ITAT deletes Section 270A penalty after assessee voluntarily withdraws unsubstantiated donation claim during assessment

The ITAT Jodhpur allowed the assessee's appeal and deleted the penalty imposed u/s 270A for misreporting of income. The assessee had initially claimed deduction u/s 80G for donations without substantiating proof, later surrendering the claim during assessment proceedings with an apology. The tribunal found no evidence that the donation claim was bogus or non-genuine, noting the assessee provided trust details and voluntarily withdrew the claim. Since no additional tax or interest was payable and the AO accepted the revised computation without further investigation, the penalty was deemed unsustainable.

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Issues Involved:
1. Whether the penalty imposed under Section 270A for misreporting of income is justified.
2. Whether the assessee's voluntary surrender of the wrongful deduction claim negates the applicability of Section 270A.

Summary:

Issue 1: Justification of Penalty under Section 270A

The assessee, a salaried individual, appealed against the order of the National Faceless Appeal Centre (NFAC) confirming the penalty imposed by the Assessing Officer (AO) under Section 270A for misreporting income. The AO disallowed a deduction of Rs. 5,00,000 claimed under Section 80G, which the assessee admitted was not genuine. Consequently, a penalty of Rs. 1,91,500, calculated at 200% of the tax on the misreported income, was imposed. The CIT(A) upheld the penalty, stating that the assessee's failure to contest the assessment order indicated an intention to defraud revenue and evade tax.

Issue 2: Voluntary Surrender of Wrongful Deduction

The assessee argued that since the deduction was voluntarily surrendered during the assessment proceedings and the tax was already paid through TDS, the penalty under Section 270A should not apply. The assessee cited various judgments to support the claim that voluntary surrender of income should not attract penalties. The assessee also contended that the AO should have exercised discretionary power to waive the penalty, considering it was the first year for this penalty provision.

Tribunal's Findings:

The Tribunal noted that the assessee's income from all sources was reflected in the return, and the claim for deduction under Section 80G was made on an ad hoc basis. The assessee failed to substantiate this claim during the scrutiny assessment and subsequently surrendered the amount. It was observed that the assessee had provided details of the donations in the return of income, and the AO did not further investigate the genuineness of the claim.

The Tribunal concluded that the penalty was not sustainable as the assessee had already paid the tax through TDS and there was no additional tax liability. The voluntary surrender of the deduction claim, without any adverse findings on its genuineness, did not warrant a penalty under Section 270A. Thus, the penalty imposed by the lower authorities was deleted, and the appeal was allowed.

Conclusion:

The Tribunal allowed the appeal, holding that the penalty under Section 270A was not justified given the circumstances of voluntary surrender and lack of additional tax liability. The order was pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963.

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