reported its income and in absence of under reporting of income, penalty cannot be levied u/s 270A of I.T. Act.
After considering the facts of the case, we are inclined to accept the decision of the ld. CIT(A) that this is not the case where the assessee has under reported its income in consequences of misreporting thereof and no penalty is leviable on the prima facie disallowances made u/s 43B of the Act.
In the result, the appeal of the Revenue is dismissed and the Cross Objection of the assessee is allowed. Order Pronounced in the Open Court on 08/08/2024.