TaxTMI 
TaxTMI 
2024 (4) TMI 979
X X X X Extracts X X X X
X X X X Extracts X X X X
....es of the case and in law, ld. CIT(A) has erred in confirming the penalty imposed by ld. AO @ 200% in respect of excess claim of depreciation by not considering the submission made by assessee that effect of CIT(A) order in earlier year could not be given due to oversight, as depreciation was charged on the balances of fixed assets brought forward from earlier year (as is normal practice), however subsequently, mistake was rectified and fixed assets register was modified giving effect to explanation 5 to section 43(1). Appellant prays that depreciation was charged as per past prevalent practice under bonafide belief and claim so made by assessee, does not ipso facto amounts to under reporting and by no means same amounts to misreporting of income. 3. On the facts and in the circumstances of the case and in law, ld. CIT(A) has grossly erred in confirming the penalty imposed by ld. AO @ 200% in respect of disallowance of interest on TDS. Appellant prays that the issue of allowability of interest on TDS is debatable and therefore disallowance thereof does not amount to misreporting/underreporting of income. 4. On the facts and in the circumstances of the case and in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., which is beyond one month from the end of the month in which application was filed by assessee. Appellant prays that order rejecting the application of assessee seeking immunity u/s 270AA as passed by ld. AO is barred by limitation and accordingly assessee is entitled for immunity provided under the Act from levy of penalty. 3. Ld. CIT(A) has grossly erred in confirming the penalty imposed by ld.AO @ 200% by alleging the excess claim of depreciation is misreporting, whereas penalty proceedings were initiated for underreporting of income as is evident from the order passed u/s 143(3) itself where such satisfaction was recorded. Thus, the penalty order so passed deserves to be held void ab initio and the consequent penalty levied at Rs. 12,20,518/- deserves to be deleted. Without prejudice to above and in the alternative, 4. That, Id. CIT(A) has further erred in confirming the penalty imposed by ld.AO, by not considering the submission made by assessee during assessment proceedings itself that effect of CIT(A) order in earlier year could not be given due to oversight, as depreciation was charged on the balances of Fixed assets brought forward from earlier....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wance of Rs. 19,59,272/- on account of excess depreciation debited in the P&L account and Rs. 66,466/- on account of disallowance of claim of interest on TDS. During the course of assessment proceedings, penalty proceedings u/s. 270A of the I.T. Act were initiated and accordingly Show cause Notice u/s. 274 r.w.s. 270A of the I.T. Act was issued on 26.11.2029 for under-reporting of income in consequence of misreporting. Further show cause notice u/s. 274 r.w.s. 270A was issued on 26.05.2021 fixing the hearing date on 31.05.2021. In reply to show cause notice dated 26.05.2021, the assessee vide reply uploaded on 31.05.2021. The reply of the assessee has been taken into consideration but not found to be acceptable. Because the assessee has made excess claim of depreciation on building of Rs. 19,59,272/- which is allowable in view of the explanation 5 to section 43(1) of the Act and accordingly was disallowed and added back to the income of the assessee. 5.1 Further, the assessee has wrongly claimed interest paid of Rs. 66,466/- on TDS late payment which is penal in nature and not allowable deduction u/s. 37 of the I.T. Act and accordingly was disallowed and added back to the total ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....74 rws 270A of the Act. 7.3 On perusal of the disputed order, it is observed that consequent to decision of CIT(A)-II, Jaipur in the appellant's own case for AY 2013-14, the AO had worked out allowable depreciation on building at Rs. 4,59,572/- instead the appellant has claimed Rs. 24,18,844/- in its ITR for the impugned AY 2017-18. Accordingly, while concluding the assessment proceedings the AO had disallowed the excess claim of depreciation i.e., Rs. 19,59,272/- (Rs.24,18,844 Rs. 4,59,572) and added it to the returned income. Also, a disallowance of Rs. 66,466/- was made u/s.37(1) of the Act, being the interest paid for committing a default in respect of a statutory liability and added to the returned income. 7.4 During the course of penalty proceedings, the appellant had submitted before AO that there was no demand raised by the assessment order for the impugned AY 2017-18 and also the appellant company had not preferred further appeal against the assessment order and accordingly requested to drop the penalty proceedings since there was no malafide intention. 7.4.1 However, the AO had held that the appellant has not preferred an appeal against the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unting method. Therefore, the appellant has submitted that the claim of depreciation which was claimed was not deliberate or wilful attempt to evade taxes. Moreover, the appellant company has contested the action of the department in AY 2013-14 of changing its method of accounting from income from house property to business income and was expecting an order from CIT(A) in its favour. Accordingly, the appellant has submitted that both the depreciation and interest on TDS were claimed as deduction under bona fide belief as there were judicial pronouncements in favour of assessee and that it's not a case of bogus claim of any expenditure. 7.8 The grounds of appeal and written submission filed by the appellant are considered and examined carefully under the light of facts emanating from the disputed order. 7.9 It is undisputable that the CIT(A) has upheld the order of AO for AY 2013-14 vide order dated 18.09.2017, which was served on the appellant on 11.10.2017. Thus, it is clear that the appellant has got more than three weeks before filing ITR within due date i.e., 30.10.2017 for the impugned AY 2017-18 and claim depreciation in consequent to the CIT(A) Order(su....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... company and in engaged in the business of lease rental and real estate development. Return of Income for the year under consideration was filed on 29.10.2017 declaring total income of Rs. 2,17,59,670/- (APB 01-04). Case of assessee was selected for scrutiny assessment. Details and information as sought by ld.AO were furnished and assessment was completed after making following additions/disallowances. 1. Disallowance on account of Excess Depreciation 19,59,272/- 2. Disallowance of Interest on TDS 66,466/- 20,25,738/- In order to avoid litigation and to buy peace of mind, assessee duly discharged the tax liability arising due to disallowances so made and no appeal was filed. However, penalty proceedings were initiated by ld.AO u/s 270A of the Income Tax Act, for "misreporting and under reporting of income" , which were concluded vide order passed u/s 270A dated 24.7.2021, whereby penalty equivalent to 200%, i.e. Rs. 12,51,906/- was imposed by holding that assessee has underreported income in consequence to misreporting. Aggrieved of the penalty so imposed, assessee company preferred an appeal before ld. CIT(A), which was decided vide order dated ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ffect to the order of ld. CIT(A)-2, Jaipur while computing depreciation in Return of Income and thus disallowed depreciation to the extent of Rs. 19,59,272/- and simultaneously initiated the penalty proceedings u/s 270A for "misreporting and underreporting of income", which were concluded vide order dated 24.07.2021, whereby penalty of 200% was imposed on account of underreporting in consequence to misreporting. In this regard, at the outset, it is submitted that depreciation claim of assessee, was based on bona fide belief as the matter was pending before ld. CIT (A) where assessee expected relief. It is also submitted that the order of ld. CIT (A) for AY 2013-14 was passed on 18.09.2017 and dispatched to the assessee only on 11.10.2017 (APB 26-31) and received by the assessee on 13.10.2017 , by when books were already finalized and further assessee was in the process of seeking advice for filing further appeal against such order or not, thus while filing the return of income for the year under appeal which incidentally be fallen due upto 31.10.2017 thus assessee could not modify the claim of depreciation and thereafter the issue skipped the attention of the assessee and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lowance of claim by itself does not amount for furnishing inaccurate particulars of income. Hon'ble Apex Court in the case of M/s Price Waterhouse Coopers Pvt. Ltd. v/s Commissioner of Income Tax, Kolkata-I reported in 348 ITR 306 dated 25.09.2012 has been held as under: "17. Having heard learned counsel for the parties, we are of the view that the facts of the case are rather peculiar and somewhat unique. The assessee is undoubtedly a reputed firm and has great expertise available with it. Notwithstanding this, it is possible that even the assessee could make a "silly" mistake and indeed this has been acknowledged both by the Tribunal as well as by the High Court. 18. The fact that the Tax Audit Report was filed along with the return and that it unequivocally stated that the provision for payment was not allowable under Section 40A(7) of the Act indicates that the assessee made a computation error in its return of income. Apart from the fact that the assessee did not notice the error, it was not even noticed even by the Assessing Officer who framed the assessment order. In that sense, even the Assessing Officer seems to have made a mistake in overlooking....
X X X X Extracts X X X X
X X X X Extracts X X X X
....deration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act, or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute." It is submitted that, to this extent, provisions of section 270A are parimateria with that of section 271(1)(c) as both the sections use the word "may" and not "shall", which itself makes it clear that imposition of penalty is discretionary and not mandatory more particularly when a assessee made a claim on bobafide belief that the same would be allowable and the same is eventually not allowed or claim of assessee is recomputed. It is further submitted that ld.AO has imposed penalty of 200% on allegation of misreporting as per section 270A(9), however nowhere throughout the process, i.e. in assessment order, in show cause notice (APB 35-39) or even in Penalty order, ld.AO has specified as to under which limb of section 270A(9), i.e. (a) to (f), case of assessee falls. As is evident from t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re under reporting of income results from misreporting of income by the assessee, the person shall be liable for penalty at the rate of two hundred per cent of the tax payable on such misreported income. The cases of misreporting of income have been specified as under : (i) misrepresentation or suppression of facts; (ii) non-recording of investments in books of account; (iii) claiming of expenditure not substantiated by evidence; (iv) recording of false entry in books of account; (v) failure to record any receipt in books of account having a bearing on total income; (vi) failure to report any international transaction or deemed international transaction under Chapter X of the Income tax Act." It is thus clear that in case, AO alleges the misreporting, he has to specifically mention as to under which of the clauses, case of assessee falls before imposing heavy penalty of 200%. Hon'ble Rajasthan High Court very recently in the case of Chambal Fertilizers and Chemicals Ltd. vs PCIT [2024] 158 taxmann.com 184 (Rajasthan) has confirmed the requirement of clearly specifying the sub clause of section 270A(9), prior to....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... section 270A is attracted and how the ingredient of section 270A(9) was satisfied. In the absence of such particular, the mere reference to the word 'misreporting' in the assessment order to deny immunity from penalty and prosecution makes the impugned order, manifestly arbitrary. Hon'ble Mumbai bench of ITAT in the case of Alrameez Constrictions (P) Ltd. vs NFAC [2023] 152 taxmann.com 382 (Mumbai - Trib.) has held as under: Section 270A, read with sections 43CA and 56, of the Income-tax Act, 1961 - Penalty - For under-reporting and misreporting of income (scope of provisions) - Assessment year 2018-19 - Assessee-company filed its return of income - Case of assessee was selected for scrutiny - Assessing Officer made addition under section 43CA read with section 56(2)(x) - By virtue of this addition, penalty proceedings under section 270A was initiated on account of misreporting of income - Whether since additions were being made by virtue of section 43CA r.w.w. 56(2) (x) i.e. deeming provisions, case of assessee did not fall in category of under reporting of income - Held, yes - Whether further since in penalty notice revenue had failed to specify limb "u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r findings. Relevant extracts reproduced (APB 40-59) Per G.D.Padmahshali (Accountant Member) "14. In the light of aforestated reasoning and discussion, we observed that, the notice initiating the penal proceedings is silent on the circumstance or incidence triggering the very initiation in this case. Further the order of penalty did neither mention the circumstance or incidence nor make a mention of alleged action in reaching the final imposition. In the event respectfully applying similar analogy as laid in aforestated judicial precedents to the case in hand, we find force in the argument of the appellant that, the failure on the part of lower tax authorities to identify and communicate the specific circumstance or incidence from clause (a) to (g) of s/s (2) of section 270A by virtue of which the income of the appellant held as under-reported and further failure on the part of lower tax authorities to showcase which of the specific action of the appellant from clause (a) to (f) of s/s (9) was determinant before imposing the impugned penalty u/s 270A of the Act has rendered the entire proceedings invalid and thus untenable in the eyes of law. Consequently the pena....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat penalty imposed by ld.AO and confirmed by ld.CIT(A) deserves to be deleted." 8. The ld. AR of the assessee also filed a detailed paper book in support of the contention so raised in the written submission. The index of the document submitted by the ld. AR of the assessee is as under:- S. No PARTICULARS PAGE NOS. 1 Copy of Return of Income and Computation of Total Income filed u/s 139(1) of the Income Tax Act 01-04 2. Copy of Audited Financial Statements for the year ending 31.3.2017 05-25 3. Copy of order passed by ld.CIT(A) for A.Y. 2013-14 26-31 4. Copy of Reply dated 22.11.2019 filed during assessment proceedings furnishing details of Revised Depreciation (as required) in Annexure 2 32-34 5. Copy of notice dated 26.11.2019 issued u/s 270A of the Income Tax Act 35 6. Copy of notice dated 24.12.2020 issued u/s 270A of the Income Tax Act 36 7. Copy of show cause notice dated 26.5.2021 issued u/s 270A of the Income Tax Act 37-39 8. Copy of Order dated 23.6.2023 passed by Hon'ble Pune bench of ITAT passed in the case of Kishor Diganbar patil in ITA No. 54 and 55. 40-59 9. Copy of order d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iation and so the claim in this year needs to be given effect by the assessee and the same were not given. The order for A. Y. 2013-14 was came and the assessee after that order filed the return of income and therefore, the action of the assessee to claim the higher deprecation is misreporting of income of the assessee and even the interest of TDS is also not deductible but the same was claimed so levy of penalty against the assessee was justified. The assessee has not disputed the addition or disallowance further and accepted the finding of the ld.AO. So, the levy of penalty is compulsory and required to be sustained in the hands of the assessee. 11. We have considered the rival contentions, perused the material available on record and gone through findings of the lower authorities recorded in their respective orders as well as gone through the various judicial rulings placed before us to drive home to their respective contentions. The brief facts pertaining to the issue are that the assessee is private limited company engaged in business of lease rental and real estate development. Return of income was filed declaring income of Rs. 2,17,59,670/- and assessment was completed af....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... then the assessee was not advised and was able to decide the course of action in relation to the issue raised for A.Y. 2013-14 in respect of depreciation disallowed. However, in the scrutiny assessment proceedings for A.Y. 2017-18 i.e. the year under consideration, the revised calculation of depreciation was submitted before ld. AO as per the CIT(A)'s order as by that time it was already finalized for not to agitate the matter of depreciation before the income tax tribunal against the order of Ld. CIT(A) of A.Y. 2013-14. Thus, with that back ground as argued by the ld. AR of the assessee that the assessee has disclosed all the facts in return of income and also revised the depreciation claimed at the very first opportunity i.e. during assessment proceedings and therefore this act cannot be treated as "misreporting" by any stretch of imagination, more particularly when the issue on which disallowance has been made was debatable. So far as regard to disallowance of interest paid on TDS amounting to Rs. 66,466/-, it is submitted that interest on TDS is paid for the duration for which payment of TDS is delayed and is thus basically compensatory in nature and not penal in nature and th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder the head "Business Income" which was hitherto shown under the head "Income from House Property". The ld. AO concurred with the view of assessee that depreciation is admissible however, as regards quantum is concerned, the ld. AO was of view that it is to be given on written down value considering the explanation to section 43(1). This view of the ld. AO was challenged before the ld. CIT(A). The order of the ld. CIT(A) passed on 18.09.2017 and was dispatched on 11.10.2017 which was received by assessee on 13.10.2017. By the time accounts of the assessee company for F.Y. 2016-17 related to A.Y. 2017-18 were already audited and were also presented before the Annual General Meeting. Moreover, the assessee was considering about filing the appeal before the Income Tax Appellate Tribunal against the past disallowance of depreciation. In the meanwhile, the assessee had to file its return for A.Y. 2017-18 and same was filed on 29.10.2017 claiming the depreciation as the prevalent practice. This conduct of the assessee cannot be considered as malafide so as to arrive at the conclusion that assessee misrepresented the facts. It is further seen that during assessment proceedings, the asse....