Penalty Order On Ground Of Misreporting Of Income Not Justified When SCN And Assessment Order Alleged Under-Reporting: ITAT

The Hyderabad Bench of Income Tax Appellate Tribunal (ITAT) has held that the penalty order on the ground of misreporting of income was not justified when show cause notice and the assessment order alleged under-reporting.

The bench of Laliet Kumar (Judicial Member) has observed that once the assessee himself admitted the fact that there was under-reporting of income, which was also accepted by the Assessing Officer, then the penalty should have been levied only on account of under-reporting of income and not for mis-reporting of income.

The appellant/assessee had claimed a refund of Rs. 2,21,980 by filing a revised return of income declaring reduced income as against the original return filed declaring total income.

The assessing officer noticed that the total TDS claimed as per the revised return was Rs. 2,65,037, as against Rs. 2,50,037 claimed in the original return. Hence, a notice was issued to the assessee on October 26, 2020, along with a detailed questionnaire.

During the course of assessment proceedings, the assessee has again filed a revised computation of income, declaring total income of Rs. 14,84,160 as against income of Rs. 14,34,180 as per the original return and Rs. 6,46,520 as per the revised return.

In response to the notice, the assessee has explained that his tax consultant filed the revised return without his knowledge and that he revised the income again to Rs. 14,84,160, claiming that he has overlooked rental income of Rs. 33,600/- in the original return. The tax consultant erroneously claimed housing loan benefits, despite not having any such loan. The assessee declared his revised taxable income as Rs. 14,84,160 with a total tax payable of Rs. 2,65,480.

The Assessing Officer opined that the revised return claiming a large refund was filed with the knowledge of the assessee, as it was held that the assessee himself was responsible for filing any return under his name and PAN. The AO concluded that the assessee has made an attempt to reduce his tax liability by concealing true particulars of income. The assessee has underreported on account of misreporting his income.

A penalty order was passed against the assessee under Section 270A of the Income Tax Act, levying the penalty for misreporting income to be paid as per demand notice.

The assessee, being aggrieved with the order of the Assessing Officer, filed an appeal before the CIT (A), NFAC, Delhi, who dismissed the appeal of the assessee.

The assessee contended that the assessing officer has issued a show cause notice for underreporting of income. Prior to the issuance of the penalty notice, the demand was made one day prior to the penalty notice. The assessee has failed to appear before the ld.CIT(A) as the notices have not been served upon the assessee.

The department contended that the assessee has made a claim before the assessing officer, and the assessing officer has not accepted it vis-à-vis the fraud aspect. Further, the ld. DR has submitted that the notice dated March 15, 2021 is also placed, which is not specific either for under-reporting or misreporting of income. The penalty levied by the Assessing Officer and confirmed by the CIT (A) is in accordance with the law.

The tribunal held that once the assessee himself admitted the fact that there was under-reporting of income, which was also accepted by the assessing officer, then the penalty should have been levied only on account of under-reporting of income and not for mis-reporting of income.

The tribunal modified the order passed by the assessing officer and confirmed the CIT (A). The tribunal directed the department to revise the demand for levying the penalty by taking the violation as under-reporting of income under Section 270A of the Income Tax Act and not mis-reporting of income. The penalty shall be levied for under-reporting of income. The assessing officer is directed to revise the demand by applying the applicable rate for under-reporting of income.

Counsel For Appellant: A. Vamseedhar

Counsel For Respondent: Mookambikeyan

Case Title: Mohd. Sarwar Versus The Income Tax Officer

Case No.: ITA No.238/Hyd/2024

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