ITAT deletes Section 270A penalty for misreporting income due to AO's failure to specify applicable sub-clause

ITAT Jaipur quashed penalty under section 270A imposed on assessee for alleged misreporting of income. The tribunal held that AO failed to specify which sub-clause of section 270A(9) applied to the case. Assessee had claimed depreciation following earlier year's practice and revised calculation during assessment proceedings after CIT(A)'s order in previous year. The tribunal found no suppression or misrepresentation of facts, noting the depreciation issue was debatable and assessee disclosed all facts in return. Interest on TDS was deemed compensatory, not penal. Following Supreme Court precedents and recent High Court decisions requiring clear specification of applicable provisions, penalty was deleted.

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Issues Involved:
1. Confirmation of penalty u/s 270A for excess depreciation claim.
2. Confirmation of penalty u/s 270A for disallowance of interest on TDS.
3. Non-recording of independent satisfaction before imposing penalty.
4. Rejection of application for immunity from penalty u/s 270AA.

Summary:

Issue 1: Confirmation of penalty u/s 270A for excess depreciation claim

The assessee, a private limited company engaged in lease rentals and real estate development, filed returns for A.Y. 2017-18 and 2018-19. The AO disallowed Rs. 19,59,272/- for excess depreciation and initiated penalty proceedings u/s 270A for under-reporting of income due to misreporting. The assessee argued that the excess depreciation claim was a bona fide mistake based on a previous practice and judicial rulings. The CIT(A) upheld the penalty, stating that the assessee had ample time to correct the depreciation claim after receiving the CIT(A)'s order for A.Y. 2013-14 but failed to do so. The Tribunal, however, found that the claim was made under a bona fide belief and was disclosed in the return of income, thus not amounting to misreporting.

Issue 2: Confirmation of penalty u/s 270A for disallowance of interest on TDS

The AO disallowed Rs. 66,466/- for interest on TDS, considering it penal in nature. The assessee contended that the interest was compensatory and allowable u/s 37(1). The CIT(A) upheld the penalty, but the Tribunal noted that the claim was based on judicial pronouncements and was disclosed in the return of income, thus not constituting misreporting.

Issue 3: Non-recording of independent satisfaction before imposing penalty

The assessee argued that the AO did not record independent satisfaction before imposing the penalty and relied solely on the assessment proceedings. The Tribunal found that the AO failed to specify under which limb of section 270A(9) the case fell, thus not justifying the penalty for misreporting.

Issue 4: Rejection of application for immunity from penalty u/s 270AA

For A.Y. 2018-19, the CIT(A) rejected the assessee's application for immunity from penalty u/s 270AA, citing late filing beyond one month. The assessee argued that the delay was due to the COVID-19 pandemic and the Hon'ble Apex Court's order extending the limitation period. The Tribunal found that the CIT(A) did not appreciate the circumstances of the delay and that the rejection was against the principle of natural justice.

Conclusion:

The Tribunal allowed the appeals for both A.Y. 2017-18 and 2018-19, quashing the penalties imposed u/s 270A for both excess depreciation and interest on TDS, and directed that the assessee be granted immunity from penalty u/s 270AA.

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