ITAT Deletes Penalty Of Rs.132 Cr. For Misreported Income Against Jaypee Cement

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has deleted the penalty of Rs. 132 crore for misreported income against the assessee, Jaypee Cement.

The bench of Saktijit Dey (Vice President) and M. Balaganesh (Accountant Member) has observed that there was absolutely no mala fide intention on the part of the assessee to claim an excess deduction under Section 32AC. In the facts, even after the withdrawal of the differential 85% claim of deduction in the sum of Rs. 191 crores, the assessee still has brought forward losses to the tune of Rs. 2698.95 crores, as is evident from the schedule CFL (details of loss to be carried forward) in the ITR filed for AY 2017-18.

The appellant/assessee is in the business of manufacturing and selling cement, manufacturing and selling asbestos sheets, heavy engineering workshops, and foundries.

The assessee claimed a deduction of Rs. 225.03 crore under Section 32AC at 100% for the financial year 2017-18, of which only 15%, i.e., Rs. 33.75 crore, was allowed by the department. The difference of Rs. 191.28 crore was subject to a penalty under Section 270A for underreporting or misreporting of income.

During the assessment proceedings, the assessee relied on the tax auditor's certificate to propose that the deduction under Section 32AC be limited to 15% because it had been incorrectly claimed at 100%.

Only after the assessee's request did the department seek clarification on the deduction and eventually finalize the assessment.

In the penalty proceedings, the assessee explained the inadvertent error with regard to Section 32AC deduction and urged that no penalty be imposed because its explanation was genuine and the error in the claim of deduction was rectified by the assessee on its own before it was detected.

However, the penalty was imposed at 200% of Rs. 191.28 crore, amounting to Rs. 132.39 crore, and was upheld by CIT (A).

The assessee contended that for underreporting of income, the penalty leviable would be 50% of the tax on underreported income as per Section 270A(7), and in the case of underreported income in consequence of misreporting of income, the penalty leviable would be 200% of the tax payable on underreported income as per Section 270A(8). The assessee‘s explanation was bona fide, and there was a genuine error committed in the tax audit report that was rectified by the assessee on its own volition before it could be detected by the AO during the course of assessment proceedings.

The ITAT observed that the assessee‘s case would squarely fall under the exception provided under Section 270A(6)(a) of the Act, wherein the assessee had given its bona fide explanation and had disclosed all the material facts that are relevant for the explanation offered.

In view of the exception provided in Section 270A(6)(a), the ITAT held that the present facts do not make the department eligible to levy a penalty under Section 270A of the Income Tax Act.

Counsel For Appellant: Ajay Vohra

Counsel For Respondent: Waseem Arshad

Case Title: M/s. Jaypee Cement Corporation Ltd. Versus ACIT

Case No.: ITA No. 1070/Del/2023

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