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Facts
The assessee filed a return declaring a total loss, which was selected for scrutiny. The assessment was finalized at a higher income due to disallowances. Penalty proceedings were initiated under section 270A for alleged misreporting of income.
Held
The Tribunal held that the Assessing Officer (AO) failed to apply his mind and did not specify which limb of Section 270A(9) was attracted. The penalty order was not a speaking order, and the AO's approach was computerized, constituting an arbitrary exercise of power.
Key Issues
Whether the penalty levied under Section 270A for misreporting of income is sustainable when the AO failed to apply his mind and specify the relevant limb of the section.
Sections Cited
270A, 270AA, 143(2), 142(1)
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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI AMITABH SHUKLA
आदेश / O R D E R
PER ABY T. VARKEY, JM:
1. This is an appeal preferred by the assessee Club against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter in short "the Ld.CIT(A)”), Delhi, dated 30.11.2023 for the Assessment Year (hereinafter in short "AY”) 2018-19 confirming the penalty levied u/s.270 of the Income Tax Act, 1961 (hereinafter in short "the Act”).
2. The Ld.AR assailed the action of the Ld.CIT(A) to confirm 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 penalty order of the AO levying penalty which is reproduced as under:
Order under section 270A of the Income Tax Act, 1961
Brief facts of the case are that the assessee had filed his return of income for the A.Y. 2018-19 on 09.10.2018 declaring total loss at Rs.(-)38,91,494/-. The return of income was selected for scrutiny through CASS, and accordingly notices u/s 143(2) and 142(1) were issued to the assessee. The assessment proceedings were finalized at an assessed income of Rs. 79,32,831/-, vide order dated 17.03.2021 by disallowance of set of business loss of Rs. 1,18,24,325/- and addition of income shown under the head other sources at Rs. 79,32,831/-. The penalty proceedings u/s.270A of the Act was also initiated, vide notice of even date, for misreporting of income.
Vide the above mentioned penalty notice and show cause notices, issued subsequently on 17.03.2021 and 18.08.2021 which are placed on records, the assessee was required to show cause as to why penalty under section 270A of the Act may not be imposed. In response, the assessee filed its reply on 03.09.2021. Vide the said reply, besides claiming to drop the impugned penalty proceedings, it has sought immunity from the penalty proceeding under Section 270AA of the Income Tax Act and has submitted a request of the intent to grant immunity, in Form 68. However, as per the SOP dated 09.08.2021, issued by the NaFAC Delhi, for penalties under Faceless Penalty Scheme-2021, the power to grant or reject immunity rests with the Jurisdictional Assessing Officer. Since, this action is outside the purview of Faceless Penalty Scheme-2021, therefore, aforementioned application could not be entertained in this office and accordingly, was rejected. Further, it is pertinent to mention here the provisions of section 270A(9) of the Income Tax Act, 1961:
"[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."
Further, as per the records available with office, no order granting immunity from imposition of penalty has been received from either from the assessee or from the JAO. Further, the reply filed by the assessee has been considered but is found devoid of any merits as the assessee has failed to substantiate its claim during the course of assessment proceeding as well as penalty proceeding. Further, the assessee had not made any appeal against the assessment order meaning thereby that he had accepted the addition made vide impugned assessment order. Therefore, the request made by the assessee to drop the penalty proceedings, is not acceptable. In view of the foregoing facts, it can very safely be inferred that the assessee has misreported its income to the extent of Rs. 79,32,831/-. Accordingly. the assessee is held to be an assessee in default, u/s 270A of the Act, for misreporting of the income, and therefore, a penalty of Rs.49,02,488/- being 200% of the tax payable at Rs.24,51,244/- on the misreported income, is hereby imposed under Section 270A of the Income Tax Act, 1961.
Penalty imposed at Rs. 49,02,488/-. Issue requisite documents to the assessee.
This penalty order is being passed after prior approval of Joint CIT (ReFAC) (AU), obtained on the ITBA Portal under Faceless Penalty Scheme, 2021 in view of the provisions of section 274(2) of the Income Tax Act, 1961.
3. A bare reading of the penalty order u/s.270A of the Act, would reveal that the AO has merely reproduced sub-section (9), wherein, Parliament has given six (6) specific instances where the income added to the returned income would be treated as misreporting of income referred to in sub-section (8) viz., sub-clauses (a) to (f) given under sub-section (9) of section 270A of the Act. It is further noted that the AO merely says that since the assessee didn’t file any appeal against the Assessment Order passed by him, it has accepted the addition and therefore, the request for dropping the penalty proceedings was turned-down by him; and then, he concludes that “it can very safely be inferred that assessee has misreported its income to the extent of Rs.79,32,831/-”. 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 above action of the AO for the simple reason that there was 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. Non-application of mind by the AO 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 here 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. It should 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 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. 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 21st day of August 2024, in Chennai.