CHIGURUVADA DILEEPKUMAR,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-3(3)(1), BENGALURU

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE BEFORE SMT BEENA PILLAI, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER

ITA Nos. 832/Bang/2023 & 143/Bang/2024 Assessment Year : 2020-21 Shri Chiguruvada DileepKumar, The Deputy Flat : 204 163/3/75, Commissioner of Nellurahalli Road, Income Tax, Siddapura Village, Circle – 3(3)(1), Bangalore – 560 066. Bangalore. Vs. PAN: AMQPD6817Q APPELLANT RESPONDENT

: Shri Ravi Shankar .S.V, Assessee by Advocate Revenue by : Shri V. Parithivel, JCIT (DR)

Date of Hearing : 03-04-2024 Date of Pronouncement : 27-05-2024

ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal arises out of order passed by NFAC dated 30.08.2023 for A.Y. 2020-21 on following grounds of appeal:

Page 2 ITA Nos. 832/Bang/2023 & 143/Bang/2024 Tax effect relating Grounds of Appeal to each Ground of appeal (See note below) The orders of the honorable National Faceless Appeal centre in so far as they are against the 1. appellant, are opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the appellant's case. The appellant denies itself for levy of penalty 2. of Rs. 15,95,172/- for the year under consideration. At the outset, the Appellant submits that the order passed by the learned Assessing Officer is against the provisions of the law, rulings/judgements given by the honourable 3. judicial authorities in various cases, in so far as rejecting the contention of the appellant and levy of penalty is not in accordance with the provisions of the Income Tax Act, 1961 as interpreted by the Judicial authorities. The Appellant submits that the impugned order has been passed without considering 15,95,172 the contentions/submissions of the appellant. The Appellant submits that the impugned 4. order passed by the Learned authorities in so far as levy of penalty is concerned, is contrary to the law and facts, arbitrary and deserves to be deleted. The learned respondent erred in invoking 5. Section 270A, and levying penalty. For these and other grounds that may be urged at the time of hearing of the appeal the 6. appellant prays that the appeal may be allowed The appellant craves leave to add, alter, delete 7. or substitute any of the grounds urged above. In view of the above and other grounds that may be urged at the time of the hearing, the 8. assessee prays that the objections be considered in the interest of equity and Justice Total tax effect (see note below) 15,95,712

Page 3 ITA Nos. 832/Bang/2023 & 143/Bang/2024 2. We note that assessee has efiled the present appeal being ITA No. 832/Bang/2023 which is within the period of limitation. Subsequently, assessee has manually filed the appeal against the same impugned order in ITA No. 143/Bang/2024 on 25.01.2024 which is a belated appeal. The appeal filed belatedly against the same impugned order deserves to be held as infructuous as two appeals cannot lie against the same impugned order. We therefore dismiss the subsequent appeal filed belatedly in ITA No. 143/Bang/2024. Accordingly, the appeal filed by assessee in ITA No. 143/Bang/2024 is dismissed as infructuous.

Page 4 ITA Nos. 832/Bang/2023 & 143/Bang/2024 income under Chapter VIA, substantial difference in the total taxable income was also to be verified.

3.2 During the course of the assessment proceedings, various information were called for to examine the issues. The deduction claimed by assessee u/s. 80C, 80E and 10(13A) were examined in detail by the Ld.AO. The Ld.AO after verification, disallowed the claim of deduction u/s. 80E and 10(13A) as assessee did not give any supporting evidence.

3.3 The Ld.AO initiated the penalty proceedings for under reporting of income in consequence of misreporting u/s. 270A(9). The assessment order was passed on 17.09.2022 by making total additions in the hands of the assessee as under: Nature of Additions made Amount (INR) Disallowance of deductions 29,53,200/- claimed u/s. 80E Disallowance of exemption 2,28,166/- claimed u/s. 10(13A) Total Additions 31,81,366/-

The assessee accepted the additions made and the payment was paid immediately.

3.4 Subsequently, a show cause notice u/s. 274 r.w.s. 270A dated 17.09.2022 was issued to levy penalty u/s. 270A of the act. In response, the assessee filed reply dated 11.10.2022 and 07.02.2023. The reply filed by the assessee was considered by

Page 5 ITA Nos. 832/Bang/2023 & 143/Bang/2024 the Ld.AO. The Ld.AO noted that assessee filed original return of income for AY under consideration claiming refund of Rs.11,19,880/-.

3.5 The refund of Rs.10,91,670/- was credited to the assessee and subsequently on the revised return filed by the assessee, a scrutiny notice u/s. 143(2) was issued on 29.06.2021. The assessee has completed during the assessment proceedings that the revised return was filed by mistake and the original return dated 06.01.2021 was treated to be a final. It is submitted that some other CA has filed the return with incorrect details and that invoking the provisions of section 270A of the act is bad in law.

3.6 The Ld.AO observed that addition was made in the assessment order by disallowing the deduction u/s. 80E and the claim u/s. 10(13A) of the act. The Ld.AR submitted that during the course of the assessment proceedings, assessee has admitted that no education loan was taken and therefore no deduction could have been claimed u/s. 80E of the act.

3.7 It was also submitted that against the HRA claimed, assessee had filed the rental agreement with nestaway and assessee had submitted the bank statements substantiating the debit of rent paid. The Ld.AO however passed the draft assessment order on 28.02.2022 proposing the disallowance of deduction u/s. 80E and disallowance of exemption claimed u/s. 10(13A) of the act

Page 6 ITA Nos. 832/Bang/2023 & 143/Bang/2024 totalling to Rs.69,15,566/-. Thereafter on 17.09.2022, the final assessment order was passed by making the said addition in the hands of the assessee. The Ld.AO had initiated penalty for under reporting of income in consequence of misreporting for the disallowance of deduction claimed u/s. 80E of the act as well as disallowance of exemption claimed u/s. 10(13A) of the act. It is submitted that the assessee immediately paid the demand as per notice u/s. 156 amounting to Rs.12,92,361/-. The outstanding demand was paid vide challans dated 28.09.2022 and 30.09.2022. Thereafter on 10.10.2022, assessee filed form 68 being an application u/s. 270AA(2) of the act seeking immunity against the penalty proceedings. The Ld.AO however still initiated the penalty proceedings on 17.09.2022. The penalty order was passed on 15.03.2023 wherein the Ld.AO rejected the immunity from penalty proceedings by observing as under: “12. With regard to immunity from penalty proceedings u/s section 270AA, in page 6 of the assessment order u/s 143(3), in para 9.1 and 9.2 it has been clearly and specifically mentioned that penalty proceedings in the given case has been initiated under the circumstances referred to in subsection (9) of the Section 270A of the Income Tax Act, 1961. Therefore, as per the provisions of Section 270AA(3) of the income Tax Act, 1961, the assessee is also not eligible for immunity from imposing of penalty initiated u/s. 270A of the Income Tax Act, 1961 for underreporting of income which is in consequences of misreporting of income. For sake of clarity, the provisions of Section 270AA(3) of the Income Tax Act, 1961 is reproduced as under; "Section - 270AA(3) The Assessing Officer shall, subject to fulfilment of the conditions specified in sub-section (1) and after the expiry of the period filing the appeals as specified in clause (b) of sub- section (2) of section 249, grant immunity from imposition of penalty under section 270Aand initiation of proceedings

Page 7 ITA Nos. 832/Bang/2023 & 143/Bang/2024 under section 276C or section 276CC. where the proceedings for penalty under section 270A has not been initiated under the circumstances referred to in sub-section (9) of the said section 270A." . Also as per CBDT Notification No 3/2022, dated 16.07.22, filing of Form 68 is mandatorily to be done electronically through e-filing portal. In the given case assessee has sent an email seeking immunity and no form 68 application was e- filed.Moreover as discussed in para above, as the provisions of immunity itself not applicable in the assessee's case even if assessee were to have e-filed form68, the same would have been rejected as per provisions of section 270AA(3) of the Income Tax Act . 13. In view of the above, it is held that this is a fit case for levy of penalty u/s. 270A of the Income Tax Act, 1961 for underreporting of income, which is in consequences of misreporting of income. There is underreporting which is in consequences of misreporting of income of Rs 31,81,366/-. Hence, the assessee is liable to pay penalty of two hundred percent of the amount of tax payable on the underreported income, which is in consequence of misreporting of income. The income tax payable on underreported income works out to Rs 7,97,586/- and the two hundred percent penalty for the same works out to Rs. 15,95,172/-. I hereby levy penalty of Rs. 15,95,172/- i.e. two hundred percent of the tax payable on the underreported of income in consequence of misreporting of income. This penalty order has been passed with prior approval of the Addl. Commissioner of Income Tax, Range-3(3), Bengaluru received in order with DIN & Document No. ITBA/PNL/S/992/2022-23/1050563178(1) Dated: 09/03/2023. Demand notice is issued accordingly.” 3.8 Against this penalty order, the assessee preferred appeal before the Ld.CIT(A).

3.9 The Ld.CIT(A) was of the view that as the penalty proceedings were initiated u/s. 270(9) of the act for misreporting of income

Page 8 ITA Nos. 832/Bang/2023 & 143/Bang/2024 assessee could not seek immunity u/s. 270AA. He thus upheld the order of the Ld.AO by observing as under: “5.3.4. With regard to immunity from penalty proceedings u/s section 270AA, in page 6 of the assessment order u/s 143(3), in para 9.1 and 9.2 it has been clearly and specifically mentioned that penalty proceedings in the given case has been initiated under the circumstances referred to in subsection (9) of the Section 270A of the Income Tax Act, 1961. Therefore, as per the provisions of Section 270AA(3) of the income Tax Act, 1961, the assessee is also not eligible for immunity from imposing of penalty initiated u/s. 270A of the Income Tax Act, 1961 for underreporting of income which is in consequences of misreporting of income. For sake of clarity, the provisions of Section 270AA(3) of the Income Tax Act, 1961 is reproduced as under; "Section - 270AA(3) The Assessing Officer shall, subject to fulfilment of the conditions specified in sub-section (1) and after the expiry of the period filing the appeals as specified in clause (b) of sub- section (2) of section 249, grant immunity from imposition of penalty under section 270Aand initiation of proceedings under section 276C or section 276CC, where the proceedings for penalty under section 270A has not been initiated under the circumstances referred to in sub-section (9) of the said section 270A.” Also as per CBDT Notification No 3/2022, dated 16.07.22, filing of Form 68 is mandatorily to be done electronically through e-filing portal. In the given case assessee has sent an email seeking immunity and no form 68 application was efiled. Moreover as discussed in para above, as the provisions of immunity itself not applicable in the assessee's case even if assessee were to have e-filed form68, the same would have been rejected as per provisions of section 270AA(3) of the Income Tax Act.

3.10 Aggrieved by the order of the Ld.CIT(A), assessee filed appeal before this Tribunal.

Page 9 ITA Nos. 832/Bang/2023 & 143/Bang/2024 determining refund of Rs.10,91,670/- which was received by the assessee. He submitted that assessee was provided stock options by his employer every year. The stocks vest on a specific date and the employer deducts tax on the same. But FY 2019-20 was black-out period, wherein there was restriction imposed by the employer, internal employees can't sell the shares and to wait for 3 months. By the time black-out period is over, stock valuer educes to a great extent by 30%, and employee'stend to loose amount. Taxes was deducted by employer on notional gains of stock options, whereas employee's incur loss when the stock was sold. Hence, assessee approached a tax consultant and requested the to claim said losses. However, the tax consultant instead of providing the insight on provisions of claiming loss on stock options, misguided the appellant and claimed the deduction U/s 80E of the Income Tax Act,1961 and filed the return of income with a refund claim.

Page 10 ITA Nos. 832/Bang/2023 & 143/Bang/2024 was still resulting the refund which was not accepted by the assessee and didn’t e-verify the returns till date.

Page 11 ITA Nos. 832/Bang/2023 & 143/Bang/2024

Nature of Additions made Amount (INR) Disallowance of deductions claimed U/s 29,53,200/- 80E Disallowance of exemption claimed U/s 2,28,166/- 10(13A) Total Additions 31,81,366/-

Page 12 ITA Nos. 832/Bang/2023 & 143/Bang/2024 11. Levy of Penalty: 11.1 The Ld.AR submitted that i. The appellant accepted the additions made while passing the order ii. Said taxes were duly remitted without making any dispute iii. Made humble request before the learned assessing authorities as well as learned appellant authorities to grant immunity from leavy penalty iv. It is submitted that, the said claim made inadvertently while filing return on income and there was no mensrea while making claim

11.2 The Ld.AR submitted that in the assessment order, penalty has been initiated for underreporting of income in consequence of misreporting, however the section mentioned there is section 270(9) instead of section 270(8). The Ld.AR submitted that u/s. 270AA, sub-clause (8) deals with a situation where there arises underreporting of income in consequence of misreporting. The Ld.AR also emphasised that wrong claim of section 80E was not at the behest of the assessee but a mistake that was committed by the tax professional who had filed returns of assessee. The Ld.AR submitted that assessee upon realising the wrong claim had surrendered the taxes with interest thereon, thus there cannot be any malafide attributable to the assessee.

11.3 The Ld.AR submitted that even form 68 was filed manually and also sent through email to the jurisdictional AO requesting to grant immunity from penalty proceedings after satisfying the relevant conditions. However, the authorities below rejected the

Page 13 ITA Nos. 832/Bang/2023 & 143/Bang/2024 submissions of the assessee by stating that assessee being an educated person is accepted to be vigilant. The Ld.AR thus prayed that the penalty may be deleted as the assessee did not have any intention to default the tax payment by making the wrong claim of deduction. It is submitted that the error committed by the tax consultant went unnoticed by the assessee. On the contrary, the Ld.DR relied on the orders passed by the authorities below. The Ld.DR vide written submissions submitted as under:

Page 14 ITA Nos. 832/Bang/2023 & 143/Bang/2024

Page 15 ITA Nos. 832/Bang/2023 & 143/Bang/2024

Page 16 ITA Nos. 832/Bang/2023 & 143/Bang/2024

Page 17 ITA Nos. 832/Bang/2023 & 143/Bang/2024

11.4 The Ld.DR in support also relied on the decision of Hon’ble Kerala High Court in case of IBS Software (P.) Ltd. vs. UOI reported in (2024) 158 taxmann.com 209.

We have perused the submissions advanced by both sides in the light of records placed before us.

Page 18 ITA Nos. 832/Bang/2023 & 143/Bang/2024 categorises the case of misreporting of income that reads as under: “270A. Penalty for under reporting and misreporting of 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.”

12.1 It is further noted that, section 270AA deals with immunity from imposition of penalty etc. u/s. 270A, except for penalty initiated under sub-section 9 of section 270A. On perusal of the assessment orders, we note that the Ld.AO initiated penalty proceedings for, ‘underreporting of income in consequence of misreporting’ without specifying which limb of sub-section 9 stands satisfied in present facts of the case. It is noted that there is no whisper as to which limb of section 270A(9) is attracted, and how any of the particular ingredient under sub-section 9(a-f) is satisfied. Further, it is noted that, the assessee filed application seeking immunity in Form 68 before the Ld.AO within the prescribed period manually, as well as electronically, which has not been considered. Even before the Ld.CIT(A), the application seeking immunity against penalty u/s. 270A was filed by the assessee,

Page 19 ITA Nos. 832/Bang/2023 & 143/Bang/2024 which has not been considered and rejected at the face of it. Admittedly, assessee has not filed any appeal against the quantum and has accepted the addition made by the Ld.AO.

12.2 We note that in the assessment order, the assessee submitted the bonafides of wrong claims that was made by the tax consultant, who filed assessee’s return for the year under consideration. The assessee categorically mentioned that, even in the return that was filed subsequently, the assessee denied to e-verify as there were errors that continued. The assessee also submitted that, he has been paying rent which can be established from the bank statements, and it was only in the absence of the documents in support that the deduction u/s. 10(13A) was disallowed. It is the submission of the assessee that, these being a debatable issues, penalty is not leviable.

12.2.1 Insofar as the wrong 80E claim is concerned, the assessee accepted the addition as it was due to shear negligence of the authorised representative who filed the return of income and that the assessee had no knowledge of the claim having made in the form of education loan.

12.3 Under such circumstances, the application for immunity against the provisions of section 270A should have been considered by the authorities below. The Ld.CIT(A) during the appellate proceedings has concurrent jurisdiction, as that of AO

Page 20 ITA Nos. 832/Bang/2023 & 143/Bang/2024 and should have used the discretionary power envisaged under the act, to accept the application and to consider the same in the light of the law.

12.4 The facts of the decision relied by the Ld.DR are distinguishable as in that case, the authorities below had accepted the application of immunity and has analysed the same in the light of evidences filed. Whereas in the present case, the application seeking immunity has been dismissed at the threshold without even considering the facts of the case and without even mentioning under which limb of sub-section (9) of section 270A as the penalty being initiated.

12.5 We refer to the decision of Hon’ble Delhi High Court in case of Prem Brothers Infrastructure LLP vs. NFAC reported in (2022) 142 taxmann.com 38, wherein the penalty was levied by the assessing authority similar as that of present assessee by alleging misreporting of income. It is also noted that in the present facts of the case, the assessee furnished all the details pertaining to the rent paid to the authorities below. In respect of the addition accepted by the assessee u/s. 80E, the Ld.CIT(A) has reproduced the submissions of the assessee that reads as under: “5.3.1. The appellant was provided with stock options every year by his employer. The stocks vests on a specific date and the employer deducts tax on the said vesting. But the F.Y 2019-20 was black-out period, wherein there was a restriction imposed by the employer, stating that the internal employees can't sell the shares for 3 months' time. By the time the black-out period was over, stock value

Page 21 ITA Nos. 832/Bang/2023 & 143/Bang/2024 reduces to a great extent by 30%, and employees tend to loose the money. However, taxes were deducted by employer on notional gains of stock options, whereas employees has to incur losses when the stocks were actually sold. Hence, the appellant approached a tax consultant to seek guidance on the tax treatment on the said losses incurred during the year. However, the tax consultant, instead of providing the insight on provisions of claiming loss on stock options, misguided the appellant and claimed the deduction U/s. 80E and filed income tax returns with the above refund claim. This claim of refund was not brought to the knowledge of the appellant while filing the return of Income. 5.3.2 The appellant further submitted that, the appellant had no intention to claim refund nor any intention to default tax payments. But due to lack of knowledge about Income tax provisions/rules and overlooking and relying on the tax consultant the income tax return was filed with wrong claim. Later when the return of Income was processed and refund was determined, the appellant came to know about the claim made by tax consultant and hence requested to revise the returns and pay the applicable taxes on the wrong claim. However, the revised return filed by the tax consultant still has more flaws and tax consultant mentioned that he doesn't have the knowledge on taxability of stock options. Hence, appellant didn't e- verify or accept the revised returns filed for the said assessment year. Further, it is to bring to your kind notice that the appellant tried various options on his own, contacted helpline to file revised returns in order to remove wrong claim of deductions and pay the applicable taxes. However, the appellant did not hear from the helpline and left the same as it is. During the assessment proceedings appellant duly accepted that deduction U/s 80E was wrongly claimed by his tax consultant while filing of returns and also accepted to pay the tax demands that he is liable on the wrong claim made in ITR.” From the above, the bonafide of the assessee is established and the Ld.CIT(A) should have considered the application seeking immunity.

Page 22 ITA Nos. 832/Bang/2023 & 143/Bang/2024 12.6 Hon’ble Delhi High Court in the case of Schneider Electric South East Asia (HQ) PTE Ltd. Vs. ACIT, International Taxation Circle 3(1)(2), New Delhi and Ors. W.P.(C) No. 5111/2022 vide judgment dated 28.03.2022 observed as under:- “6. Having perused the impugned order dated 9th March, 2022, this Court is of the view that the Respondents’ action of denying the benefit of immunity on the ground that the penalty was initiated under Section 270A of the Act for misreporting of income is not only erroneous but also arbitrary and bereft of any reason as in the penalty notice the Respondents have failed to specify the limb - "underreporting" or "misreporting" of income, under which the penalty proceedings had been initiated. 7. This Court also finds that there is not even a whisper as to which limb of Section 270A of the Act is attracted and how the ingredient of sub-section (9) of Section 270A is satisfied. In the absence of such particulars, the mere reference to the word "misreporting" by the Respondents in the assessment order to deny immunity from imposition of penalty and prosecution makes the impugned order manifestly arbitrary. 8. This Court is of the opinion that the entire edifice of the assessment order framed by Respondent No.1 was actually voluntary computation of income filed by the Petitioner to buy peace and avoid litigation, which fact has been duly noted and accepted in the assessment order as well and consequently, there is no question of any misreporting. 9. This Court is further of the view that the impugned action of Respondent No.1 is contrary to the avowed Legislative intent of Section 270AA of the Act to encourage/incentivize a taxpayer to (i) fast-track settlement of issue, (ii) recover tax demand; and (iii) reduce protracted litigation. 10. Consequently, the impugned order dated 09th March, 2022 passed by Respondent No.1 under Section 270AA (4) of the Act is set aside and Respondent No.1 is directed to

Page 23 ITA Nos. 832/Bang/2023 & 143/Bang/2024 grant immunity under Section 270AA of the Act to the Petitioner.”

12.7 We are conscious of the fact that there can be cases where underreporting of income may result in misreporting of income. However, in facts of the present case, the underreporting has not been established in respect of deduction u/s. 10(13A), the assessee had furnished all the details in respect of rental paid. In respect of the wrong claim u/s. 80E, the assessee admitted the addition voluntarily which is evident from the submissions reproduced hereinabove in para 12.4. The assessee took necessary steps to correct the claim before the assessment which was unsuccessful. All these circumstances have not been considered by the Ld.CIT(A)/AO.

12.8 Based on the above discussions, we are of the opinion that there is no whisper as to which limb of section 270A of the act is directed and how any of the ingredients of sub-section (9) to section 270A stands satisfied in the present facts of the case. There is no basis to invoke sub-section (9) to section 270A and in the absence of any such particulars in the assessment order dated 17.09.2022, a mere reference of the phrase “underreporting of income in consequence of misreporting”, cannot be a reason to deny immunity from imposition of penalty and prosecution. We therefore quash and set aside the penalty order dated 15.03.2023 and direct the Ld.AO to consider the application

Page 24 ITA Nos. 832/Bang/2023 & 143/Bang/2024 seeking immunity filed by the assessee u/s. 270AA of the act and to pass necessary orders in accordance with law. Accordingly, the appeal filed by the assessee in ITA No. 832/Bang/2023 stands partly allowed for statistical purposes. In the result, the appeal filed by assessee in ITA No. 832/Bang/2023 stands partly allowed for statistical purposes and appeal in ITA No. 143/Bang/2024 stands dismissed. Order pronounced in the open court on 27th May, 2024.

Sd/- Sd/- (LAXMI PRASAD SAHU) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 27th May, 2024. /MS /

Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. Guard file 6. CIT(A) By order

Assistant Registrar, ITAT, Bangalore