TaxTMI 
TaxTMI 
2024 (12) TMI 1419
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.... 1167/Chny/2023 dated 06-03-2024). A copy of the same has been placed on record. The Ld. Sr. DR, drawing attention to the facts of the case, supported levy of penalty. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. 3. Upon perusal of assessment order dated 18-12-2019, it could be seen that the assessee sold certain property situated at Kottivakkam for Rs. 172 Lacs. The property was purchased on 20-05-2004 for Rs. 23 Lacs. However, Long Term Capital Gains (LTCG) was not offered to tax. The Ld. AO computed LTCG of Rs. 112.06 Lacs and framed the assessment. Consequently, in the assessment order, Ld. AO initiated penalty u/s 270A for misreporting of income. 4. During penalty proceedings, a show-cause notice was issued to the assessee u/s 274 r.w.s. 270A on 18-12-2019, a copy of which is on record. The Ld. AO initiated penalty by observing as under: - Whereas in the course of proceedings before me for the Assessment Year 2017-18, it appears to me under-reporting / misreporting of income. Another notice was issued on 20-05-2021, wherein a reference was made to earlier notice dated 18-12-2019 and the assessee was show-caused as to....
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....essee in the return of income filed in response to notice u/s.153A of the Act, has been accepted. In the revised return filed u/s.153A of the Act, the assessee has admitted taxable income of Rs. 2,55,35,485/- which is higher than the last return filed u/s.139(1) of the Act. According to the AO, the assessee has 'under reporting of income and under reporting as a consequence of misreporting of income' in respect of marketing expenses, which is clearly evident from information gathered during the course of search coupled with statement recorded from the Director of the assessee company and also enquiries conducted with suppliers of 'gift articles' during the course of assessment proceedings. The AO further observed that had search was not taken place u/s.132 of the Act, 'under reporting of income and under reporting as a consequence of misreporting of income' would not have come to light. Therefore, the AO opined that it is a clear case of 'under reporting of income and under reporting as a consequence of misreporting of income' which attracts provisions of Sec.270A(9) of the Act, and thus, levied penalty for both the assessment years for 'under reporting of income and under reportin....
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....ve, it is manifestly clear that provisions of Sec.270A of the Act, has two limbs or two charges for which penalty can be levied. The first limb or first charge is 'under reporting of income and such under reporting of income' has been specifically referred to in subsection 2 to 6 of Sec.270A of the Act. In the present case, these provisions are not relevant, because, the AO has not invoked under reporting of income. The second limb or charge is 'under reporting of income as consequence of misreporting of income' thereof and in the present case, the AO invoked second limb of provisions of Sec.270A of the Act. Admittedly, these provisions have been substituted by the Finance Act, 2016 w.e.f.01.04.2017 and applicable for AY 2017-18 onwards. Prior to insertion of Sec.270A of the Act, a similar provision was existed in the statue by way of sec.271(1)(c) of the Act, for concealment of particulars of income or furnishing of inaccurate particulars of income. Provisions of Sec.271(1)(c) of the Act, was also having two limbs or two charges i.e. i) for concealment of particular of income and ii) furnishing of inaccurate particulars of income. If you go by provisions of Sec. 271(1)(c) of the A....
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....e notice, it is not discernable whether penalty has been initiated for 'under reporting of income' as per section 270A (1) to (6) or 'misreporting of income' as per section 8 & 9 of Sec.270A of the Act. The AO issued a notice in a routine manner without specifying under which clause of Sec.270A of the Act, the assessee is liable for penalty. Though, the AO while passing the impugned order has imposed penalty u/s.270A(9) of the Act, but no such ground was specified in the show cause notice dated 26.07.2021. In our considered view, notice u/s.274 r.w.s.270A of the Act, is not a valid notice for the reason that the AO did not specify the satisfaction as to whether assessee had either 'under reporting of income' or 'misreporting of income'. In absence of proper notice, which is mandatory, the AO cannot impose penalty, because, it is a clear violation of principles of natural justice, because, issuing a vague notice without specifying the charge under which limb the proposed penalty proceedings is initiated, would vitiate the entire proceedings, because, the assessee was not given an opportunity to explain its case on specific charge. Therefore, in our considered view, penalty levied on....
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....pecific charge against the assessee, the assessee is not in a position to counter the show cause notice issued by the AO as well as cogent reply to the show cause notice. In view of vague notice without any whisper as to which limb of section 270A of the Act is attracted and how ingredients of sub-section 9 is specified, initiation of penalty u/s.270A of the Act for 'misreporting of income' is not only erroneous, but also arbitrary and thus, penalty proceedings cannot be sustained. This legal position is strengthened by the decision of the Hon'ble Delhi High Court in the case of Prem Brothers Infrastructure LLP (supra), where the Hon'ble Delhi High Court by following the earlier decision in the case of Schneider Electric South East Asia (HQ) Pte Ltd. v. ACIT, International Taxation in WP (C) No.5111 of 2022 dated 28.03.2022, held that in view of vague notice without any whisper as to which limb of section 270A of the Act is attracted and how ingredients of sub-section 9 is specified, initiation of penalty u/s.270A of the Act for 'misreporting of income' is not only erroneous, but also arbitrary and bereft of any reason and consequently, penalty order passed by the AO, cannot be sus....
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....us, this is a case where the amount of underreporting of income is consequent to increase in the disallowance voluntarily estimated by the assessee. This court is conscious of the fact that there can be cases where underreporting of income may result in misreporting of income, however, in peculiar facts of the present case, the underreporting allegedly done by the assessee cannot amount to misreporting as the assessee had furnished all the details of the transactions relating to disallowance made under Section 14A of the Act and the AO as well as assessee has used the same details to arrive at different conclusions i.e. differing quantum of disallowances under Section 14A of the Act. This by no stretch of imagination can be held to be 'misreporting'. 8. This Court also finds that there is not even a whisper as to which limb of Section 270A of the Act is attracted and how the ingredient of sub-section (9) of Section 270A is satisfied. In the absence of such particulars, the mere reference to the word "misreporting" by the Respondents in the penalty order to deny immunity from imposition of penalty and prosecution makes the impugned order manifestly arbitrary. W.P.(C) 9. Conseque....
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....annot be considered as conclusive and final for the purpose of imposing penalty. The Hon'ble Supreme Court in the case of CIT v. Anwar Ali, reported in [1970] 76 ITR 696 (SC) observed that the findings in assessment proceedings may constitute evidence in the penalty proceedings, but it does not follow that penalty is mandatory whenever addition or disallowance is made. Further, the jurisdictional High Court in the case of CIT v. Gem Granites reported in [2013] 86 CCH 160 (Madras), observed that merely because, the assessment proceedings namely the quantum assessment having been confirmed, cannot automatically lead to the conclusion that the penalty proceedings are justified. In other words, there should be an independent finding from the AO regarding under reporting of income or misreporting of income in the penalty proceedings which alone can lead to conclusion that it is a fit case for levy of penalty. The bench, in para-14, held that sub-section (1) to (6) of Sec.270A of the Act deals with under reporting of income. Under reporting as a consequence of 'misreporting of income' has been specified in subsection 7 of Sec.270A. Sub-section 8 & 9 deals with 'under reporting of income....