TaxTMI 
TaxTMI 
2026 (8) TMI 668
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....International Tax Circle 3(1)(2) (Ld. AO') under section 270A of the Act of the Act for under reporting of income, disregarding the fact that there is no change in the income declared in the Return of Income filed by the Appellant and the income assessed by the Ld. AO in the final assessment order issued under section 143(3) r.w.s. 144C(13) of the Act. 1.2. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of Ld AO of imposing penalty under section 270A of the Act merely on account of reclassification of a portion of income as dividend income as against capital gains disclosed in the Return of Income and holding such reclassification of income as under reporting of income. 1.3. Without prejudice to the above, on facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the AO in imposing the penalty under section 270A of the Act, without appreciating the fact that the tax paid by the Appellant was in fact higher than that calculated by the Ld. AO on reclassification of portion of income and there was no loss to the revenue." 2. Brief facts of the case culled out from the o....
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....eturn of Income (INR) Amount as per Assessment Order (INR) Interest Income 77,71,25,531 77,71,25,531 Capital Gains (pursuant to capital reduction) 2,75,20,00,000 1,36,72,80,820 Dividend Income - 1,38,47,19,180 Total Income 352,91,25,531 352,91,25,531 5.6 The assessee's contention in assessment/DRP proceedings that the capital gains itself were not taxable in India, or that the entire receipt ought to be regarded as a capital receipt not chargeable to tax, was rejected. In appeal, the Hon'ble ITAT, Mumbai, vide its Order dated 13.10.2023 passed in ITA No. 2487/Mum/2022 confirmed. in substance, the re-characterisation of the impugned amount as dividend, but directed that tax on such dividend be restricted to 10% in terms of the India-Netherlands DTAA (inclusive of surcharge and cess). 5.7 After receipt of the ITAT's Order, the AO issued notice under section 274 r.w.s. 270A of the Act, on 29.02.2024, asking the appellant to show cause as to why an order imposing penalty under section 270A of the Act should not be passed in its case. After considering the assessee's replies, the AO concluded that, by not offering the impugned....
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....rn has been furnished for the first time under section 148; (f) the amount of deemed total income reassessed as per the provisions of section 115JBor section 1153C, as the case may be, is greater than the deemed total income assessed or reassessed immediately before such reassessment: (g) the income assessed or reassessed has the effect of reducing the loss or converting such loss into income." 2.2. The Appellant humbly submits that its case is not covered under any of the criteria mentioned under sub-section (2) of section 270A and hence a question of underreporting does not arise at all. 2.3. A table summarizing the breakup of total income as per return of income and that as per the final assessment order is given below: Particulars Amount as per Return of Income (Rs.) Amount 35 per Assessment Order (Rs.) Interest Income 77,71,25.531 77.71.25.53 1 Capital Gains (pursuant to capital reduction) 275,20,00.000 136,72,80,820 Dividend Income 138,47,19,180 Total Income 352,91,25,531 352,91.25,531 2.4. On perusal of the above, it is evident that there is no difference in the total income decl....
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....n of capital gain income to dividend income does not lead to any loss of revenue since it is taxable at the higher rate of 10.812% under the Act, as compared to dividend income which is taxable at the rate of 10% under the Tax Treaty. Detailed working with respect to tax on capital gains as well as dividend income is tabulated below for your Honours' ready reference: Amount in Rs Particulars Amount as per Return of Income Amount as per assessment order Interest Income 77,71,25,531 77.71.25,531 Capital Gains (pursuant to capital reduction) 275.20.00.000 136.72,80,820 Dividend Income - 138.47.19.180 Total Income 352,91,25,531 352,91,25,531 Tax on above Tax on interest income @ 10 percent basis Article 11 of the Tax Treaty 7,77.12,553 7,77,12,553 Tax on capital gains @ 10 percent under section 112(c)(iii) 27,52,00,000 13,67,28,082 Tax on dividend @ 10 percent basis Article 10 of the Tax Treaty - 13,84.71,918 35,29,12,553 35,29,12,553 Surcharge on above @ 5 percent on capital gains 1,37.60,000 68.36.404 28,89,60,000 28,89,60,000 Cess on....
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....e was lower than the tax offered by the assessee. In such case, whether only on the basis of reclassification of income the penalty u/s. 270A is leviable or not is the issue before us. On this aspect, Ld. AR placed his reliance on the decision of ITAT Mumbai "D" Bench in the case of D.C. Polyester Ltd. v. DCIT [2023] 157 taxmann.com 753 (Mum. Trib.) wherein the Tribunal has observed as under: "10. We heard rival contentions and perused the record. We notice that section 270A of the Act uses the expression "the Assessing Officer 'may direct". Hence there is merit in the contention of the assessee that levying of penalty is not automatic and discretion is given to the Assessing Officer not to initiate penalty proceedings under section 270A of the Act. From the facts discussed earlier, it can be noticed that the addition came to be made on account of change in the head of income for assessing the rental income. We noticed that the assessee had offered rental income under the head "Income from House Property", but the assessing officer has assessed the same under the head "Income from business." The standard deduction @ 30% allowable u/s. 24(a) while computing income under....