Introduction
In the case of Amar Nath v. ITO[i], the Income Tax Appellate Tribunal (‘ITAT’), Delhi dismissed the appeal of the Assessee and upheld the penalty proceedings initiated under s. 270A read with s. 270A (9) of the Income-tax Act, 1961 (‘Act’). The Tribunal held that the Assessee’s case involved underreporting as a consequence of misreporting and, therefore, confirmed the penalty imposed by the assessing officer (‘AO’) at 200% of the tax payable on the underreported income, citing that the case was under the ambit of s. 270A (9) of the Act.
Brief Facts
On 02.03.2017, a survey under s. 133A of the Act was conducted at the premises of Amar Nath (‘Assessee’), a commission agent for food grains. During the survey, it was revealed that the Assessee was maintaining two sets of books of accounts, one for income tax purposes and the other for business purposes.
Upon further examination, it was found that the Assessee had sales outside the books amounting to Rs.77,25,354/- which were not entered in the books of accounts. Additionally, the AO identified certain deposits totalling Rs. 9,23,213/- in the Assessee’s bank account, for which the Assessee could not explain the source of funds. The AO added this amount to the Assessee’s income under s. 69A of the Act, and penalty proceedings were initiated under s. 270A read with s. 270A (9) for underreporting of income. Therefore, the AO imposed a penalty of Rs. 80,224/-, calculated at 200% of the undisclosed income.
Aggrieved by the AO's addition, the Assessee filed an appeal before the Commissioner of Income Tax (Appeals) [‘CIT(A)’], claiming immunity from penalty under s. 270AA of the Act. The Assessee stated that the additional demand was paid within the stipulated time, and further, no appeal has been filed against the order of assessment, which satisfies the conditions specified in s. 270AA of the Act.
However, CIT(A) disallowed the claim and stated that the present case did not fall within the ambit of s. 270AA of the Act since the penalty has been imposed under s. 270A (9) of the Act, which deals with misreporting of income rather than just underreporting. In view of these facts, the CIT(A) upheld the AO’s penalty calculated at 200% of the undisclosed income and dismissed the Assessee's appeal.
Aggrieved by the order of CIT(A), the Assessee filed this appeal before the ITAT seeking to quash the order imposing the penalty calculated at 200% of the undisclosed income and to grant immunity under s. 270AA of the Act.
Observations of the Tribunal
The Tribunal upheld the penalty of Rs. 80,224/-, calculated at 200% of the underreported income, stating that the Assessee’s actions amounted to underreporting as a consequence of misreporting. Therefore, the present case falls under the purview of s. 270A (9) of the Act, which makes the Assessee ineligible for immunity as per s. 270AA (3) of the Act.  The Tribunal also noted that the CIT(A) lacked jurisdiction to address the immunity claim since no application was filed with the AO within the stipulated timeframe as per s. 270AA (2) of the Act, and any implied rejection by the AO was final and not subject to appeal
The ITAT agreed with CIT(A) that the penalty under s. 270A (9) was justified due to the nature of the misreporting, s. 270A (7) provides for a lower penalty of 50% in cases of underreporting, while s. 270A (9) prescribes a higher penalty for misreporting. Thus, CIT(A)’s decision to reject the immunity claim and confirmation of the penalty was upheld. The Tribunal dismissed the Assessee’s appeal, affirming that the actions warranted the maximum penalty due to the severity of the misreporting.
Conclusion
This judgement underpins the distinction between misreporting and underreporting of income. Misreporting involves deliberate misrepresentation or concealment of income, such as maintaining multiple sets of books or failing to disclose substantial transactions, whereas underreporting generally pertains to less severe inaccuracies. The Tribunal's decision to classify the Assessee’s actions as misreporting rather than mere underreporting underscores the importance of accurate and truthful reporting. The ruling affirms that penalties under s. 270A (9) are applicable in cases of misreporting and is payable at 200% for the underreported income. This contrasts with s. 270A (7), which provides for a reduced penalty of 50% for underreported income.
Furthermore, the judgment also clarifies that immunity under s. 270AA is contingent upon specific conditions being met and an application filed with the AO within the designated timeframe. The Tribunal's decision highlights that the immunity provisions can only be invoked post-facto or before the CIT(A) if the application was initially submitted to the AO.
End Note
[i]Â [2023] 157 taxmann.com 741.
Authored by Pratik Sainy of Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.
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