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Facts
The Assessing Officer levied a penalty of Rs. 52,40,694/- on the assessee for under-reporting income. The CIT(A) partly allowed the assessee's appeal, setting aside the penalty. The Department is appealing this decision. A key issue is the validity of the penalty notice, which did not specify the relevant section of the Income Tax Act under which the penalty was to be imposed.
Held
The Tribunal held that the Assessing Officer erred in issuing a penalty notice that did not specify the exact provision of law under which the penalty was proposed. The assessee was not given a reasonable opportunity to defend themselves due to this lack of clarity. Therefore, the CIT(A) was justified in setting aside the penalty.
Key Issues
Whether the penalty levied under Section 270A of the Income Tax Act, 1961, is valid when the show cause notice does not clearly specify the limb of the section under which the penalty is proposed.
Sections Cited
270A, 250, 40(a)(ia), 194C
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”B-Bench” JAIPUR
Before: SHRI RATHOD KAMLESH JAYANTBHAI, AM & SHRI NARINDER KUMAR, JM vk;dj vihy la-@ITA No. 503/JPR/2024
vkns'k@ORDER PER: NARINDER KUMAR, JUDICIAL MEMBER .
Department is before this Appellate Tribunal, feeling dissatisfied with the order dated 26.02.2024 passed by Learned CIT(A), NFAC, Delhi, passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “ the Act”). The matter pertains to assessment year 2019-20.
ACIT Vs. Man Mohan Krishna 2. Vide impugned order, Learned CIT(A) has partly allowed the appeal filed by the assessee, and thereby set aside the penalty imposed by the Assessing Officer u/s 270A of the Act.
The Assessing Officer, vide assessment order dated 29.01.2022 levied penalty to the tune of Rs. 52,40,694/-, while recording finding that the assessee had under-reported income to the tune of Rs. 82,60,044/-, while furnishing income tax return on 19.11.2019.
As noticed above, the assessee got relief from Learned CIT(A). Hence, the Department is before this Appellate Tribunal, 5. Arguments heard. File perused. Contentions (i) On behalf of Department 6. Ld. DR for the appellant has submitted that CIT(A) erred in observing in the impugned order that the Assessing Officer had not discussed his satisfaction for initiation of penalty proceedings. The contention is that the Assessing Officer, while levying penalty, clearly recorded that the assessee had under-reported income, and as such, he rendered himself liable for penalty u/s 270A of the Act. In support of his contention, ld. DR has referred to sub-section (9) of Section 270A of the Act which explains as to when misreporting would ACIT Vs. Man Mohan Krishna amount to under-reporting, and further that misrepresentation or suppression of facts is one of the kind of misreporting of income made punishable under sub-section (8) of Section 270A of the Act, calling for heavy penalty equal to 200% of the amount on tax payable on under- reporting income. Ld. DR has also submitted that Learned CIT(A) erred in recording finding that penalty in case of under-reporting of income could be levied only to the extent of 50%, and that the AO levied penalty @ 200%, and that too not under proper limb of section 270A of the Act. It has been argued that even if Learned CIT(A) was of the view that the matter did not call for imposition of penalty @200%, the assessment order should have been upheld atleast to the extent of 50% of the tax payable. Accordingly, Ld. DR has urged that the appeal be allowed and the impugned order be set aside. (ii) On behalf of Assessee 7. On the other hand, ld. AR for the assessee-respondent has supported the impugned order passed by Learned CIT(A) for the reasons recorded therein and prayed for dismissal of the appeal filed by the department. He has also submitted that this is not a case where books of ACIT Vs. Man Mohan Krishna accounts of the assessee were rejected, and as such, no levy of penalty was called at all. In support of his submission, Ld. AR has also referred to clause (b) sub-section(6) of Section 270A of the Act. Analysis & Findings 8. Admittedly, the assessment order imposing penalty u/s 270A of the Act came to be passed on 29.01.2022 subsequent to the assessment order of even date, relating to the same assessment year 2019-20, whereby the Assessing Officer had disallowed expenditure expenses and also disallowed a sum of Rs. 64,47,267/- due to non deduction of TDS, and also while applying provisions of Section 40(a)(ia) of the Act.
The assessee is a transporter. As per his claim, the assessee has been providing goods transportation services to KH Cement Ltd., Wonder Cement Ltd. and other clients, in Rajasthan and M.P.
As finds mention in the penalty order, while framing quantum assessment, the Assessing Officer noticed that the assessee had failed to substantiate his claim as regards Trip Expenses to the tune of Rs. 4,40,85,182/- stated to have been paid in cash, the reason being that cash expenses limit of a transporter is Rs. 35,000/- per day per person, but, on 03.06.2019, the assessee was found to have made payment of Rs. 1,26,530/- i.e. by exceeding the said limit.
ACIT Vs. Man Mohan Krishna Accordingly, the Assessing Officer disallowed 15% of the said expenditure i.e. to the tune of Rs. 66,12,777/- on the total expenditure of Rs. 4,40,85,182/- and added the same to his total income.
The Assessing Officer also disallowed a sum of Rs. 16,47,267/-being 30% of the total amount i.e. Rs. 54,90,891/-, towards the TDS, on payments to contractors, having not been deducted as required u/s 194C of the Act.
The Assessing Officer observed in the penalty order that since the assessee had declared loss in the income tax return, it was a case calling for levy of penalty under sub-section (7) of Section 270A of the Act.
In the course of arguments, Ld. AR for the assessee has presented before us, a copy of show cause notice dated 10.11.2021 stated to have been served by the Assessing Officer before levy of penalty. Its perusal would reveal that this is a show cause notice for penalty, whereby the assessee was called upon to explain as to why an order imposing penalty u/s 270A of the Act should not be passed.
The Assessing Officer did not specify in the show cause notice, as to under which limb of said provision of the Act, the penalty was proposed to be levied or to say, as to what was the violation on the part of the assessee.
ACIT Vs. Man Mohan Krishna When Section 270 A of the Act has many sub-sections, Assessing Officer is required to specify in the notice as to under which sub-section of Section 270A of the Act, the penalty is proposed to be levied. Only then, an assessee would be able to know the exact allegation levelled against him, which would enable him to furnish his response thereto with relevant documents in his defence. In other words, basis for such a specification of the relevant clause in the notice is to acquaint the assessee about exact violation of law so that the assessee is able to effectively defend himself or support his claim in response thereto. Sub-section (8) of section 270A 15. Here, sub-section (8) provides for higher penalty i.e. @200% of the amount on tax, where under-reported income is in the form of any “misreporting of income” thereof by any person. “Misreporting of income” has been explained in sub-section (9) of Section 270A of the Act. There are 6 clauses available under sub-section (9). Any of said clause would attract the above said higher rate of penalty. Sub-section (7) of Section 270A On the other hand, sub-section (7) of Section 270A of the Act provides for levy of penalty of a sum of equal of 50% of the amount of tax ACIT Vs. Man Mohan Krishna payable on account of unreported income i.e. in case of under-reporting of income other than in consequence of any misreporting thereof.
Here, in absence of any specification in the show cause notice as to whether the penalty was sought to be imposed under sub-section (7) or sub-section (9) of Section 270A of the Act, it can safely be said that the assessee was not communicated the exact provision of law, for which the assessee was going to face proceedings. Therefore, we are of the considered view that on this point Learned CIT(A) was justified in setting aside the penalty.
As per para 5 of the penalty order, the Assessing Officer recorded that he was imposing penalty as per sub-section (7) of Section 270A of the Act. But, as per calculations, the Assessing Officer levied penalty @ 200% of the under-reported tax i.e. while attracting the provisions of sub- section (8) of Section 270A of the Act. In the penalty order, once the Assessing Officer was of the view that he was going to levy penalty for violation of one provision of law, he could not levy penalty under any other provision of law. Therefore, levy of such penalty cannot be justified even on this ground.
ACIT Vs. Man Mohan Krishna Conclusion In view of the above discussion, it can safely be said that the while issuing show cause notice, the Assessing Officer was himself not convinced as to under which of specific provisions of section 270A, the penalty if any, was leviable in the case of the assessee. Even otherwise, the assessee had no reasonable opportunity of defending himself, when the relevant provision fo law was not specifically communicated to him in the show cause notice, before levy thereof. Result 18. As a result, this appeal deserves to be dismissed. Same is hereby dismissed and the impugned order passed by the Learned CIT(A) is hereby upheld.
Order pronounced in the open court on 10/09/2024.
Sd/- Sd/- ¼jkBkSM+ deys'k t;UrHkkbZ ½ ¼ujsUnz Pdqekj½ (RATHOD KAMLESH JAYANTBHAI) (NARINDER KUMAR) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:-10/09/2024 *Santosh आदेश की प्रतिलिपिअग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू The Appellant- ACIT, Circle-1, Alwar. 1. 2. izR;FkhZ@ The Respondent- Shri Man Mohan Krishna, Alwar..
ACIT Vs. Man Mohan Krishna 3. vk;djvk;qDr@ The ld CIT 4. विभागीय प्रतिनिधि] आयकरअपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZQkbZy@ Guard File vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेजज. त्महपेजतंत