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

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 original return but claimed exemption based on bonafide belief regarding mutuality principle. The assessee subsequently filed revised return offering the income to tax and opted for DTVSV Scheme after becoming aware of taxability during assessment proceedings for AY 2013-14. Since complete disclosure was made initially and the exemption claim was based on genuine misconception of law rather than concealment, the penalty was vacated in favor of the assessee.

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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 Initiation

The 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 Appeal

In 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 Ground

The 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.

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