M/s. Windsor Gardens Private Limited, Bangalore V. The Assistant Commissioner Of Income Tax, Circle- 7(1)(2), Bangalore

ITA 1162/BANG/2022

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Windsor Gardens Pvt. Ltd. appealed against the penalty imposed by the Assistant Commissioner of Income-tax, which was confirmed by the CIT(A). The penalty was levied under section 270A for alleged misreporting of income due to non-disallowance of expenses related to earning exempt income under section 14A. The Tribunal examined whether the conditions for misreporting of income were met and found that the assessee had disclosed all relevant facts during the assessment, and the issue was merely an estimation of disallowance under section 14A, which does not constitute misreporting. The Tribunal referenced several judgments to support its decision, emphasizing that the mere difference in the amount of disallowance does not amount to misreporting of income.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124868 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-01-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 25-12-2022
• Other Referred Cases: Prem Brothers Infrastructure LLP Vs. National Faceless Assessment Centre, Principal Commissioner of Income-tax 2 v. Gruh Finance Ltd., Commissioner of Income-tax v. Manjunatha Cotton & Gining Factory, Commissioner of Income-tax, Ahmedabad v. Reliance Petro products (P) Ltd., Hameed Joharan (D) And Ors vs Abdul Salam (D) by Lrs. And Ors, Schneider Electric South East Asia (HQ) Pvt Ltd vs. ACIT
• Laws Referred To: Income-tax Act 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: H.C KINCHA; FILING AN APPLICATION
• Keywords: Earning of tax free income; Rule 8D
• Section: 271(1)(c); 143(3); 270AA; 14A; 250; 143(2); 139(1); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE GEORGE GEORGE K. JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA No.1162/Bang/2022 Assessment Year : 2017-18 Windsor Gardens Pvt. Ltd., No.722, 37 th Cross, 9 th Main, 5 th Block, Jayanagar, Bengaluru-560 041. PAN : AAACW 3001 E Vs. The Asst. Commissioner of Income-tax, Circle-7(1)(2), Bengaluru. APPELLANT RESPONDENT Assessee by : Shri H.C Kincha, C.A Revenue by : Shri Gudimella VP Pavan Kumar, JCIT (DR) Date of hearing : 19.01.2023 Date of Pronouncement : 08 .02.2023 O R D E R PER : L . P. SAHU A.M. This is an appeal filed by the assessee against the order passed by the National Faceless Appeal Centre (NFAC), Delhi, dated 04.11.2022, DIN & Order & No. ITBA/NFAC/S/250/2022- 23/1046952150(1), u/s 250 of the Income-tax Act 1961 on the following grounds: “I. The learned CIT(A) has erred in confirming the penalty order passed u/s 270A of the Act by the Assessing officer. The impugned orders as passed are bad in law and are liable to be quashed in toto. ITA No.1162/Bang/2022 Page 2 of 10 2. The learned CJT(A) has erred in not appreciating the fact that the penalty order as passed by the Assessing officer lacks jurisdiction and erred in confirming the validity of the penalty order. On the facts and circumstances of the case and the law applicable, the provisions of penalty u/s 270A relating to misreporting of income are not applicable at all. The orders passed by the authorities below being bad in law are liable to be quashed. 3. In any case, penalty as levied and confirmed is bad in law and liable to be deleted pecially in the absence of proper notice and recording of satisfaction by the assessing officer. 4. The learned CIT(A) has erred in confirming the quantum of the penalty levied by the AU albeit holding that the appellant had under reported the income as against the Assessing officer's stand that the appellant had mis reported the income. The action of CIT(A) in confirming the quantum of penalty is contrary to his own findings is liable to be negated and the penalty as levied be deleted. 5. In any case, the authorities below have erred in not appreciating the fact that there being neither under reporting of income nor misreporting of income, the appellant is not liable for any penalty. The penalty having being levied and confirmed on erroneous appreciation of facts and law applicable is t o be cancelled. 6. In any case and without prejudice, the levy of penalty is erroneous and excessive. 7. In view of the above and on other grounds to be adduced at the time of hearing it is requested that the impugned order be quashed or atleast the penalty levied/confirmed be cancelled.” 2. The brief facts of the case are that the assessee filed return of income u/s 139(1) on 06.11.2017 declaring total loss of Rs.1,21,12,495/-. The return of income was found defective and it was filed u/s 139(9) of the Act by the assessee on 04/01/2019. The case was selected for scrutiny under CASS and notice u/s 143(2) of the Act was issued through ITBA portal and other statutory notices were issued to the assessee. During the course of assessment proceedings, it was noticed by the AO that assessee had made ITA No.1162/Bang/2022 Page 3 of 10 investment of Rs.5,63,44,040/- in mutual funds and earned exempt income of Rs.1,00,503/- in the relevant assessment year. In the profit and loss account, the assessee made various administrative, general and financial expenses and erred exempt income during the year. The AO observed that investment made will earn income excludable in exempt income. The assessee had to make disallowance of expenses relevant to earning exempt income u/s 14A of the Act. 3. In a notice dated 03/12/2019, the assessee was asked to provide details of investment made in the form of mutual funds existing in the balance sheet for the asst. year 2017-18 and assessee was also asked to provide computation of expenditure incurred in relation to earning of exempt income not includible in total income under Rule 8D r.w.s 14A of the Act. In response, the assessee replied on 04/12/2019, wherein he calculated the monthly average of Rs.8,20,342/- and 1% of such average worked out at Rs.8,203/-. The assessee made fresh investment of Rs.8,20,300/- during the impugned assessment year. But the AO did not accept the calculation and noticed that the month wise breakup of investments is to be considered and monthly average comes to Rs.5,63,44,440/-. Accordingly 1% of such average being Rs.563440/- was disallowed u/s 14A of the Act r.w. Rule 8D of the IT Rules and initiated penalty u/s 270A of the Act for the misreporting of income as per sec. 270A(9)(a) of the Act. The assessee did not file appeal against the ITA No.1162/Bang/2022 Page 4 of 10 assessment order and the AO initiated penalty proceedings u/s 270A of the Act and show cause notice was issued to the assessee. The assessee submitted reply and after considering the reply and provisions of the Act regarding penalty proceedings u/s 270A of the Act, the AO noted that the assessment was completed u/s 143(3) of the Act and the findings brought on assessment were consequent upon the suppression of facts within the meaning of the provision of clause (a) of sub sec. (9) of sec. 270A of the Act, therefore, under reporting of income is in consequence of misreporting, therefore, the penalty referred in such sec. 270A shall be equal to 200% of the tax payable for under reporting of income and the same was computed as per sec.270A(10) and imposed a penalty of Rs.3,71,870/- and passed order on 07/01/2022. 4. Feeling aggrieved from the above order, the assessee filed appeal before the CIT(A) and CIT(A) confirmed the penalty order passed by the AO by observing as under:- “5.4 I have considered the appellant's claim. While passing the penalty order, the Assessing Officer has dealt with this objection. It is pertinent to note that arguments put forth by the appellant pertain to the erstwhile penalty for concealment u/s 271(1)(c) of the Act. Penalty u/s 270A has been invoked in the appellant's case as there has been an addition to the returned income. The section 270AA has an in-built immunity provision which permits an appellant to accept the addition by paying taxes and not filing the appeal. However, this immunity has to be sought by the appellant by filing an application before the Assessing Officer in the prescribed From No 68 within prescribed period. In this case the appellant has not filed any appeal and there was no tax liability on account of the returned and assessed loss. However, as the appellant has not filed an application before the Assessing Officer in Form No. 68 within one month from the end of the month in which the assessment order had been received, it can not claim immunity under section 270AA of the Act. Hence, penalty u/s 270A of the Act is imposable for under-reporting of income, which is in accordance with the provisions of the section. The penalty imposed by the Assessing Officer is confirmed.“ ITA No.1162/Bang/2022 Page 5 of 10 5. Aggrieved from the above order, the assessee filed appeal before the ITAT. 6. The ld.AR reiterated the submissions made before the lower authorities and he submitted that entire investments were made out of own funds and he calculated average investment of Rs.8,20,342/- and 1% of such average which works out at Rs.8,203/- and the assessee has not made any expenditure towards earning of the exempt income. He further submitted that if there is disallowance made u/s 14A of the Act, it does not come under the purview of mis- reporting or under reporting, hence penalty is not applicable. He further submitted that the assessee’s case does not fall in this clause or in clause of sub sec. (9) of sec. 270A including clause (a). The sec. 270A(9)(a) talks about the misrepresentation or suppression of the facts. He further submitted that the entire investments are shown in the balance sheet of the company and it was filed during the course of assessment proceedings. Thus, it shows that all the required facts based on additions made, were fully disclosed and, therefore, there were no suppression of the facts. He further stated that there is no suppression of the facts and not misreporting of income as contemplated in sub sec. 9 of sec. 270(A) of the Act. As there is no suppression of the fact, the penalty levied is not justified. He relied on the following judgments:- 1) Prem Brothers Infrastructure LLP Vs. National Faceless Assessment Centre - (2022) 142 taxmann.com 38 (Delhi) 2) Principal Commissioner of Income-tax 2 v. Gruh Finance Ltd., (2018) 100 taxmann.com 104 (SC) ITA No.1162/Bang/2022 Page 6 of 10 3) Commissioner of Income-tax v. Manjunatha Cotton & Gining Factory (2013) 35 taxmann.com 250 (Karnataka) 4) Commissioner of Income-tax, Ahmedabad v. Reliance Petro products (P) Ltd., (2010) 189 Taxman 322 (SC) 5) Hameed Joharan (D) And Ors vs Abdul Salam (D) by Lrs. And Ors on 13 August, 2001 ITA No. 9876 of 1995 6) Schneider Electric South East Asia (HQ) Pvt Ltd vs. ACIT W.P.(C) 5111/2022 & C.M. Nos. 15165-15166/2022 7. The ld.DR relied on the order of the lower authorities and he submitted that the lower authorities are justified in levy of penalty u/s 270A of the Act. The assessee should have suo moto disallowed the expenditure incurred towards earning of the income as per sec. 14A r.w. Rule 8D of the Act, whereas in this case during the course of assessment proceedings the AO noticed that the assessee is liable for making disallowance. He further submitted that the assessee did not file appeal and not submitted declaration in the prescribed Form No.68 for granting immunity from the penalty. He further stated that as per the assessment order, the assessee’s case falls under the conditions set out in sec. 270A of the Act., accordingly the lower authorities are justified. 8. After hearing rival contentions, we notice that the case was selected for scrutiny and assessment order was passed u/s 143(3) of the Act by making disallowance u/s 14A r.w Rule 8D of the Act of Rs.5,63,440/-. The assessee himself did not make any disallowance u/s 14A of the Act towards earning of exempt income which are not includible in the total income of the assessee. During the impugned ITA No.1162/Bang/2022 Page 7 of 10 assessment year, he received exempt income of Rs.1,00,503/- and fresh investments was made during the year of Rs.8,20,300/- and the total investments in mutual fund is Rs.5,63,44,040/- at the year end. The AO disallowed 1% of the average investments and accordingly it works out to Rs.5,63,440/- and initiated penalty u/s 270A of the I.T. Act.. The penalty order passed by the AO is on under reported income and whether that under report income is in consequence of any misreporting of income. The CIT(A) confirmed the order of the AO during the course of hearing, we notice that the AO imposed penalty for not making suo moto any disallowance us/ 14A r.w Rule 8D. The similar issue has been decided by the Hon’ble Delhi High Court in the case of Prom Brother Infrastructure LLP Vs. 110 National Face Less Assessment Center reported in [2022] 142 Taxman.com 38 [Del]. The issue involved in the case on hand and the decision relied on by the ld.AR cited supra is similar to facts. The relevant part of the judgment is as under. 3. Learned counsel for the Petitioner submits that no independent order under section 270AA(4) of the Act has been passed by the Respondent on the application filed by the Petitioner seeking immunity under section 270AA of the Act. In the impugned penalty order, the Respondent No. 1 has simply rejected the said application which otherwise is barred by limitation in terms of section 270AA(4) of the Act, having been passed well beyond the period of one month from the end of the month in which the Petitioner had filed the application seeking immunity. 4. He further states that in the instant case, the only addition in the assessment order is in respect of disallowance under section 14A of the Act. The Petitioner itself has made a disallowance of Rs. 3,20,14,010/- which was more than the exempt income of Rs. 45,08,371/- . The Respondent No. 1 has enhanced this disallowance to Rs. 6,82,45,759/-. He submits that this Court in Joint Investments (P.) Ltd. v. CIT [2015] 59 taxmann.com 295/233 Taxman 117/372 ITR 694 has held that disallowance under section 14A of the Act cannot exceed exempt income. He submits that when disallowance over and above exempt income itself is not permissible, there can't be any misreporting of income. He further submits that in any case, the issue involved herein is of estimation of disallowance under section 14A of the Act. He submits that as per clause (c) of section 270A(6) of the Act, no penalty is leviable where the amount of underreported income is determined on the basis of an estimate, if the assessee has on his own, estimated a lower amount of disallowance on the same issue and had included such income in the computation of his income. Further, this is a case where all ITA No.1162/Bang/2022 Page 8 of 10 the facts, information, documents and figures submitted by the Petitioner had been accepted by the Respondents and the subject matter of dispute is a pure estimation of disallowance under section 14A of the Act. He further submits that even otherwise this issue of disallowance under section 14A of the Act does not fall in any of the limb of "misreporting" of income stated in section 270A (9) of the Act. 5. Issue notice. Mr. Sanjay Kumar, learned senior standing counsel accepts notice on behalf of the Respondents. He relies on the impugned order dated 28th March, 2022 to contend that the Petitioner is not entitled to the benefit of immunity under section 270AA of the Act. He submits that the assessee in the present case did not make the correct disallowance under section 14A of the Act and thus the assessee not only underreported the income but also misreported the income and therefore, the AO has rightly imposed the penalty under section 270A of the Act and declined the immunity under section 270AA of the Act. 6. This court in the case of Schneider Electric South East Asia (HQ) PTE Ltd. v. Asstt. CIT, International Taxation [W.P. (C) No. 5111 of 2022, dated 28-3-2022] observed as under:— "6. Having perused the impugned order dated 9th March, 2022, this Court is of the view that the Respondents' action of denying the benefit of immunity on the ground that the penalty was initiated under section 270A of the Act for misreporting of income is not only erroneous but also arbitrary and bereft of any reason as in the penalty notice the Respondents have failed to specify the limb - "underreporting" or "misreporting" of income, under which the penalty proceedings had been initiated. 7. This Court also finds that there is not even a whisper as to which limb of section 270A of the Act is attracted and how the ingredient of sub-section (9) of section 270A is satisfied. In the absence of such particulars, the mere reference to the word "misreporting" by the Respondents in the assessment order to deny immunity from imposition of penalty and prosecution makes the impugned order manifestly arbitrary. 8. This Court is of the opinion that the entire edifice of the assessment order framed by Respondent No. 1 was actually voluntary computation of income filed by the Petitioner to buy peace and avoid litigation, which fact has been duly noted and accepted in the assessment order as well and consequently, there is no question of any misreporting. 9. This Court is further of the view that the impugned action of Respondent No. 1 is contrary to the avowed Legislative intent of section 270AA of the Act to encourage/incentivize a taxpayer to (i) fast-track settlement of issue, (ii) recover tax demand; and (iii) reduce protracted litigation. 10. Consequently, the impugned order dated 09th March, 2022 passed by Respondent No. 1 under section 270AA (4) of the Act is set aside and Respondent No. 1 is directed to grant immunity under section 270AA of the Act to the Petitioner." 7. This Court is of the opinion that the only addition in the assessment order framed by Respondent No. 1 is in respect of disallowance under section 14A of the Act. The Petitioner has made a disallowance of Rs. 3,20,14,010/- which was recomputed by the Assessing Officer at Rs. 6,82,45,759/-. Thus, this is a case where the amount of underreporting of income is consequent to increase in the disallowance voluntarily estimated by the assessee. This court is conscious of the fact that there can be cases where underreporting of income may result in misreporting of income, however, in peculiar facts of the present case, the underreporting allegedly done by the assessee cannot amount to misreporting as the assessee had furnished all the details of the transactions relating to disallowance made under section 14A of the Act and the AO as well as assessee has used the same details to arrive at different conclusions i.e. differing quantum of disallowances under section 14A of the Act. This by no stretch of imagination can be held to be 'misreporting'. 8. This Court also finds that there is not even a whisper as to which limb of section 270A of the Act is attracted and how the ingredient of sub-section (9) of section 270A is satisfied. In the absence of such particulars, the mere reference to the word "misreporting" by the Respondents in the penalty order to deny immunity from imposition of penalty and prosecution makes the impugned order manifestly arbitrary. ITA No.1162/Bang/2022 Page 9 of 10 9. Consequently, the impugned penalty order dated 28th March, 2022 passed by Respondent No. 1 under section 270A of the Act is quashed and Respondent No. 1 is directed to grant immunity under section 270AA of the Act to the Petitioner. 10. Respectfully following the above judgment, we allow the appeal of the assessee in above terms. 10.1 In the result, appeal of the assessee is allowed. Order pronounced in court on 8th day of February, 2023 Sd/- (George George K) Judicial Member Sd/- (Laxmi Prasad Sahu) Accountant Member Bangalore, Dated : 08.02.2023. Vms Copyto: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore. ITA No.1162/Bang/2022 Page 10 of 10 1. Date of Dictation .......................................... 2. Date on which the typed draft is placed before the dictating Member ......................... 3. Date on which the approved draft comes to Sr.P.S ................................... 4. Date on which the fair order is placed before the dictating Member .................... 5. Date on which the fair order comes back to the Sr. P.S. ....................... 6. Date of uploading the order on website................................... 7. If not uploaded, furnish the reason for doing so ................................ 8. Date on which the file goes to the Bench Clerk ....................... 9. Date on which order goes for Xerox & endorsement.......................................... 10. Date on which the file goes to the Head Clerk ......................... 11. The date on which the file goes to the Assistant Registrar for signature on the order ..................................... 12. The date on which the file goes to dispatch section for dispatch of the Tribunal Order ............................... 13. Date of Despatch of Order. .....................................................