MIDEAST INTEGRATED STEELS LTD,NEW DELHI V. ACIT, CENTRAL CIRCLE-2, DELHI

ITA 4957/DEL/2024

AI Insights

The case involves Mideast Integrated Steels Ltd, which faced penalties under Section 270A of the Income Tax Act for alleged under-reporting and misreporting of income for the Assessment Years 2017-18 and 2018-19. The penalties were initially levied by the Assessing Officer (AO) following a scrutiny assessment that significantly increased the assessee's declared income. The Commissioner of Income Tax (Appeals) (CIT(A)) partly upheld these penalties, which led to appeals by both the assessee and the Revenue to the ITAT. The ITAT found procedural flaws in the penalty notices and substantive issues with the basis of the penalties, leading to the decision to allow the assessee's appeals and dismiss the Revenue's appeals.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 37120 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2017-2018
• Other Referred Cases: Schneider Electric South East Asia [HQ] Pte 145 taxmann.com 665 (Del), GE Capital US Holdings Inc. 468 ITR 746(Del), Gurdaspur Co-operative Sugar Mills Ltd 354 ITR 27(P&H), VDB Infra and Realty Private Ltd 165 taxmann.com 293(Bangalore), Jai Balaji Business Corporation Pvt. Ltd. Vs. ACIT in ITA No.840/Pune/2022 dated 10.2.2023
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT KATOCH
• Assessee Lawyers: MADHUR AGGRAWAL
• Keywords: Set aside; Principle of natural justice; TDS
• Section: 13; 270AA

Judgement Text

"ITA Nos. 4957 & 4958/DEL/2024 ITA Nos. 5167 & 5168/DEL/2024 Mideast Integrated Steels Ltd IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘E’ BENCH, NEW DELHI BEFORE MS. MADHUMITA ROY, JUDICIAL MEMBER, AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No. 4957/DEL/2024 [A.Y. 2017-18] ITA No. 4956/DEL/2024 [A.Y. 2018-19] Mideast Integrated Steels Ltd Vs. The A.C.I.T H-1, Zamrudpur Community Centre Central Circle – 2 Kailash Colony, New Delhi New Delhi PAN – AAACM 0846 P ITA No. 5167/DEL/2024 [A.Y. 2017-18] ITA No. 5168/DEL/2024 [A.Y. 2018-19] The A.C.I.T Vs. Mideast Integrated Steels Ltd Central Circle – 2 H-1, Zamrudpur Community Centre New Delhi Kailash Colony, New Delhi PAN – AAACM 0846 P (Applicant) (Respondent) Assessee By : Shri Madhur Aggrawal, Adv Department By : Shri Amit Katoch, Sr. DR Date of Hearing : 03.03.2025 Date of Pronouncement : 07.03.2025 2 ITA Nos. 4957 & 4958/DEL/2024 ITA Nos. 5167 & 5168/DEL/2024 Mideast Integrated Steels Ltd Page 2 of 16 ORDER PER BENCH:- The above captioned two separate appeals by the assessee and two separate cross appeals by the Revenue are preferred against the order of the ld. CIT(A)–23, Delhi dated 30.08.2024 pertaining to Assessment Years 2017-18 and 2018-19 respectively. 2. Since underlying facts pertain to same assessee and are common in the captioned appeals, they were heard together and are disposed of by this common order for the sake of convenience and brevity. ITA No. 4957/DEL/2024 [A.Y. 2017-18] [Assessee’s Appeal] 3. The grounds raised by the assessee read as under: “1. That the learned Commissioner of Income Tax (Appeals)-23, New Delhi has erred both in law and on facts in upholding penalty of Rs. 48,70,576/- levied in an order dated 29,8.2024 under section 270A of the Act. 3 ITA Nos. 4957 & 4958/DEL/2024 ITA Nos. 5167 & 5168/DEL/2024 Mideast Integrated Steels Ltd Page 3 of 16 2. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that order dated 26.2.2024 made u/s 270A of the Act is barred by limitation and deserves to be quashed as such. 3. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that in absence of any specific show cause notice having been issued, the levy of penalty was otherwise wholly illegal. 4. That furthermore that since no valid satisfaction was recorded in the order of assessment, penalty levied was otherwise too not in accordance with law. 5. That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts in upholding penalty @ 200% of the amount of tax payable on adhoc disallowance of expenses of Rs. 73,65,600/- claimed in the profit and loss account by the appellant. 6. That furthermore upholding of levy of penalty as the appellant has made complete disclosure in the audited financial statements and return of income, therefore the disallowance made and upheld does not fall in any of the conditions given in clause (9) of section 270A of the Act. Therefore, there is no misreporting of income. 7. That even otherwise the learned Commissioner of Income Tax (Appeals) passed the order without granting sufficient proper opportunity to the appellant and therefore the same is contrary to principle of natural justice and hence vitiated. 4 ITA Nos. 4957 & 4958/DEL/2024 ITA Nos. 5167 & 5168/DEL/2024 Mideast Integrated Steels Ltd Page 4 of 16 8. That since no approval has been obtained u/s 274(2) of the Act, and therefore penalty levied is illegal and invalid. Prayer It is therefore prayed that the penalty levied of Rs. 48,70,576/- u/s 2704 of the Act and sustained by the learned Commissioner of Income Tax (Appeals) may kindly be deleted.” 4. Briefly stated, the facts of the case are that the assessee electronically filed its Return of Income on 14.12.2017 declaring NIL income and claimed loss of Rs. 9,74,14,252/-. Later on, the return of income was revised on 28.02.2019 declaring total income of Rs. 6,82,34,300/-. 5. Return was selected for complete scrutiny assessment through CASS and accordingly, statutory notices were issued and served upon the assessee. The assessee filed part replies and ultimately the AO assessed the total income of the assessee at Rs. 44,51,26,180/- u/s 144 vide order dated 12.12.2019. The AO simultaneously initiated penalty proceedings u/s 270A(2)(a) of the Act for under reporting its income. However, the penalty proceedings were kept in abeyance till the disposal of the appeal of the 5 ITA Nos. 4957 & 4958/DEL/2024 ITA Nos. 5167 & 5168/DEL/2024 Mideast Integrated Steels Ltd Page 5 of 16 assessee before the ld. CIT(A). The ld. CIT(A) partly allowed the appeal against which both the assessee and the Revenue went in appeal before the ITAT. The ITAT dismissed the appeal of both the assessee and the Revenue. 6. On finalization of assessment/appellate proceedings, the AO ultimately levied penalty u/s 270A(9) @200% of Rs 1,29,62,266/- on account of disallowance of PF/ESI contribution and disallowance of expense. On appeal by the assessee, the CIT(A) has deleted the penalty on PF/ESI contribution and partly deleted the penalty on account of disallowance of expense. Aggrieved both the assessee and the Revenue are in appeal before us. 7. The ld counsel of the assessee vehemently objected to the levy of penalty on the grounds of legal issue of validity of penalty notice. At the very outset, the ld. counsel for the assessee drew our attention to the notice dated 12.12.2019 for A.Y 2017-18 and pointed out that the notices are vague and are not decisive in respect of the charge levelled against the assessee – whether the penalty is being levied for under- reporting or for 6 ITA Nos. 4957 & 4958/DEL/2024 ITA Nos. 5167 & 5168/DEL/2024 Mideast Integrated Steels Ltd Page 6 of 16 mis-reporting u/s 270A of the Act. It is the say of the ld AR that the AO has not specified the exact limb under which the penalty is being imposed. 8. The ld. counsel for the assessee further pointed out that while recording satisfaction for initiation of penalty u/s 270A of the Act, the Assessing Officer initiated penalty u/s 270A(2) for under reporting and while levying penalty , the Assessing Officer has taken recourse to penalty for misreporting u/s 270A(9) of the Act. 9. The ld. counsel for the assessee relied upon the decision in the case of Schneider Electric South East Asia [HQ] Pte 145 taxmann.com 665 (Del) and GE Capital US Holdings Inc. 468 ITR 746(Del) for the proposition that wherein penalty notice, the Assessing Officer failed to specify the limb of under reporting or misreporting of income under which penalty proceedings had been initiated, penalty notice was erroneous and arbitrary. 10. On merits, the ld. counsel for the assessee submitted that the penalty has been levied on addition made on account of disallowance of Provident Fund/ESI contribution and adhoc disallowance on account of expenses 7 ITA Nos. 4957 & 4958/DEL/2024 ITA Nos. 5167 & 5168/DEL/2024 Mideast Integrated Steels Ltd Page 7 of 16 claimed in the Profit and Loss account. The ld. counsel for the assessee relied upon the decision of the Hon'ble Punjab High Court in the case of Gurdaspur Co-operative Sugar Mills Ltd 354 ITR 27(P&H) for the proposition that where the issue was debatable, penalty cannot be levied. The ld. counsel for the assessee also relied upon the decision of the ITAT Bangalore Bench in the case of VDB Infra and Realty Private Ltd 165 taxmann.com 293(Bangalore) for the proposition that where addition is made on estimate/adhoc basis by the Assessing Officer, no penalty is leviable u/s 270A of the Act. 11. Per contra, the ld DR relied on the orders of authorities below. 12. We have heard the rival submissions and have perused the relevant material on record. We find that the penalty notice do not specify the exact limb under which the penalty is being imposed- whether the penalty is being levied for under-reporting u/s 270A(2) or for mis-reporting u/s 270A(9) of the Act. We also note that the assessment order records the satisfaction of the AO for initiating penalty u/s 270A(2) of the Act for under reporting of income but while levying penalty, the 8 ITA Nos. 4957 & 4958/DEL/2024 ITA Nos. 5167 & 5168/DEL/2024 Mideast Integrated Steels Ltd Page 8 of 16 Assessing Officer has taken recourse to penalty for misreporting of income u/s 270A(9) of the Act. In such factual matrix of the instant case, we are of the considered opinion that penalty levied u/s 270A cannot be considered as validly levied. We find support from the decision of the hon’ble Delhi Court in the case of Schneider Electric South East Asia [HQ] Pte (supra) which squarely applies to the facts of the instant case where the hon’ble court held as under: “6.Having perused the impugned order dated 09th 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 ITA Nos. 4957 & 4958/DEL/2024 ITA Nos. 5167 & 5168/DEL/2024 Mideast Integrated Steels Ltd Page 9 of 16 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.” 13. We are also supported by the decision of the Hon'ble Delhi in the case of GE Capital US Holdings Inc. (supra) wherein their Lordships also relied on the decision in the case of Schneider Electric South East Asia [supra] and came to the conclusion as under: “31. We are further constrained to observe that even the assessment orders fail to base the direction for initiation of proceedings under Section 270A on any considered finding of the conduct of the petitioner being liable to be placed within the sweep of sub-section (9) of that provision. The order of assessment as well as the SCNs' clearly fail to meet the test of ―specific limb‖ as propounded in Minu Bakshi and Schneider Electric. A case of misreporting, in any case, cannot possibly be said to have been made out bearing in mind the fact that the petitioner had questioned the taxability of income asserting that the same would not constitute royalty. The issue as raised was based on an understanding of the legal regime which prevailed. The contentions addressed on that score can neither be said to be baseless nor specious. In fact, that stand as taken by the petitioner was based on a judgment rendered by the jurisdictional High Court which was indisputably binding upon the AO who, 10 ITA Nos. 4957 & 4958/DEL/2024 ITA Nos. 5167 & 5168/DEL/2024 Mideast Integrated Steels Ltd Page 10 of 16 for reasons unfathomable, thought it fit to base its decision on a judgment rendered by the Karnataka High Court. The AO, it would be pertinent to recall, chose to distinguish the judgment of the Supreme Court in Engineering Analysis itself. In any event, the position which the petitioner sought to assert and canvass clearly stood redeemed in light of the decision rendered by the Supreme Court. 32. Undisputedly, the petitioner had duly complied with the statutory pre- conditions set out in Section 270AA(1). It was thus incumbent upon the respondent to have come to the firm conclusion that the case of the petitioner fell in the category of misreporting since that alone would have warranted a rejection of its application for immunity. On an overall conspectus of the aforesaid, we come to the firm conclusion that the impugned orders would not sustain.” 14. On merits also, we are inclined to agree with the assessee that where the issue was debatable, penalty u/s 270A cannot be levied. The levy of penalty on account of PF/ESI, at that point of time, was debatable. We therefore hold, issue of PF/ESI being debatable, the same cannot be visited with the rigour of penalty u/s 270A. Following the decision of the Hon'ble Punjab High Court in the case of Gurdaspur Co-operative Sugar Mills Ltd (supra), we hold that the CIT(A) has correctly deleted the penalty on contribution towards PF/ESI. 11 ITA Nos. 4957 & 4958/DEL/2024 ITA Nos. 5167 & 5168/DEL/2024 Mideast Integrated Steels Ltd Page 11 of 16 15. We further are inclined to agree with the assessee that where addition is made on estimate/adhoc basis by the Assessing Officer, no penalty is leviable u/s 270A of the Act. In the instant case the addition on account of disallowance of expense is on ad hoc basis and therefore, we are of the view that the assessee cannot be fastened with the liability of penalty u/s 270A. For this proposition we follow the decision of the ITAT Bangalore Bench in the case of VDB Infra and Realty Private Ltd, which held as under: “3. We have heard the rival submissions and perused the materials available on record. The contention of the ld. A.R. is that the ld. AO has passed penalty order levying penalty u/s 270A(9)(a) of the Act stating that there is a mis-representation or suppression of the facts, thereby misreporting of income. However, in assessment order, he mentioned that levy of penalty u/s 270A(9)(c) of the Act. The ld. CIT(A) has confirmed the penalty u/s 270A(9)(a) of the Act, which was not the case of ld. AO. On the other hand, case of the ld. AO was the levy of penalty u/s 270A(9)(c) of the Act. According to the assessee, all expenses are supported by vouchers recorded in the books of accounts of the assessee and payment through banking channels and due TDS has been made and the books of accounts of the assessee were duly audited by statutory/tax auditors. According to the ld. A.R., adhoc disallowance was made by ld. AO for the reason best 12 ITA Nos. 4957 & 4958/DEL/2024 ITA Nos. 5167 & 5168/DEL/2024 Mideast Integrated Steels Ltd Page 12 of 16 known to him cannot qualify for levy of penalty u/s 270A(9)(a) or (c) of the Act. He submitted that all the details for the purpose of assessment i.e. bills, vouchers, receipts, etc. were produced by the assessee. At the time of assessment, the ld. AO without specifying the specific discrepancies in the books of accounts of the assessee, he disallowed 10% of the expenditure mentioning that assessee was unable to provide all details in respect of expenses claimed. The assessee has furnished full details of expenses i.e. Form Fire Safety Expenses at Rs.6,52,936/- and Tor Steel Rolling expenses at Rs.9,95,541/- with the name, dates, mode of payment, TDS, PAN, etc. before ld. CIT(A)/NFAC. However, they overlooked the details furnished by assessee and confirmed the penalty u/s 270A(9)(a) of the Act. According to the ld. A.R., the discrepancy found by the ld. AO as confirmed by the ld. CIT(A) do not come within the purview of under reporting of income and penalty cannot be levied. For this purpose, he relied on the judgement in the case of\"Jai Balaji Business Corporation Pvt. Ltd. Vs. ACIT in ITA No.840/Pune/2022 dated 10.2.2023, wherein held that \"Sec. 270A of the Act provides for imposition of penalty for under-reporting and misreporting of income. Sub-s. (2) enlists certain circumstances of under- reporting of income. Sub-s. (3) deals with the determination of underreported income, which, in our context, is by reducing the income returned by the assessee from the amount of income finally assessed. Sub- s. (6) is relevant for our purpose which states that under-reported income for 13 ITA Nos. 4957 & 4958/DEL/2024 ITA Nos. 5167 & 5168/DEL/2024 Mideast Integrated Steels Ltd Page 13 of 16 the purpose of this section shall not include certain items. Cl. (b) of sub-s. (6) refers to: \"the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the AO.\" It is ostensible from the language of sub-s. (6) that an addition made on the basis of estimation cannot provide foundation for under-reported income for the purpose of imposition of penalty under s. 270A of the Act. As the only basis of the addition is the estimate made by the DVO, we hold that the penalty cannot be sustained. We, therefore, order to delete the same.\" 16. We, therefore, respectfully following the decisions of the Hon'ble High Courts and ITAT [supra], direct the Assessing Officer to delete the penalty so levied u/s 270A of the Act. 17. In the result, appeal of the assessee is allowed. ITA No. 4956/DEL/2024 [A.Y. 2018-19] (Assessee’s appeal) 18. The issues raised in this appeal are identical to the facts and circumstances elaborately discussed by us in assessee’s appeal hereinabove [supra]. On the basis of our detailed discussion therein, this appeal of the 14 ITA Nos. 4957 & 4958/DEL/2024 ITA Nos. 5167 & 5168/DEL/2024 Mideast Integrated Steels Ltd Page 14 of 16 assessee is also allowed. ITA No. 5167/DEL/2024 [A.Y. 2017-18] [Revenue Appeals] 19. The Revenue has raised the following substantive ground of appeal: “1. That the learned Commissioner of Income Tax (Appeals) has erred in Deleing the penalty of Rs. 80,91,690/- u/s 270A of the Act on account of late deposit Provident Fund Contributions received from the employees.” 20. The issue raised in this appeal is identical to the facts and circumstances elaborately discussed by us in assessee’s appeal hereinabove [supra]. On the basis of our detailed discussion therein, this appeal of the Revenue is dismissed. ITA No. 5168/DEL/2024 [A.Y. 2018-19] (Revenue’s appeal) 21. The Revenue has raised the following substantive ground of appeal: “1. That the learned Commissioner of Income Tax (Appeals) has erred in Deleing the penalty of Rs. 1,95,84,280/- u/s 270A of the Act on account of late deposit Provident Fund Contributions received from the employees. 15 ITA Nos. 4957 & 4958/DEL/2024 ITA Nos. 5167 & 5168/DEL/2024 Mideast Integrated Steels Ltd Page 15 of 16 22. The issue raised in this appeal is identical to the facts and circumstances elaborately discussed by us in assessee’s appeal hereinabove [supra]. On the basis of our detailed discussion therein, this appeal of the Revenue is dismissed. 23. To sum up and conclude, Appeals of the Assessee in ITA Nos. 4956 and 4957/DEL/2024 are allowed whereas the appeals of the Revenue in ITA Nos. 5168 and 5167/DEL/2024 stand dismissed. The order is pronounced in the open court on 07.03.2025. Sd/- Sd/- [MADHUMITA ROY] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 07th MARCH, 2024. VL/ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) Asst. Registrar, 5. DR ITAT, New Delhi 16 ITA Nos. 4957 & 4958/DEL/2024 ITA Nos. 5167 & 5168/DEL/2024 Mideast Integrated Steels Ltd Page 16 of 16 Sl No. PARTICULARS DATES 1. Date of dictation of Tribunal Order… 2. Date on which the typed draft Tribunal Order is placed before the Dictation Member 3. Date on which the fair Tribunal Order is placed before the Dictating Member for pronouncement 4. Date on which the approved draft Tribunal Order comes to the Sr. P.S./P.S. 5. Date on which the fair Tribunal Order is placed before the Dictating Member for pronouncement 6. Date on which the signed order comes back to the Sr. P.S./P.S 7. Date on which the final Tribunal Order is uploaded by the Sr. P.S./P.S. on official website 8. Date on which the file goes to the Bench Clerk alongwith Tribunal Order 9. Date of killing off the disposed of files on the judiSIS portal of ITAT by the Bench Clerks 10. Date on which the file goes to the Supervisor (Judicial 11. The date on which the file goes to the Assistant Registrar for endorsement of the order 12. Date of Despatch of the Order "