2023 (10) TMI 1276 - AT - Income Tax

Penalty under Section 270A vacated where assessee disclosed income but claimed exemption based on bonafide legal misconception

Greenwoods Govt. Officers Welfare Society Versus DCIT, Circle 52 (1) New Delhi

The ITAT Delhi held that penalty u/s 270A for under-reporting of income was not imposable where the assessee had fully disclosed interest income in its ... Penalty u/s 270A - under-reporting of income - taxability of interest - Immunity from imposition of penalty u/s 270AA - assessee was unaware that interest income earned by is not exempt till assessment in its case for AY 2013-14 was completed wherein the same was disallowed and assessee opted for DTVSV Scheme for 3 years to wind up the tax liability - HELD THAT:- It is an admitted position that in its original return in its Income & Expenditure Account the assessee disclosed that during the year it earned interest income and miscellaneous/other incomes and complete details thereof were brought on record. On the face of these facts it cannot be alleged that the assessee is guilty of underreporting and/or misreporting of income. It is not the case of the Revenue that anything more than what was declared by the assessee was found by the Revenue. The case of the assessee all along has been that it was under bonafide belief that the impugned interest and miscellaneous income was exempt from tax on ground of “principle of mutuality” and therefore in its original return it claimed the same as exempt. As soon as the assessee became aware that the said income is taxable, it opted for DTVSV Scheme and revised its return offering the said income to tax and paid tax which has not been disputed by the Revenue. It may be emphasised that the fact of earning the impugned interest and miscellaneous income has duly been disclosed in its accounts and in the original return with full details. However, due to ongoing litigation about the taxability of the said income and misconception of law, the assessee claimed it as exempt. Nonetheless, the fact remains that the assessee filed revised return, offered the said income to tax during the course of assessment proceedings itself. As following the decisions in Prem Brothers Infrastructure LLP [2022 (6) TMI 130 - DELHI HIGH COURT] and Alrameez Construction (P) Ltd. [2023 (8) TMI 371 - ITAT MUMBAI] we hold that the impugned penalty is not exigible which we hereby vacate. Decided in favour of assessee. Issues involved:The judgment involves the imposition of penalty under section 270A of the Income Tax Act, 1961 on the assessee for under-reporting of income in Assessment Year 2018-19.Issue 1: Challenge to Penalty Imposed by CIT(A)The appeal filed by the assessee challenges the order of the Ld. Commissioner of Income Tax (Appeals) sustaining the penalty imposed by the National Faceless Assessment Centre under section 270A of the Act. The grounds of appeal include contentions regarding compliance with Section 270AA, inadvertent lapse, and bona fide belief of the assessee.Issue 2: Assessment Proceedings and Penalty InitiationThe assessee, a registered Society, initially declared income at Nil for AY 2018-19 but later revised its return to include interest income. The Ld. AO added the interest income to the total income of the assessee, leading to penalty proceedings under section 270A for under-reporting of income.Issue 3: Assessee's Defense and AppealIn response to the penalty notice, the assessee contended that it voluntarily revised the income during assessment proceedings and paid the due taxes. The assessee argued that there was a genuine dispute on the taxability of interest income and that the penalty imposition was unwarranted. The assessee also raised concerns regarding the validity of the penalty order based on the timing of the notice of demand and the penalty order.Issue 4: Tribunal's Decision and Additional GroundThe Tribunal admitted an additional ground raised by the assessee regarding the failure of the Ld. AO to specify the specific clause of section 270A(9) for initiating penalty proceedings. The Tribunal considered legal precedents and held that the penalty notice did not specify the relevant provision of the Act, leading to the quashing of the penalty.Conclusion:The Tribunal, after considering the facts and legal arguments presented, held that the penalty imposed on the assessee for under-reporting of income was not justified. The Tribunal vacated the penalty, emphasizing that the assessee had disclosed the income in question, revised its return, and paid the taxes during the assessment proceedings. The appeal of the assessee was allowed, and the penalty was deemed not exigible.