TaxTMI 
TaxTMI 
2026 (6) TMI 1076
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....enalty of Rs. 9,36,103/-, being 50% of the tax payable, computed with reference to the alleged under-reporting of income arising from disallowance of depreciation amounting to Rs. 38,42,253/-. The grounds of appeal, as raised by the assessee, are reproduced hereunder: 1. The learned CIT (A) erred in partly confirming the penalty levied under section 270A of the Income-Tax Act, 1961. 2. That on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in sustaining penalty under section 270A of the Act despite the fact that the assessed total income, after giving effect to Quantam CIT (A) Order, is NIL and consequently no tax is payable, and therefore no penalty could be levied under section 270A o....
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....reporting of income within the meaning of section 270A. 4. Before us, the learned counsel for the assessee submitted that the levy of penalty is wholly unsustainable in law as well as on facts. It was pointed out that in the quantum proceedings, the learned CIT(A) had directed the Assessing Officer to allow the benefit of accumulation under section 11(2), which had been denied in the assessment order. After giving effect to the appellate order, the income of the assessee stood computed at "Nil". Thus, according to the learned counsel, there was no tax payable, no income ultimately assessed, and no real under-reporting of income. He further submitted that the assessee is a charitable institution whose income is governed by section 11 and,....
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....een brought to tax as a result of the disallowance. 14. The concept of "under-reporting of income" under section 270A cannot be read in isolation or in abstraction. It must be understood in the context of the charging and exemption provisions of the Act. Where an assessee's income is otherwise exempt under section 11, and the assessment, even after making the disallowance, results in Nil income, it is difficult to comprehend how the assessee can be said to have under-reported income in the statutory sense. 15. The learned CIT(A) has characterised the claim of depreciation as an impermissible deduction leading to under-reporting. However, an impermissible claim or an inadmissible deduction does not ipso facto translate into....
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....assessed income remains undisturbed. Therefore, even on a plain reading of section 270A(2)(a), the condition precedent for invoking the said clause is not satisfied. 19. Penalty provisions, though civil in nature, have serious consequences and must be construed strictly. They cannot be invoked on the basis of assumptions or perceived revenue loss divorced from the actual statutory impact. The Act does not authorise levy of penalty merely because a claim is disallowed, particularly where such disallowance does not result in any taxable income or tax payable. 20. Viewed in this backdrop, we are unable to sustain the finding of the learned CIT(A) that the assessee's claim of depreciation, though impermissible under section 11....
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....le. In our considered view, the answer has to be in the negative. Penalty under section 270A is not an automatic statutory reflex upon every disallowance made in assessment. The provision contemplates under-reporting of income in a real and statutory sense. Therefore, before the machinery of penalty is set into motion, there must exist a foundational jurisdictional fact that the income assessed is greater than the income determined in the return, or that the case otherwise falls within the specific clauses of section 270A(2). A disallowance may, in a given case, alter the computation; but unless such alteration results in assessed income, tax liability, reduction of loss with statutory consequence, or any present or future tax advantage, it....
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....lty requires something more, namely a statutory under-reporting which has tax consequence or affects the computation of taxable income in the manner contemplated by the provision. In a case of a charitable trust where, even after such disallowance, income remains exempt and assessed at Nil, the essential statutory mischief which section 270A seeks to address is conspicuously absent. 9. The Coordinate Bench in the case of Podar Literacy and Education Trust, on identical facts, has already held that penalty under section 270A cannot be sustained where disallowance of depreciation in the case of a charitable trust does not result in any taxable income and both returned and assessed income remain Nil. The ratio of the said decision squarely ....