2025 (11) TMI 564 - AT - Income Tax

Penalty under s.270A(9) deleted where taxpayer fairly disclosed capital gains and 54F deduction error, no misreporting

ITAT Ahmedabad allowed the appeal and deleted the penalty under section 270A(9). The tribunal found the assessee had fairly disclosed facts concerning ... Levy of penalty u/s. 270A(9) - under-reporting and misreporting of income - disallowance of deduction u/s. 54F to the extent of excess claimed by the assessee - HELD THAT:- On this disallowance of deduction u/s. 54F of the Act to the extent of excess claimed by the assessee, penalty for mis-reporting of income as a consequence of under reporting in terms of Section 270A(9) of the Act has been levied. Clearly the assessee’s case clearly does not fall within any of the instances specified in Subsection (9) of Section 270A. It is neither a case of misrepresentation or suppressions of facts, since, the assessee had fairly disclosed all facts relating to the capital gains earned by it and invested in the acquisition of new asset. The assessee’s only fault was in relation to the calculation of claim of deduction. The assessee’s case also does not fall within any other clauses of Sub-section (9) of Section 270A of the Act. The orders of the authorities below i.e. both the AO and the CIT(A), also do not specify which particular condition, the assessee fulfilled for charging him with mis-reporting of income. In the light of the same, penalty levied u/s. 270A(9) of the Act is held to be not sustainable in law and is directed to be deleted. Appeal filed by the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the delay of 338 days in filing the appeal before the Tribunal constitutes 'sufficient cause' enabling condonation of delay under the Limitation Act and the Tribunal's powers. 2. Whether penalty under Section 270A(9) of the Income Tax Act, 1961 can be sustained where the disallowance arises from an alleged incorrect calculation of deduction under Section 54F and there is no finding of any of the specific instances of 'misreporting of income' enumerated in sub-section (9)(a)-(f). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of delay in filing the appeal Legal framework: The Tribunal examines delay under the concept of 'sufficient cause' as understood in Section 5 of the Limitation Act (as placed before the Tribunal) and the Tribunal's power to admit delayed appeals if sufficient cause is shown, with emphasis on advancing substantial justice over technical disqualifications. Precedent treatment: The Tribunal relied on established principles that 'sufficient cause' must be liberally construed to avoid denial of justice (reference to Collector, Land Acquisition v. Mst. Katiji and allied authorities as indicative of the doctrine applied by higher courts). Authorities hold that delays caused by change of counsel or administrative/consultant-related lapses can amount to sufficient cause unless mala fide or part of a dilatory strategy. Interpretation and reasoning: The assessee attributed the delay to change of authorised representative/tax consultant and failure of the erstwhile consultant to inform the assessee timely about the appellate remedy. The Revenue could not point to any falsity, mala fide intention, or deliberate dilatory tactic. The Tribunal applied the liberal construction of 'sufficient cause', weighed the absence of mala fides and the prejudice (if any) to the Revenue, and preferred substantial justice over technical non-compliance. Ratio vs. Obiter: Ratio - Where delay is explained by administrative change of representative and there is no mala fide intention or deliberate delay, the Tribunal may condone substantial delay in the interest of justice. Obiter - General statements about the usual absence of benefit to a litigant by delaying an appeal and policy considerations favoring merits adjudication. Conclusion: The delay of 338 days was condoned; the appeal was admitted for adjudication on merits. Issue 2 - Sustainment of penalty under Section 270A(9) for alleged misreporting Legal framework: Section 270A of the Income Tax Act prescribes penalty for under-reporting and mis-reporting of income. Sub-section (9) enumerates specific instances that constitute 'cases of misreporting of income' for the purpose of levy under sub-section (8). The enumerated instances at (a)-(f) are: (a) misrepresentation or suppression of facts; (b) failure to record investments in books; (c) claim of expenditure not substantiated by any evidence; (d) recording of false entries; (e) failure to record any receipt affecting total income; (f) failure to report international/ specified domestic transactions to which Chapter X applies. Precedent treatment: The Tribunal treated the sub-clauses of Section 270A(9) as specific and exhaustive indicators of misreporting for the purposes of that subsection; penalty must be founded on one or more of those statutory instances. The authorities below failed to indicate which of these specific sub-clauses was attracted. Interpretation and reasoning: Facts - assessee claimed deduction under Section 54F for reinvestment in a new house property and claimed the entire investment amount as deduction; the Assessing Officer recalculated eligible deduction on a proportionate basis and disallowed the excess. The assessee had fairly disclosed capital gains and the investment; the dispute concerned computation/quantification (calculation of eligible deduction), not concealment, false entry, failure to record receipt/investment, lack of evidence of expenditure, or non-reporting of international or specified domestic transactions. The Tribunal found no finding or material demonstrating misrepresentation, suppression of facts, false entries, failure to record investments/receipts, or unsubstantiated expenditure. The orders of AO and CIT(A) did not specify which sub-clause of Section 270A(9) was engaged. Given that sub-section (9) lists particular circumstances attracting misreporting penalty, mere incorrectness in computation of a claimed deduction without any element of the statutory instances does not amount to misreporting under that provision. Ratio vs. Obiter: Ratio - Penalty under Section 270A(9) cannot be levied unless the facts of the case fall within one or more of the specific instances enumerated in sub-section (9); an error limited to the calculation or quantification of a deduction (without misrepresentation, suppression, false entries, failure to record, or unsubstantiated expenditure) does not constitute 'misreporting of income' under sub-section (9). Obiter - Commentary that authorities below must specifically state which sub-clause is satisfied when imposing penalty under Section 270A(9), and that absence of such identification undermines the penalty order. Conclusion: The penalty under Section 270A(9) was unsustainable on the facts because the disallowance related to a calculation error in claiming deduction under Section 54F and did not fall within any of the statutory instances of misreporting set out in Section 270A(9). The penalty was deleted and the appeal was allowed on this ground. Cross-reference The conclusion on Issue 2 is reached after condoning the delay in Issue 1; the Tribunal first admitted the appeal on merits by condoning the delay and then adjudicated the substantive penalty issue.