Mumbai ITAT Rejects 200% Penalty Unless Misreporting Specified

A 200% penalty could not get imposed until the department establishes misreporting, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) stated.

AO would lose to draw the addition or disallowance he made in quantum assessment under the ken of (a) to (f) of Section 270A (9) of the Act, and the penalty levied for misreporting at the rate of 200% could not be sustained as the same is trite law that penalty provisions would be required to be analyzed the bench of Aby T. Varkey (Judicial Member) and Om Prakash Kant (Accountant Member) witnessed.

For the purpose of scrutiny under CASS the taxpayer’s case was chosen. The AO framed scrutiny assessment u/s 143(3) through the order via making the inter-alia quantum addition, which action was assailed by the taxpayer to the CIT (A). The petition of the taxpayer was dismissed by the CIT (A).

Due to the taxpayer’s failure to pursue the adds of interest on income tax refunds, interest on late payments of TDS, and disallowance of costs, the Tribunal granted partial relief to the taxpayer and affirmed some additions in a judgment dated March 31, 2023.

The AO assessed a fine in accordance with Section 270A, 200% of the tax that he believed was incorrectly declared.

The taxpayer has put forth the argument that Section 270A(9) delineates six different scenarios that can qualify as underreporting due to misreporting. It is important to note that the provisions of Section 270A(9) are applicable only in cases where there is intent or knowledge, as evident from the instances of income misreporting. Nowhere in the assessment order has the Assessing Officer specified the specific case under the aforementioned six scenarios the appellant’s case falls under, which would warrant the imposition of a higher penalty of 200%.

Important: All Details About Under-reporting & Misreporting Income

The Income Tax Appellate Tribunal (ITAT) has ruled that the Assessing Officer must establish that the taxpayer’s actions or omissions fall within the purview of sub-section (9) of Section 270A. However, upon reviewing the reasons provided by the Assessing Officer for imposing a penalty for misreporting, it is evident that he has failed to articulate how the taxpayer’s case or the additions made align with the circumstances outlined in clauses (a) to (f) of sub-section (9) of Section 270A of the Income Tax Act.