Without a malicious intent to claim an excessive deduction, a penalty under Section 270A cannot be imposed
Fact and issue of the case
The appeal in ITA No.1070/Del/2023 and SA No. 192/Del/2023 for AY 201718, arises out of the order of the Commissioner of Income Tax (Appeals)/ National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as ‗ld. CIT(A)‘, in short] in Appeal No. ITBA/NFAC/S/250/2022-23/1051489193(1) dated 28.03.2023 against the order of assessment passed u/s 270A of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act‘) dated 05.02.2022 by the NFAC, Delhi (hereinafter referred to as ‘ld. AO‘).
The assessee has raised the following grounds of appeal:-
That the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [‘Ld. CIT(A)’] has erred on facts and in law in confirming the penalty of Rs. 132,39,89,710/- under section 270A of the Act as levied by Ld. Assessing Officer [‘Ld. AO’] for alleged under-reporting in consequence o f misreporting of income.
That the alleged under-reporting in consequence of misreporting of income relates to incorrect amount of excess allowance under section 32AC of the Act claimed by the Appellant in its ITR based on bonafide inadvertent mistake in reporting of amount of deduction under section 32AC of the Act by the Tax Auditor in the Tax Audit Report. It is trite law that no penalties should be levied for inadvertent bonafide mistakes. Inter alia please refer Price Waterhouse Coopers Pvt Ltd. v CIT 348 ITR 306 (SC). As such, the penalty as levied and confirmed, deserves to be deleted in toto.
That on realizing the said inadvertent mistake by the Tax Auditor, the Appellant voluntarily rectified such mistake and included the said excess allowance under section 32AC of the Act during assessment proceedings before any query by Ld. AO. No penalty should be levied in case of voluntary inclusion prior to its detection or query by Ld. AO. Refer inter alia CIT Vs Kohinoor Impex (P.) Ltd  141 TAXMAN 304 (DELHI HC); CIT -I, Mumbai v. Somany Evergree Knits Ltd (35 axmann.com 529 (Bombay HC). As such too, the penalty as levied and confirmed, deserves to be deleted in toto.
That the Appellant voluntarily included the the said excess allowance under section 32AC of the Act during assessment proceedings before any notice was issued by the department regarding discovery of mistake.
That the bona fide mistake has also escaped the attention of the department while passing the intimation order u/s 143(1), wherein the department was also duty bound to correct the investment allowance calculation.
That the Ld. CIT(A) has erred on facts and in law involved in sustaining the penalty made by the Ld. AO without considering that the inadvertent error of tax auditor got translated into such inadvertent error in the return which was voluntarily suo-moto rectified by the Appellant by reducing his claim before any query & before completion of assessment. The Appellant does not deserve to be penalized for error of third party who is prescribed professional under the tax audit provisions of the Act. Refer inter alia on T Ashok Pai v CIT  161 Taxman 340 (SC); CIT v S Dhanabal  178 Taxman 242 (Delhi HC).
That the Appellant had duly given a bonafide explanation and disclosed all the material facts to substantiate the explanation offered. All material facts are as borne out by the records including suo-motu inclusion by the Appellant prior to detection & completion of assessment. The Appellant had duly discharged its onus. Rather it is Ld. CIT(A) and Ld. AO who have unjustifiably not accepted a clear bonafide explanation borne out by the records. The Ld. AO & Ld. CIT(A) have not discharged their onus for levying and confirming the said penalty. As such too, the penalty as levied and confirmed, deserves to be deleted in toto.
That the Ld. CIT(A) has erred on facts and in law involved in sustaining the penalty made by the Ld. AO as no specific default has been pointed out in the show cause penalty notice nor it was specifically pointed out as to whether there is underreporting of income or misreporting of income. In absence of specific notice and opportunity, the penalty as levied deserves to be quashed. Refer inter alia on CIT v SSA’S Emerald Meadows  73 com 248 (SC); Prem Brothers Infrastructure LLP v. NFSC 142 taxmann.com 38  (Delhi HC); Schneider Electric South East Asia (HQ) PTE Ltd. v. Asst. CIT, International Taxation [TS-226-HC-2022(DEL)].
That penalty at 200% has erroneously been levied and confirmed under section 270A of the Act for misreporting of income. The Appellant’s case does not fall in any of the cases of misreporting of income referred to in section 270A (9) of the Act. It has been wrongly alleged that the Appellant’s case falls under clause (a) of Section 270A(9) of the Act i.e. “misrepresentation or suppression of facts”. Clearly on facts and law involved, there is no “misrepresentation or suppression of facts” in this case.
That there is just and reasonable cause for the default, if any, and as such too, no penalty is leviable in this case.
That the penalty as levied and confirmed is based on erroneous views and / or non-appreciation of the facts or law involved and without properly considering and rebutting the material, submissions and binding case laws in favour of appellant relied upon. Moreover, the penalty is based on suspicion, conjectures and surmises without any substantive basis or cogent material. As such too the penalty deserves to be deleted in toto.
That the penalty as levied is without specific show cause notice and without proper specific lawful opportunity or compliance with Principle of Natural Justice. As such too the penalty deserves to be struck and deleted.
That the penalty order as made and as confirmed by the Ld. CIT(A) is against law and facts of the case involved.
That the grounds of appeal as herein are without prejudice to each other
Observation of the court
We find that the ld AR also made argument on the ground that there was absolutely no mala fide intention on the part of the assessee to claim excess deduction u/s 32AC of the Act in the facts of the instant case as 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 carry forward) in the ITR filed for AY 2017-18. We are in agreement with this argument of the ld AR which proves the intention and behavior of the assessee to withdraw the claim of deduction voluntarily by the assessee.
Further, the ld. AR argued that, in any case, a mistake of a professional cannot invite an assessee with the levy of penalty and for which, he relied on the decision of the Hon’ble Punjab and Haryana High Court in the case of CIT Vs. Deep Tools Pvt. Ltd as reported in 274 ITR 603. Further, the ld AR also argued that in the penalty show cause notice issued u/s 270A read with Section 274 of the Act, the ld AO did not mention the specific charge of offence committed by the assessee i.e. the AO did not mention whether the assessee has either underreported his income or misreported his income or underreported in consequence of misreporting of his income. He argued that these are not inter-changeable and different rates of penalty are provided for different offences as per section 270A of the Act. Further, he also argued that there is provision for granting immunity u/s 270A of the Act in the case of underreporting of income and the same is not available for misreporting of income. Accordingly, he argued that the AO is duty bound to specifically mention the charge of offence committed by the assessee in the show cause notice itself. Reliance in this regard was also placed on the Full Bench decision of the Hon‘ble Bombay High Court in the case of Md. Farhan A Sheikh Vs. DCIT reported in 125 taxmann.com 253 (Bombay) among other decisions. In our considered opinion, all these propositions made by the ld AR need not be gone into, as relief has already been granted to the assessee by applying the provisions of the Act itself considering the bonafide conduct of the assessee and the counter given by the ld DR. Hence, the other propositions made by the ld AR are hereby not adjudicated and they are left open. Accordingly, we direct the ld AO to delete the levy of penalty.
Since the appeal is disposed of herein, the stay application preferred by the assessee is dismissed as infructuous.
In the result, the appeal of the assessee is allowed and stay application of the assessee is dismissed.
Order pronounced in the open court on 11/09/2023.
In the result, appeal of the assessee is allowed and ruled in favour of the assessee
Read the full order from hereJaypee-Cement-Corporation-Ltd.-Vs-ACIT-ITAT-Delhi2