Penalty under Section 270A cancelled for property sale under-reporting due to bona fide TDS belief

ITAT Ahmedabad allowed the assessee's appeal against penalty u/s 270A for under-reporting income from property sale. The assessee sold property where purchaser deducted TDS u/s 194-IA, with transaction reflected in Form 26AS. The assessee believed no additional tax liability existed due to TDS deduction. ITAT held that penalty cannot be imposed for technical breach based on bona fide belief. Since sale consideration was reported in Form 26AS and undisputed by Department, there was no misrepresentation or suppression of facts warranting penalty imposition.

---

---

Issues Involved:
1. Legality of the order passed under Section 270A of the Income Tax Act.
2. Confirmation of penalty by the Commissioner of Income Tax (Appeals) under Section 270A read with Sections 270A(8) and 270A(9).
3. Misreporting of income and underreporting of income.
4. Applicability of penalty criteria under Section 270A(9).
5. Quantum of penalty under Section 270A(10) read with Section 270A(7).

Issue-wise Detailed Analysis:

1. Legality of the Order Passed under Section 270A of the Income Tax Act:
The Assessee contended that the order passed by the Learned Assessing Officer (AO) under Section 270A of the Act is "bad in law" and that the Commissioner of Income Tax (Appeals) erred in upholding the same. The Assessee argued that the penalty order should be quashed. The Tribunal noted that the Assessee did not file a return of income under Section 139 for the assessment year in question. The case was reopened under Section 147, and a return was filed declaring a total income of Rs. 27,85,060/-. The AO observed that the Assessee had not declared capital gains amounting to Rs. 22,20,156/-, which led to the initiation of penalty proceedings under Section 270A for misreporting of income.

2. Confirmation of Penalty by the Commissioner of Income Tax (Appeals) under Section 270A read with Sections 270A(8) and 270A(9):
The Commissioner of Income Tax (Appeals) dismissed the Assessee's appeal, observing that the Assessee had misreported income by concealing taxable income, justifying the initiation and imposition of a 200% penalty under Section 270A. The Tribunal reviewed the arguments and evidence, noting that the Assessee was under a bona fide belief that no further return was required since taxes were deducted at source by the property buyer.

3. Misreporting of Income and Underreporting of Income:
The Tribunal examined whether the case involved underreporting or misreporting of income. Section 270A provides penalties for both underreporting (50% of tax payable) and misreporting (200% of tax payable). The Assessee argued that since the return of income was accepted, there was no underreporting or misreporting. The Tribunal noted the Supreme Court's stance in Hindustan Steel Ltd. vs. Assistant Commissioner, emphasizing that penalties should not be imposed merely because it is lawful to do so, especially if the breach is technical or based on a bona fide belief.

4. Applicability of Penalty Criteria under Section 270A(9):
Section 270A(9) lists specific circumstances that constitute misreporting, such as misrepresentation or suppression of facts. The Tribunal found that the Assessee's case did not fall under these criteria. The Assessee had a bona fide belief that no further return was required, as taxes were deducted at source, and the transaction was reflected in Form No. 26AS, which was within the Department's knowledge.

5. Quantum of Penalty under Section 270A(10) read with Section 270A(7):
The Assessee argued that even if the penalty were to be upheld, it should be 50% of the tax amount on underreported income, not 200% for misreporting. The Tribunal concluded that this was not a case of misreporting, as there was no intent to deceive or suppress facts. The Assessee's belief that no further return was required was considered bona fide and honest.

Conclusion:
The Tribunal held that the Assessee's case did not warrant a penalty under Section 270A, as there was no misreporting or suppression of facts. The appeal was allowed, and the penalty was deleted. The Tribunal emphasized the importance of not imposing penalties where the Assessee acts with an honest and genuine belief, aligning with the Supreme Court's guidance in Hindustan Steel Ltd. vs. Assistant Commissioner. The order was pronounced in open court on 22/05/2024.

---