2025 (4) TMI 206 - AT - Income Tax

ITAT deletes penalties under sections 271(1)(c) and 270A when no additions made to disclosed income

ITAT Mumbai ruled in favor of the assessee regarding penalties under sections 271(1)(c) and 270A. For section 271(1)(c), the tribunal held that no penalty ... Penalty imposed u/s 271(1)(c) - there was no addition or disallowance made by the AO - HELD THAT:- We in the case of Brijendra Gupta [2015 (7) TMI 451 - CALCUTTA HIGH COURT] has held that where there is no disallowance or addition made by the AO in the income as disclosed in pursuance of the notice u/s 148 of the Act, no penalty can be levied u/s 271(1)(c). The co-ordinate Bench of this Tribunal in Haresh Ghanshyamdas Makhija [2024 (3) TMI 940 - ITAT MUMBAI] has taken a similar view placing reliance on the decision in SAS Pharmaceuticals [2011 (4) TMI 888 - DELHI HIGH COURT] The penalty u/s 271(1)(c) of the Act could not have been levied and the appeal deserves to succeed. Penalty imposed u/s 270A - Under-reporting of income due to misreporting - HELD THAT:- In CIT vs Dodsal Ltd. [2008 (7) TMI 5 - HIGH COURT BOMBAY] which was a case arising out of block assessment in a search case, the Bombay High Court has held that the use of word ‘may’ in Section 158BFA(2) [which is similarly worded to Section 270A(1)] confers discretion on the AO to direct payment of penalty. Albeit such a discretion is not arbitrary and has to be guided by well-established principles depending upon the facts and circumstances of each case. In the present case, we find that the appellant-assessee is a retired employee of MTNL and had relied upon TRP to file her return. In the return filed in response to notice u/s 148 the appellant has made a voluntary disallowance and paid taxes on the amount of HRA. We find that this is a fit case where the AO could have exercised the discretion not to impose penalty. AO is directed to delete the penalty imposed. Assessee appeal allowed. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this judgment are: Whether the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 2016-17, is justified when there was no addition or disallowance made by the Assessing Officer in the income disclosed in response to a notice under Section 148. Whether the penalty imposed under Section 270A of the Act for the assessment year 2017-18 is valid, particularly in the context of alleged under-reporting of income due to misreporting, and whether the Assessing Officer adequately specified the grounds for penalty imposition.ISSUE-WISE DETAILED ANALYSISIssue 1: Penalty under Section 271(1)(c) for Assessment Year 2016-17 Relevant Legal Framework and Precedents: Section 271(1)(c) of the Income Tax Act pertains to penalties for concealment of income or furnishing inaccurate particulars of income. The Tribunal referenced the Calcutta High Court decision in Commissioner of Income Tax vs Brijendra Gupta and the Tribunal's own decision in Haresh Ghanshyamdas Makhija vs ITO, which held that no penalty can be levied if no disallowance or addition is made by the Assessing Officer in the income disclosed in response to a notice under Section 148. Court's Interpretation and Reasoning: The Tribunal found that since no addition was made to the income disclosed by the assessee in response to the notice under Section 148, the penalty under Section 271(1)(c) was not justified. Application of Law to Facts: The Tribunal applied the principles from the cited cases, concluding that the penalty could not be levied since the disclosed income was accepted without any additions. Conclusions: The appeal was allowed, and the penalty imposed for the assessment year 2016-17 was directed to be deleted.Issue 2: Penalty under Section 270A for Assessment Year 2017-18 Relevant Legal Framework and Precedents: Section 270A deals with penalties for under-reporting and misreporting of income. The Tribunal considered precedents such as DCIT vs Chakradhar Contractors and Engineers (P.) Ltd., and other similar cases, which emphasize the need for clear specification of the grounds for penalty imposition. Court's Interpretation and Reasoning: The Tribunal noted that the penalty was imposed for under-reporting of income. However, it was not clearly specified whether it was due to misreporting, and the necessary details were not provided in the notice or assessment order. Key Evidence and Findings: The appellant, a retired employee, claimed reliance on a Tax Return Preparer (TRP) for filing returns. The Tribunal found that the penalty notice lacked clarity on the specific grounds for penalty imposition. Application of Law to Facts: The Tribunal highlighted that the discretionary nature of Section 270A, as interpreted in CIT vs Dodsal Ltd., allows the Assessing Officer to decide on penalty imposition based on the circumstances. Given the appellant's reliance on a TRP and voluntary disclosure, the Tribunal found discretion should have been exercised to not impose a penalty. Conclusions: The Tribunal concluded that the penalty was not justified and directed its deletion for the assessment year 2017-18.SIGNIFICANT HOLDINGS Core Principles Established: The Tribunal reinforced the principle that penalties under Sections 271(1)(c) and 270A require clear grounds and justifications, particularly when no additions are made to disclosed income. The discretionary nature of penalty provisions should be exercised considering individual case circumstances. Final Determinations on Each Issue: The Tribunal allowed both appeals, directing the deletion of penalties for both assessment years, emphasizing the lack of additions to disclosed income and the inadequate specification of penalty grounds.