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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SMT. ANNAPURNA GUPTA & SHRI SIDDHARTHA NAUTIYAL
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 30.11.2023 passed for Assessment Year 2017-18.
The Assessee has taken the following grounds of appeal:-
“1. The order passed by the Learned Assessing Officer u/s. 270A of the Act is bad in law and the Learned Commissioner of Income Tax (Appeals) erred in upholding the same. It is submitted that it be so held now and the order passed by the Learned Assessing Officer u/s. 270A of the Act as upheld by the Learned Commissioner of Income Tax (Appeals) be quashed.
2. The Learned Commissioner of Income Tax (Appeals) erred in law and on facts of the case in confirming the order passed by the Learned Assessing Officer u/s. 270A r.w.s 270A(8) and 270A(9) treating it as misreporting of income and thereby levied a penalty of Rs. 9,92,946/- i.e., @ 200% of the tax amount. Your Appellant submits that it be so held now and prays to delete the penalty Rs.9,92,946/- made u/s. 270A r.w.s. 270A(8) and 270A(9) of the Act by the Learned Assessing Officer.
Parulben Vijakumar Patel vs. ITO Asst.Year –2017-18 - 2–
3. The order passed by the Learned Assessing Officer u/s. 270A of the Act is bad in law and the Learned Commissioner of Income Tax (Appeals) erred in upholding the same particularly when he has accepted the returned income as disclosed in return of income filed u/s. 148 of the Act, and hence there is neither misreporting of income nor under reporting of income vis-a-vis the return filed by the Appellant. It is submitted that it be so held now and the penalty of Rs.9,92,946/- confirmed u/s. 270A of the Act be deleted.
4. The order passed by the Learned Assessing Officer and upheld by the Learned Commissioner of Income Tax (Appeals) is bad in law as in any case, the case of the Appellant did not fall under any of the criteria as envisaged u/s. 270A(9) of the Act and hence the penalty should not be levied upon the Appellant u/s. 270A of the Act for misreporting of income. It is submitted that it be so held now and the penalty of Rs.9,92,946/- levied u/s. 270A(8) of the Act as confirmed by the Learned Commissioner of Income Tax (Appeals) be deleted. 5. Without prejudice to the any of the foregoings, even if it is held that penalty order passed by the Learned Assessing Officer and as confirmed by the Learned Commissioner of Income Tax (Appeals) is to be upheld, the penalty amount can at best be levied @ 50% of the tax amount on under reported income u/s. 270A(10) r.w.s 270A(7) and not @ 200% of the tax amount for misreporting of income. 6. Your Appellant reserves the right to add, alter, amend and/or withdraw any of the above Grounds of Appeal.”
The brief facts of the case are that the assessee is an individual who did not file return of income under Section 139 of the Act for the assessment year under consideration. Thereafter, the case of the assessee was reopened for assessment and notice under Section 148 of the Act was issued. In response, the assessee filed return of income on 22.03.2022 declaring total income of Rs. 27,85,060/-.
During the course of assessment proceedings, the Ld. AO observed that the assessee had not declared capital gain amounting to Rs. 22,20,156/- by filing return of income and if, the case of the assessee was not reopened under Section 147 of the Act, the assessee would not have reported the escaped amount and then, the said amount would have escaped assessment. The Assessing Officer, therefore, initiated penalty proceedings under Section 270A
Parulben Vijakumar Patel vs. ITO Asst.Year –2017-18 - 3– of the Act for misreporting of income and levied penalty @ 200% of the tax payable on such under reported income. 5. In appeal before Ld. CIT(A), he dismissed the appeal of the assessee with following observations:-
“6.1. Carefully considered the submission of the appellant in view of the impugned penalty order. Also perused and considered the details and documents uploaded by the appellant on ITBA portal during the appellant proceedings. A perusal of the penalty order shows that the Id. AO has initiated the impugned penalty proceedings for misreporting of the particulars of income and thereby concealing the taxable income, not for the reason that the appellant had not filed return of Income. The appellant had, as per her submission, not filed the return of income under the impression that she had no taxable income. TDS was already made by the buyer of the property, the credit of that TDS was available to the appellant, still she did not file the return of income u/s 139 of the Act, this fact is treated as the appellant has reported nil income. Meaning thereby, the appellant has misreported her income by concealing taxable income for which Id. AO had rightly initiated penalty proceedings and passed the penalty order. Thus, in view of the facts of the case, I am of the considered opinion that the appellant has misreported the particulars of income and thereby concealed the taxable income. Therefore, the penalty order u/s 270A passed by the ld. AO levying penalty at the rate of 200% of the tax shout to be evaded, deserves to be sustained and upheld. Accordingly, grounds no. 4 of the appeal is dismissed and not allowed.
In result, the appeal of the appellant is dismissed and not allowed.”
The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A).
7. Before us, the Counsel for the assessee took several arguments, the first of which was that since the assessment has been done on the basis of return of income filed by the assessee and the same has been accepted and there could not be any question of under reporting of any income much less the misreporting of any income. Secondly, it was argued that the purchaser of property had deducted tax at source under Section 194-IA of the Act and the same was duly reflecting in From No. 26AS on the website of the Income-Tax portal, and the return of income was not filed under the bona fide belief that since taxes has been deducted at source on such sale of property, there was no further requirement to file return of income and further the Department was Parulben Vijakumar Patel vs. ITO Asst.Year –2017-18 - 4– also in complete knowledge regarding such sale of property. Further, without prejudice to the above arguments, it was submitted that TDS was deducted and deposited with respect to almost 50% of the taxes payable on such sale of property and therefore, clearly this is not a fit case of misreporting of income and the Ld. CIT(A) erred in facts and in law in confirming penalty @ 200% with respect to such sale of property.
In response, the Ld. D.R. placed reliance on the observations made by the Ld. AO and Ld. CIT(A) while confirming the penalty and submitted that in case notice under Section 148 of the Act had not been issued to the assessee, then clearly this amount would have escaped taxation and the assessee would never have filed her return of income and reporting such sale of land.
We have heard the rival contentions and perused the material on record.
The issue for consideration before us is that whether penalty under Section 270A of the Act can be levied in the instant set of facts, when as per the assessee, she was under the genuine belief that since taxes has been deducted at source on such sale of property then there was no occasion to file return of income. Second issue consideration before us is if penalty is leviable, then is the present case one of under-reporting of income, thereby attracting tax @ 50% on such underreported income or is it a case of misreporting of income, thereby attracting penalty @ 200% on the amount of tax payable on such misreported income under Section 271A(8) of the Act.
Section 270A provides for penalty for “under-reporting of income” [penalty at fifty per cent, of tax payable on such under-reported income, under sub Section (7)] and “misreporting of income” [under sub Section (8) and (9),
Parulben Vijakumar Patel vs. ITO Asst.Year –2017-18 - 5– penalty at two hundred per cent, of tax payable on such income]. Penalty under sub Section (8) is independent of levy of penalty under sub Section (7) even if there is no under reported income. Under sub Section (1), the AO, Commissioner, Principal Commissioner or the Appellate Commissioner may direct that any person who has under-reported his income to pay penalty on such under-reported income. In our view, the mere fact that there is a provision for automatic levy of penalty does not mean that penalty has to be imposed. The Supreme Court in the case of Hindustan Steel Ltd. vs. Assistant Commissioner, held that a penalty should not be imposed merely because it is lawful to do so. Even if a minimum penalty is prescribed, the authority will be justified in not imposing penalty where the breach is merely technical or is based upon the bona fide belief that a particular provision has been complied with. The Supreme Court stressed the importance of not levying penalty where the assessee acts with “honest and genuine belief”.
Before proceedings further, it would be useful to reproduce the relevant extract of Section 270A of the Act for ready reference:-
“(1) The Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the course of any proceedings under this Act, 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; (b) the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished or where return has been furnished for the first time under section 148; (c) the income reassessed is greater than the income assessed or reassessed immediately before such reassessment; (d) the amount of deemed total income assessed or reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed
Parulben Vijakumar Patel vs. ITO Asst.Year –2017-18 - 6– total income determined in the return processed under clause (a) of sub-section (1) of section 143; (e) the amount of deemed total income assessed as per the provisions of section 115JB or section 115JC is greater than the maximum amount not chargeable to tax, where no return of income has been furnished or where return has been furnished for the first time under section 148; (f) the amount of deemed total income reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income assessed or reassessed immediately before such reassessment; (g) the income assessed or reassessed has the effect of reducing the loss or converting such loss into income. (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 or29-30[the Joint Commissioner (Appeals) 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 or29-30[the Joint Commissioner (Appeals) 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) the amount of under-reported income represented by any addition made in conformity with the arm's length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X, and, disclosed all the material facts relating to the transaction; and (e) the amount of undisclosed income referred to in section 271AAB. (7) The penalty referred to in sub-section (1) shall be a sum equal to fifty per cent of the amount of tax payable on under-reported income. (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 under-reported 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 Parulben Vijakumar Patel vs. ITO Asst.Year –2017-18 - 7–
(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.”
The term “under-reporting” is defined in sub-Section (2) which provides seven situations wherein a person is considered to have under-reported his income. Sub-Section (8) provides five cases which shall not be recorded as under-reporting of income. Section 270A(6)(a) provides that where the explanation for non-reporting or under-reporting of income is bona fide and all the facts material to the computation are disclosed, then it shall not be considered as a case of under-reporting of income. Sub-Section (8) provides that “notwithstanding anything contained any sub-Section (6)”, where under- reported income is in consequences of any misreporting thereof by any person, the penalty shall be equal to 200% of the amount of tax payable of under- reported income. Sub-Section (9) set out six circumstances that amount to “misreporting of income”. Clause (a) deals with misrepresentation or suppression of facts. We are not discussing other circumstances referred to any sub-Section (9), since the same are not pertinent / relevant to assessee’s particular set of facts. In the case of CIT vs. Om Prakash Mittal 273 ITR 326 (SC), it was held that the term “misrepresentation” implies that there is no true and fair disclosure. The Madras High Court in the case of P.M. Perianna Pillai vs. CIT 46 STC 94 has held that the act of making a false or misleading assertion about something, usually with the intent to deceive amounts to “misrepresentation’. The word “misrepresentation” denotes not just written or spoken words but also any other conduct that amounts to a false assertion. The assertion so made, an assertion that does not accord with the facts is also termed false representation.
Parulben Vijakumar Patel vs. ITO Asst.Year –2017-18 - 8–
Now the issue for consideration before us is that in view of the assessee’s particular set of facts, as applied to the relevant statutory provisions are reproduced above, whether firstly the case of the assessee is one of underreporting of income or one of misreporting of income. Secondly, can the assessee claim the benefit of sub-Section (6) of the Act which is to the effect that the assessee has been able to provide the reasonable explanation for such non-disclosure regarding sale of property by not filing of return of income.
In our considered view, the case of the assessee does not fall under any of the specific provision content in Section 270A(2) of the Act which deals with various circumstances relating to “under reporting of income”. Therefore, since the assessee’s case does not fall under sub-Section (2) of Section 270A, then the benefit of sub-Section (6) to Section 270A is also not available to the assessee. Therefore, the next issue for consideration is whether the assessee’s case is one of misreporting of income and whether the case of assessee falls specifically under sub-Section (a) to Section 9 dealing with “misrepresentation or suppression of facts”. Further, since sub-Section (a) to Section 270A specifically provides that “notwithstanding anything content in sub-Section (6)”, where underreported income is in consequence of misreporting thereof by any person, the penalty shall be equal to 200% of the amount of tax payable on such under reported income. In the instant facts, certain facts are noteworthy. The first fact is that the purchaser, at the time of sale of property, property taxes had been effectively deducted at source at approximately 50% of the amount of taxes payable on such sale consideration. Secondly, the assessee was, in the instant facts, under a bona fide believe that she was not liable to pay taxes on sale of property, when taxes had been withheld at source at the time of purchase by the purchaser of such property. Thirdly, the assessee was Parulben Vijakumar Patel vs. ITO Asst.Year –2017-18 - 9– under the genuine belief that there is no misrepresentation or suppression of facts, since the purchaser of property had deducted taxes at the time of purchase and the entire transaction was duly reflecting in Form No. 26AS on the portal of the Department, which was within the knowledge of the Income Tax Department, therefore, there is no question as regards to any misrepresentation or suppression of facts, since the Department has not disputed the actual amount of sale consideration, which has been reported in Form No. 26AS. In our view, it would be a different matter if the Department would have alleged that there was a difference / mismatch between the sale consideration as reflecting in Form No. 26AS on which TDS has been deducted under Section 194-IA of the Act and the actual sale consideration which had been received by the assessee on such sale of land. That, in our view, it would have been a case of misrepresentation or suppression of facts. However, once the sale consideration is reported in Form No. 26AS on the Government website and the amount of sale consideration has not been challenged / disputed by the Department and taxes has been withheld on such sale consideration by the purchaser of property under Section 194-IA of the Act, then, in our view, this is not case of misrepresentation or suppression of facts. In the instant case, the assessee was under a bona fide believe that once the correct income flowing from sale of property is duly reflecting in Form No. 26AS on the Government website and taxes have been deducted at source by the purchaser of such property under Section 194-IA of the Act, the assessee was under no further obligation to file return of income disclosing sale of aforesaid property and pay any further taxes thereon. Looking into the instant facts, the intention of the assessee was not to misrepresent or suppress any facts and the return of income had not been filed under a bona fide belief that since the entire transaction has been correctly reported in Form No. 26AS on Parulben Vijakumar Patel vs. ITO Asst.Year –2017-18 - 10– the website, there is no further requirement to file return of income and disclose such transaction in the return of income.
Accordingly, looking into the instant facts, we are of the considered view that this is not a fit case for levy of penalty under Section 270A of the Act.
In the result, the appeal of the assessee is allowed. 17.
This Order pronounced in Open Court on 22/05/2024