Penalty under Section 270A of the Income Tax Act set aside due to genuine mistake in income computation.

The Tribunal allowed the appeal, setting aside the penalty imposed under section 270A of the Income Tax Act and directed the Assessing Officer to delete the penalty. The Tribunal found that the addition to the total income was due to a change in the head of income, not underreporting. It concluded that the assessee's explanation was genuine and fell under an exception to underreporting, thus a bona fide mistake in computing income should not result in a penalty.

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Issues involved:
The judgment involves challenging a penalty under section 270A of the Income Tax Act related to underreporting of income.

Facts and Decision:
The assessee, part of D' Decor Group, declared a net loss in the original return of income. Subsequently, during assessment proceedings, rental income was declared under 'income from house property' instead of 'income from business', resulting in disallowance of standard deduction for repairs. The Assessing Officer initiated penalty proceedings under section 270A for underreporting income, which was confirmed by the CIT(A). The assessee contended that the change in the head of income was due to reduced business activity and the statutory deduction was automatically computed by the software. The AR argued that the penalty should be deleted as there was no underreporting of income. The Tribunal noted that the addition to total income was due to a change in the head of income, not underreporting, and the AO had discretion not to initiate penalty proceedings. Citing a similar case, the Tribunal concluded that the penalty should be deleted, and directed the AO to do so.

Legal Analysis:
The Tribunal observed that section 270A gives discretion to the Assessing Officer regarding penalty proceedings. The change in the head of income resulted in the addition to total income, not underreporting. The Tribunal noted that the assessee's explanation for the change was genuine, falling under an exception to underreporting as per section 270A. Referring to a precedent, the Tribunal concluded that a bonafide mistake in computing income should not lead to a penalty under section 270A.

Conclusion:
The Tribunal allowed the appeal, setting aside the penalty imposed under section 270A and directing the deletion of the penalty by the Assessing Officer.

Separate Judgment:
The judgment was pronounced by Shri B.R. Baskaran (AM) and Shri Pavan Kumar Gadale (JM) on 17.10.2023.

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