RASHTROTTHANA PARISHAT,BENGALURU V. DEPUTY COMMISSIONER OF INCOME TAX, (EXEMPTIONS), CIRCLE-1, BENGALURU

MA 2/BANG/2025

AI Insights

The case involves Rashtrotthana Parishat, an institution registered under section 12A of the Income Tax Act, which faced a penalty under section 270A for misreporting income due to an inadvertent double claim of depreciation. The initial penalty was contested and led to an appeal by the income tax department. The Tribunal's earlier decision did not address all the legal infirmities raised, particularly the lack of specification in the penalty notice regarding the exact limb under which the penalty was imposed. The Tribunal acknowledged this oversight and recalled the order to rectify the mistake and properly address the legal arguments presented.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 396445 (ITAT-BANGALORE)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 28-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Other Referred Cases: Reliance Petroproducts Pvt. Ltd. vs. CIT, Manjunath Cotton and Ginning Factory vs. CIT, Saltwater Studio LLP vs. CIT, Price Waterhouse Coopers (P.) Ltd. vs. CIT, Sasan Power Ltd. vs. CIT, Prem Brothers Infrastructure LLP vs. CIT, IIFL Samasta Finance Limited vs. CIT, Honda Siel Power Products Limited vs. CIT, Sankeshwar Printers Private Limited vs. CIT, Laxmi Electronic Corporation Limited vs. CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Question of law; Depreciation; Principle of natural justice; Initiation of penalty proceedings
• Section: 12A; 270AA

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH: BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI KESHAV DUBEY, JUDICIAL MEMBER MA No.2/Bang/2025 [in ITA No.1666/Bang/2024] Assessment year: 2017-18 Rashtrotthana Parishat, No.93/2, Keshava Shilpa, K.G. Nagar, Chamarajpet, Bangalore – 560 004. PAN: AAATR 1735R Vs. The Deputy Commissioner of Income Tax (Exemptions), Circle 1, Bengaluru. APPLICANT RESPONDENT Applicant by : Shri V. Chandrashekar, Advocate & Shri Prakash S. Hegde, CA Respondent by : Shri Subramaniam S., Jt.CIT (DR)(ITAT), Bengaluru. Date of hearing : 16.05.2025 Date of Pronouncement : 28.05.2025 O R D E R Per Keshav Dubey, Judicial Member: 1. In this case, the appeal at the instance of the revenue for AY 2017-18 was allowed by the coordinate Bench vide order dated 30.12.2024 confirming the action of the ld. AO levying penalty u/s 270AA of the Act. MA No.2/Bang/2025 Page 2 of 13 2. This Miscellaneous Application submits that the coordinate Bench has not adjudicated issue that notice u/s. 274 r.w.s. 270A of the Income- tax Act, 1961 [the Act] was bad in law and therefore the entire penalty was required to be deleted raised by the ld. AR. The coordinate Bench has recorded this argument of the ld. AR in para 8 at page 8 of the impugned order which is supported by the decision of Honourable Supreme court Reliance Petroproducts ([2010] 189 Taxman 322 (SC)), and Honourable High court Manjunath Cotton and Ginning ([2013] 218 Taxman 423 (Karnataka). Thus, non-consideration of the binding judgments of the Supreme Court and the High Court, referred by the AR, is a mistake apparent on record under section 254(2) of the Act. Therefore either the order deserves to be recalled or corrected to that extent by deleting the penalty. 3. The ld. AR reiterated the same and submitted a Written Submissions containing 14 pages which is as under:- “Synopsis of the Arguments of the Petitioner (Respondent) 1. Rashtrotthana Parishat (Petitioner/Respondent) is an institution registered under section 12A of the Income Tax Act. 2. In the Income Tax Return (`ITR') for the above AY, it claimed depreciation of Rs 7.53 Crore (by inadvertence) which resulted in a double claim of deduction. However, in the Audit Report in Form 10B, depreciation was not claimed. 3. In the assessment, the Assessing Officer disallowed the claim of depreciation and initiated penalty proceedings for misreporting. MA No.2/Bang/2025 Page 3 of 13 4. There was no tax impact for that year due to the disallowance. The amount brought forward i.e. the excess expenditure of the earlier year, was sufficient to cover the disallowance. 5. The show cause notice for initiation of penalty proceedings issued by the Assessing Officer suffered from a serious defect as it did not indicate the limb of the penalty provisions (i.e. under reporting / mis- reporting). However, the Assessing Officer levied penalty of Rs 5.31 Crore for mis-reporting on the notional tax amount. 6. The penalty order is incomplete as sufficient justification for the penalty and the specific provision for mis-reporting were not provided and explained. 7. In the appeal filed by the Petitioner (Responder), the Commissioner of Income Tax (Appeals) deleted the penalty taking a view that the claim made in the ITR was an inadvertent and a bona fide mistake and no mens rea was involved. 8. In the appeal filed by the income tax department before your honours (i.e. ITA No. 1666 / BANG /2024), the Authorised Representative (`AR') for the Petitioner (Respondent) argued that: (i) the claim of depreciation made in the ITR was inadvertent; (ii) there is no tax impact due to the claim made in the ITR; (iii) the show cause notice to initiate penalty proceedings suffered from serious legal infirmities as the same did not specify the limb under which the revenue proposed to levy penalty; (iv) the penalty order is passed mechanically as the same did not discuss the reason for treating the incorrect claim as misreporting; and MA No.2/Bang/2025 Page 4 of 13 (v) the penalty order did not even specify clause in section 270A(9) under which the claim made in the ITR amounted to mis-reporting. 9. The AR relied on the following judgements as well: i. Saltwater Studio LLP [2023] 157 taxmann.com 749 (Mumbai - Trib.) Quote 13. The AO has levied the higher penalty of 200% of tax payable of misreporting income. Then in such a scenario, the AO has to bring the action/ omission on the part of the assessee in the ken of sub-section (9) of section 270A of the Act which are given (supra), viz (a) to (f) of section 270A(9) of the Act. However, a reading of the reasons given by the AO to levy penalty for misreporting (supra) it is discerned that he has failed to spell out as to how the assessee's case/ additions falls within the ken of instances given in clause (a) to (f) of sub-section (9) of section 270A of the Act. Since AO failed to bring the addition/ disallowance he made in quantum assessment, under the ken of (a) to (f) of the sub-section(9) of section 270A of the Act, the penalty levied for misreporting @ 200% cannot be sustained because it is trite law that penalty provisions have to be strictly interpreted. And therefore, taking into consideration, the facts and circumstances of the case, we find that the levy of penalty by the AO u/ s 270A of the Act suffers from the vice of non-application of mind as well as violates principles of natural justice. And therefore, the penalty levied on addition of sustained quantum addition of Rs.67,970/ - cannot survive. And therefore, it is directed to be deleted. Unquote ii. Price Waterhouse Coopers (P.) Ltd. [2012] 25 taxmann.com 400 (SC) Quote 18. The fact that the Tax Audit Report was filed along with the return and that it unequivocally stated that the provision for payment was not allowable under section 40A(7) of the Act indicates that the assessee made a computation error in its return of income. Apart from the fact that the assessee did not notice the error, it was not even noticed even by the Assessing Officer who framed the assessment order. In that sense, even the Assessing Officer seems to have made a mistake in overlooking the contents of the Tax Audit Report. 19. The contents of the Tax Audit Report suggest that there is no question of the assessee concealing its income. There is also no question of ,the assessee furnishing any inaccurate particulars. It appears to us that all MA No.2/Bang/2025 Page 5 of 13 that has happened in the present case is that through a bona fide and inadvertent error, the assessee while submitting its return, failed to add the provision for gratuity to its total income. This can only be described as a human error which we are all prone to make. The calibre and expertise of the assessee has little or nothing to do with the inadvertent error. That the assessee should have been careful cannot be doubted, but the absence of due care, in a case such as the present does not mean that the assessed is guilty of either furnishing inaccurate particulars or attempting to conceal its income. 20. We are of the opinion, given the peculiar facts of this case, that the imposition of penalty on the assessee is not justified. We are satisfied that the assessee had committed an inadvertent and bona fide error and had not intended to or attempted to either conceal its income or furnish inaccurate particulars. Unquote iii. Sasan Power Ltd. [2023] 157 taxmann.com 763 (Mumbai - Trib.) Quote 12. The ld. CIT(A) had relied on the decision of the Hon'ble Apex Court in the case of CIT v. Reliance Petro Products Pvt. Ltd. (supra) where it has held that furnishing inaccurate claim of expenditure 'would not amount to giving inaccurate particulars of such income. The assessee has relied on various other decisions which have reiterated the proposition that the claim of higher depreciation would not amount to concealment of income. It is also observed that the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Somany Evergreen Knits Ltd. /2013] 35 taxmann.com 529/218 Taxman 27/352 ITR 592 (Bombay) has held that excess claim of depreciation was a bona fide mistake on the part of the assessee which attracts no levy of penalty. Unquote iv. Prem Brothers Infrastructure LLP [2022] 142 taxmann.com 38 (Delhi) Quote 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. MA No.2/Bang/2025 Page 6 of 13 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. Unquote v. IIFL Samasta Finance Limited ITA No.1054/ Bang/2024 Quote We are of the opinion that the penalty by hereditary nature is always discretionary. The legislature has used the word \"may\" in section 270A(1) of the Act which clearly says that it is discretionary on the part of the AO to levy penalty or not. We are also of the opinion that penalty is not at par with the tax and interest and therefore, penalty should not be levied in a light hearted manner or in routine manner and not every additions/ disallowances are liable for penalty. The primary onus is on the revenue to prove that assessee falls under particular limb of default. The AO have to bring the case in the four corners of the sections in order to levy penalty which in our opinion, the authorities below failed to do so. The authority below misdirected themself by citing various irrelevant decisions of Hon'ble Supreme Court without understanding the real issues involved in the case of assessee company. Therefore, we are of the opinion that the explanation offered by the assessee is bonafide and the assessee has disclosed all material facts to substantiate the explanation. With the above observations, we delete the penalty levied u/ s 270A of the Act and allow the appeal of the assessee. Unquote vi. Reliance Petroproducts Private Limited [2010] 189 Taxman 322 (SC) Quote Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not, in our opinion, attract the penalty under section 271(1)(c). If we accept the contention of the revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature. MA No.2/Bang/2025 Page 7 of 13 Unquote vii. Manjunath Cotton & Ginning Factory [2013] 218 Taxman 423 (Karnataka HC) Quote Notice under section 274 should specifically state the grounds mentioned in section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income. Sending printed form, where all the grounds mentioned in section 271 are mentioned, would not satisfy requirement of law. The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. Unquote Non-consideration of the binding judgments of the Supreme Court and the High Court, referred by the AR, particularly that of the Reliance Petroproducts (supra) and Manjunath Cotton and Ginning (supra), is a mistake apparent on record under section 254(2). The AR relied on the above decisions which are directly applicable to the issue in dispute. In this regard, the Petitioner/Respondent places reliance on the following judgments. Honda Siel Power Products Limited [2007] 165 Taxman 307 (SC) Quote \"Rule of precedent\" is an important aspect of legal certainty in rule of law. That principle is not obliterated by section 254(2) of the Income- tax Act, 1961. When prejudice results from an order attributable to the Tribunal's mistake, error or omission, then it is the duty of the Tribunal to set it right. Atonement to the wronged party by the Court or Tribunal for the wrong committed by it has nothing to do with the concept of inherent power to review. Unquote Even where a legal question is raised at the stage of the appeal, the same has to be adjudicated by the Tribunal. Therefore, the question with respect to the infirmity in the show cause notice issued by the AO to initiate penalty proceedings without specifying the limb under which MA No.2/Bang/2025 Page 8 of 13 the revenue proposed to levy penalty also needed appropriate adjudication. In this regard, the Petitioner/Appellant would like to rely on the following judgement of the jurisdictional High Court and other precedents quoted below. i. Sankeshwar Printers Private Limited [2013] 218 Taxman 360 (Karnataka HC) Quote Legal question can be raised at the stage of the appeal and such a question need not be raised as a ground. When the legal question is raised, the Tribunal has to consider the same in accordance with law. In the instant case, the Tribunal has committed an error in not considering the question of law raised by the appellant. Therefore, this Court has to allow the appeal and remand the matter to the Income-tax Appellate Tribunal in order to consider this question and we are not interfering with the orders of the Income-tax Appellate Tribunal or the Commissioner (Appeals) or the Assessing Officer. It is for the Tribunal to consider only the question of law raised by the appellant in accordance with law and on merits. The appeal is allowed accordingly. Unquote ii. Subhash Runwal [2025] 170 taxmann.com 798 (Pune bench of the ITAT) [ITA No. 1279/PUN/2024 Quote In adjudicating the issues under appeal, we have to first deal with the question as to 'whether a legal ground raised first time before the Tribunal can be admitted?' more specifically when it was not raised before the first appellate authority but the subject matter of impugned orders assailed against. In this context, it shall suffice to quote that, the legal ground raised by the appellant first time in the present appeal goes to the root of the matter and admittedly no new facts are required to be investigated or verified for the purpose of its adjudication, therefore such being a legal ground whether raised in written or orally during the course of proceedings deserves admission in the light of ratio laid down by the Hon'ble Apex Court in 'National Thermal Power Co. Ltd. v. CIT' [1998, [1999] 97 Taxman 358/229 ITR 383 (SC)]. Unquote iii. Laxmi Electronic Corporation Limited [1991] 54 Taxman 515 (Allahabad High Court) MA No.2/Bang/2025 Page 9 of 13 Quote The learned counsel for the assessee relied upon the decision of the Supreme Court in CIT v. Scindia Steam Navigation Co. Ltd. /1961] 42 ITR 589. In this decision, the Supreme Court enunciated the situations in which questions of law can be said to arise from the order of the Tribunal. One of the situations mentioned by the Supreme Court is where a point were urged before the Tribunal, but not dealt with by it. Even in such a situation, it was held that a question of law to that effect must be deemed to arise from the order of the Tribunal. We do not see the proposition in this decision militating against the power of the Tribunal to rectify its mistakes. As stated hereinbefore, where the Tribunal fails or omits to deal with an important contention affecting the maintainability/merits of the appeal, it must be deemed to be a mistake apparent from the record, which empowers the Tribunal to reopen the appeal and rectify the same if it is so satisfied Unquote It is to be noted that the subject matter of appeal must be viewed in the contest and background of the facts and circumstances of the case. In the present case, the assessee supported the order of CIT (Appeal) in deletion of penalty by taking a plea before the Tribunal that the show cause notice issued to the assessee to initiate the penalty proceeding suffered from inherent infirmities on the basis that an irrelevant portion of penalty notice was not struck off. For that purpose, the assessee placed reliance on the judgment of the jurisdictional High Court in the case of Manjunath Cotton and Ginning Factory (2013) 218 Taxman 423 (Karnataka HC). The Tribunal was under statutory obligation to entertain this plea to be considered as the evidence already on record and it involved pure question of law and also supported by binding decision of jurisdictional High Court which the Tribunal failed to do so. Hence, a. Non consideration of all the facts and circumstances of case is mistake apparent on record as held by in the case of J S Parkar vs V B Palekar (1974) 94 ITR 616 (Born) b. Argument could be raised by assessee for first time before Tribunal in departmental appeal, if the material is already on record on the basis where off ground/contention could be raised, the party to the appeals cannot be precluded from raising such contention, especially the respondent in view of Rule 27 of ITAT Rules, 1963. MA No.2/Bang/2025 Page 10 of 13 For this purpose, assessee relies on the judgement of Madhya Pradesh High Court, in the case of Dy. CIT vs Turquoise Investment & Finance Ltd 202 CTR 395 (MP H.C) i) Non consideration of jurisdictional High Court judgment is mistake apparent on record as held by Supreme Court in case of Assistant in the case of CIT vs Saurashtra Kutch Stock Exchange Ltd 305 ITR 227 (SC). ii) There is no question of any concealment of facts or furnishing inaccurate particulars in this case as the assessee fully disclosed all material facts at the stage of assessment by furnishing return of income. The disallowance made by AO towards claim of depreciation itself cannot lead to levy of penalty as held by Supreme Court in the case of Reliance Petroproducts Private Limited [2010] 189 Taxman 322 (SC) Prayer For the above reasons, the Petitioner (Respondent) prays that the above submissions may please be considered and the Order passed in ITA No. 1666/BANG/2024 may be recalled or modified as the case may be, in the interest of justice and equity relying on the below judgment. Income Tax Officer Vs Income Tax Appellate Tribunal [1965] 58 ITR 634 (Allahabad High Court) Quote In my judgment, where an error which has crept in, is not as a result of any fault of the assessee but is one attributable entirely to the Tribunal in having lost sight of a material fact at the time of writing its order or judgment, which fact was duly brought to its notice by the assessee, there would be an error apparent from the record which could be rectified under section 35 of the Act. Unquote” 4. The crux of the argument of the ld. AR is that the show-cause notice of initiating the penalty proceedings suffers from serious legal infirmity which did not fulfil the limb under which the penalty is to be imposed and further the issue on which the penalty is levied is disallowance of depreciation which is also the issue on which penalty could not have MA No.2/Bang/2025 Page 11 of 13 been levied as complete details were available with the AO. He submits that on both the issues, there are binding decisions of the Hon’ble Supreme Court and also the Hon’ble High Court and not following the same is a mistake which could be rectified u/s. 254 of the Act. 5. It was further stated that the legal infirmities pointed out in the notice issued which would result in cancellation of penalty, the binding decisions of Hon’ble jurisdictional High Court available are not considered and also not deciding the issue is a mistake, which needs to be rectified. He further submitted that the impugned order of the coordinate Bench may be recalled to correct the above stated error. 6. The ld. DR vehemently submitted that there is no power available to the Tribunal to recall the order. For this proposition, reliance was placed on the decision of the Hon’ble Supreme Court in the case of CIT v. Reliance Telecom Ltd. [2021] 133 taxmann.com 41 (SC) and the decision of the Hon’ble Delhi High Court in the case of Ras Bihari Bansal [2008] 170 Taman 31 (Delhi) / 293 ITR 365. 7. We have considered the rival contentions and perused the order of the coordinate Bench in which the Miscellaneous Application points out the error. The facts show that in the appeal of the ld. AO the ld. AR submitted an argument that penalty notice dated 23.12.2024 does not specify under which limb the revenue proposed to levy penalty by not striking off the relevant portion. This argument was noted at para no.8, however these arguments were not dealt with by the Tribunal while MA No.2/Bang/2025 Page 12 of 13 dealing the issue of levy of penalty. The coordinate Bench in para 9.9 also held that assessee has not filed CO. According to Rule 27, even if the assessee has not filed an appeal or CO, Rule 27 permits even to orally argue a legal point. Anyway the issue is that in the present case the penalty notice suffers from legal infirmity which would definitely result into quashing of the penalty order itself, though argued before the coordinate Bench, was not discussed and decided. Thus, there is a mistake in the order of the coordinate Bench and therefore the order requires to be recalled. 8. Coming to the decisions cited by the ld. DR, the decision of the Hon’ble Supreme Court in the case of Reliance Telecom Ltd. (supra), the facts show that in that case the Tribunal has reheard the entire appeal on its merit and then decided the issue in favour of assessee in the Miscellaneous Application. Para 3.2 of that order stated that while considering an application u/s. 254(2) of the Act, by revisiting the entire order the Tribunal went into the details of the issue on merits. Here in the issue before us, we are just recalling the order to consider the legal arguments of the assessee which was recorded, but not considered and decided. 9. The second decision cited by the ld. DR of the Hon’ble Delhi High Court in the case of Ras Bihari Bansal (supra), in that case, there was oversight of the fact about the assessment of the income of the assessee. Here in this case there is a legal argument raised by the assessee which was noted but was not decided. Thus, the facts are MA No.2/Bang/2025 Page 13 of 13 clearly distinguishable. Thus, both the decisions cited by the d. DR are not applicable. 10. In view of the above facts, we recall the order passed by the coordinate Bench to decide the issue, whether the infirmity in the notice issued is so fatal that the penalty levied by the AO does not survive. Accordingly, the Miscellaneous Application is allowed to the above extent. Pronounced in the open court on this 28th day of May, 2025. Sd/- Sd/- (Prashant Maharishi) (Keshav Dubey) Vice President Judicial Member Bangalore, Dated, the 28th May 2025. /Desai S Murthy / Copy to: 1. Applicant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore. "