2025 (6) TMI 1467 - AT - Income Tax

Section 270A penalty set aside as belated filing without income discrepancy doesn't constitute under reporting

The Tribunal set aside penalty under Section 270A of Income Tax Act imposed on assessee for 'under reporting of income.' Though assessee was initially a ... Penalty u/s 270A - allegation of ‘under reporting the income’ - Assessee is a non-filer and has filed return of income for the year under consideration belatedly - HELD THAT:- While passing the assessment order a satisfaction has been recorded by the A.O. for ‘under reporting the income’. Consequent to the said satisfaction, penalty proceedings u/s 270A has been initiated for ‘under reporting the income’ and penalty has been imposed u/s 270A for ‘under reporting the income’. As observed earlier, though the Assessee is a non-filer, while filing Return suo-moto belatedly, declared the total income which has been accepted by the Department and no addition has been made on the quantum. However, a penalty provision has been invoked u/s 270A for ‘under reporting income’. The ‘under Reporting income’ occurs when a person discloses smaller amount than their actual income. In the present case, whatever income reported/declared by the Assessee has been accepted by the Department, therefore, it is not the case of reporting smaller amount than their actual income, thus, the limb of ‘under reporting’ in Section 270A is not applicable and the said Limb cannot to be invoked. Assessee appeal allowed. 1. ISSUES PRESENTED and CONSIDERED- Whether penalty under Section 270A of the Income Tax Act can be imposed for 'under reporting of income' when the assessee, though a non-filer, has filed a belated return declaring income which has been accepted by the Department without any additions or adjustmentsRs.- Whether the filing of a belated return without prior condonation under Section 119(2) of the Act affects the validity of the return and the consequent penalty proceedingsRs.- Whether the satisfaction recorded by the Assessing Officer (A.O.) for 'under reporting of income' is justified when the declared income in the belated return is accepted without modificationRs.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Applicability of penalty under Section 270A for 'under reporting of income' when declared income is accepted without additionsRelevant legal framework and precedents: Section 270A of the Income Tax Act prescribes penalty for concealment of income or under-reporting of income. 'Under reporting' is defined as reporting income lower than the actual income. The penalty is leviable only if there is a discrepancy between the income declared and the income assessed or accepted after scrutiny. The principle is that penalty for under-reporting cannot be imposed if the declared income is accepted without any addition or modification.Court's interpretation and reasoning: The Tribunal noted that the assessee, though a non-filer initially, filed a belated return declaring total income of Rs. 1,02,88,060/-, which was accepted by the Department without any additions. The assessment was completed at the declared income. The A.O. recorded satisfaction for 'under reporting' and initiated penalty proceedings under Section 270A. However, the Tribunal emphasized that 'under reporting' occurs only when the declared income is less than the actual income. Since the declared income was accepted as such, there was no 'under reporting' within the meaning of Section 270A. Therefore, invoking penalty under this section was not justified.Key evidence and findings: The key finding was that no addition was made to the declared income, and the assessment was completed on the declared income. The penalty order was based solely on the fact that the return was filed belatedly and the A.O.'s satisfaction of 'under reporting' without any factual basis.Application of law to facts: The Tribunal applied the statutory definition of 'under reporting' and the requirement of a discrepancy between declared and assessed income. Since no such discrepancy existed, the penalty provision could not be invoked.Treatment of competing arguments: The Department argued that the assessee was a non-filer and the return was filed belatedly, therefore penalty was warranted. The Tribunal acknowledged the non-filer status and belated filing but distinguished these facts from the question of 'under reporting'. The Tribunal rejected the Department's contention that penalty under Section 270A could be imposed merely on the basis of belated filing without any under reporting.Conclusions: The penalty under Section 270A for 'under reporting' cannot be imposed where the declared income is accepted without additions. The Tribunal set aside the penalty order on this ground.Issue 2: Effect of belated filing of return without condonation under Section 119(2) on penalty proceedingsRelevant legal framework and precedents: Section 119(2) empowers the Central Board of Direct Taxes (CBDT) or the Commissioner to condone delay in filing returns. Filing a return without such condonation may render the return invalid or not acceptable for certain purposes.Court's interpretation and reasoning: The Department contended that the return was filed manually and belatedly without condonation under Section 119(2), thus invalidating the return and justifying penalty. However, the Tribunal observed that the return was accepted by the Department and assessment was completed on the basis of the return filed. The issue of condonation was not determinative for penalty under Section 270A, which requires a substantive discrepancy in income reporting.Key evidence and findings: The return was filed belatedly but was accepted and assessment completed without additions. There was no record of condonation but no adverse consequence arose from this in the assessment process.Application of law to facts: The Tribunal distinguished the procedural lapse in filing from the substantive question of under reporting. The absence of condonation did not create a basis for penalty under Section 270A in the absence of under reporting.Treatment of competing arguments: The Department relied on procedural non-compliance to support penalty. The Tribunal declined to extend penalty on this ground alone without substantive under reporting.Conclusions: Belated filing without condonation under Section 119(2) does not, by itself, justify penalty under Section 270A for under reporting when declared income is accepted.3. SIGNIFICANT HOLDINGS'The 'under Reporting income' occurs when a person discloses smaller amount than their actual income. In the present case, whatever income reported/declared by the Assessee has been accepted by the Department, therefore, it is not the case of reporting smaller amount than their actual income, thus, the limb of 'under reporting' in Section 270A is not applicable and the said Limb cannot to be invoked.'Core principles established include:- Penalty under Section 270A for 'under reporting' requires a discrepancy between declared income and actual or assessed income. Mere belated filing or non-filing initially does not constitute under reporting if the declared income is accepted without additions.- Acceptance of a belated return by the Department and completion of assessment on declared income precludes penalty under Section 270A for under reporting.- Procedural irregularities such as belated filing without condonation under Section 119(2) do not, in themselves, justify penalty under Section 270A absent substantive under reporting.The Tribunal accordingly set aside the penalty order passed under Section 270A and allowed the appeal of the assessee.