M G B MOTOR AND AUTO AGENCIES PRIVATE LIMITED,KURNOOL vs. DCIT., CIRCLE-1, KURNOOL

Brief facts of the case are that the assessee is a Private Limited Company engaged in the business of supply of vehicles, machines, oils & lubricants, spare and services of machines and vehicles. The assessee filed its return of income for the AY 2018-19 on 30/03/2019 declaring a total income of Rs. 2,21,36,060/-. The assessment was completed U/s. 143(3) of the Income Tax Act, 1961 (“the Act”) on 20/04/2021 wherein the learned Assessing Officer (“learned AO”) made certain addi�ons viz., (i) Rs. 5,00,000/- towards unaccounted cash purchases (ii) Rs. 5,00,000/- on account of disallowance of rent and (iii) Rs 6,26,624/- towards disallowance of commission expenses U/s. 40(a)(ia) of the Act, on ad-hoc and es�ma�on basis.

The learned AO also ini�ated penalty proceedings U/s 270A read with sec�on 274 of the Act by issuing no�ce dated 20/04/2021. In its reply dated 28/04/2021, the assessee submi�ed that the penalty U/s. 270A for under repor�ng or misrepor�ng of income cannot be a�racted as all the details called for by the learned AO were furnished and the addi�on was made on ad-hoc / as a percentage of expenditure. 4. Learned AO, however, did not consider the submissions of the assessee and concluded that the assessee has clearly mis-reported / under reported the income of Rs. 16,26,624/- and therefore, levied penalty of Rs. 10,75,618/- ie., @ 200% of the tax payable on 16,26,624/-. Thus, the learned AO passed the penalty order U/s. 270A of the Act dated 14/01/2022. Aggrieved, the assessee filed an appeal before the learned CIT(A). On appeal, the learned CIT(A) dismissed the assessee’s appeal. Therefore, the assessee is in appeal before us against the decision of the learned CIT(A). 5. Before us, the learned Authorized Representa�ve (“learned AR”) submi�ed that the penalty of 200% levied by the learned AO U/s. 270A of the Act is unsustainable in law in view of the fact that the assessee has paid the tax imposed, with interest, and has not preferred an appeal against the assessment order. Learned AR further submi�ed that since the assessee paid the tax and interest thereon, the assessee is en�tled to Page 2 of 5 the immunity as contemplated U/s. 270AA of the Act. Learned AR therefore, pleaded that the penalty imposed U/s. 270A be quashed.

On other hand, learned Departmental Representa�ve (“learned AR”) heavily relied on the orders of the learned Revenue Authori�es.

We have gone through the record in the light of the submissions made on either side. As per the penalty order passed by the learned AO, the assessee has under-reported its income and therefore, the assessee is liable for penalty @ 200% U/s. 270A of the Act. At this juncture, it is per�nent to men�on here the provisions of sec�on 270A(6)(c) of the Act which reads as under: “270A(6) The under-reported income, for the purposes of this section, shall not include the following, namely:— (a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered; (b) the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom; (c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or disallowance; (d) ……….. (e) ………...”

From a plain reading of the above sec�on, it is clear that the under-reported income shall not include the amount, if the income is determined on the basis of es�ma�on. In the present case of the assessee, learned AO has made addi�ons on ad-hoc basis / es�ma�on in the original assessment passed U/s. 143(3) of the Act. Therefore, as per the provisions of sec�on 270(6), the assessee’s case does not a�ract the penalty U/s. 270A of the Act for under-repor�ng of income. Furthermore, it appears from the record that the assessee has already paid the tax and interest on the addi�ons made in the assessment.

Apart from that, in the case of CIT vs. DCM Ltd. (2013) 359 ITR 0101 (Delhi), the Hon’ble High Court of Delhi held that law does not bar or prohibit an assessee for making a claim, which he believes may be accepted or is plausible; that when such a claim is made during the course of regular or scru�ny assessment, liberal view is required to be taken as necessarily the claim is bound to be carefully scru�nized both on facts and in law; that full probe and appraisal is natural and normal; that threat of penalty cannot become a gag and/or haunt an assessee for making a claim which may be erroneous or wrong, when it is made during the course of the assessment proceedings; that normally, penalty proceedings in such cases should not be ini�ated unless there are valid or good grounds to show that factual concealment has been made or inaccurate par�culars on facts were provided in the computa�on. Law does not bar or prohibit a person from making a claim, when he knows the ma�er is going to be examined by the Assessing Officer. 10. Under these circumstances, we have no hesita�on to conclude that the penalty levied U/s. 270A of the Act in the case of the assessee is unsustainable in law and therefore, the penalty is hereby deleted. It is ordered accordingly.

In the result, appeal of the assessee is allowed.

Sd/- Sd/- (MANJUNATHA .G) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated:05/12/2024 OKK Copy forwarded to: