2024 (4) TMI 979 - AT - Income Tax

Penalty u/s 270A - allegation of misreporting as per section 270A(9) - Penalty@ 200% in respect of excess claim of depreciation - HELD THAT - During the course of assessment proceedings AO accepted the claim related to depreciation however as regards quantum of depreciation is concerned he was of the view that depreciation should be charged on WDV as computed in accordance with explanation to section 43(1). AO thus partly disallowed the claim of depreciation against which appeal was preferred by the assessee. Based on that pretext the return of income for A.Y. 2017-18 was filed by the assessee by claiming depreciation as was done in earlier years in normal course on 29.10.2017 before the due date of 31.10.2017 as till then the assessee was not advised and was able to decide the course of action in relation to the issue raised for A.Y. 2013-14 in respect of depreciation disallowed. In the scrutiny assessment proceedings for A.Y. 2017-18 i.e. the year under consideration the revised calculation of depreciation was submitted before ld. AO as per the CIT(A) s order as by that time it was already finalized for not to agitate the matter of depreciation before the income tax tribunal against the order of CIT(A) of A.Y. 2013-14. Thus with that back ground as argued by assessee has disclosed all the facts in return of income and also revised the depreciation claimed at the very first opportunity i.e. during assessment proceedings and therefore this act cannot be treated as misreporting by any stretch of imagination more particularly when the issue on which disallowance has been made was debatable. For disallowance of interest paid on TDS amounting it is submitted that interest on TDS is paid for the duration for which payment of TDS is delayed and is thus basically compensatory in nature and not penal in nature and therefore same is allowable u/s 37(1) - It was also submitted by the AR that there is no allegation about suppression of some facts or misrepresentation of some facts by the assessee and moreover this claim was also based on certain judicial pronouncements in favour of assessee at the time of making the claim. Thus the claim of depreciation and interest on TDS was made accordingly. It is also submitted that it is not the case that the claimed any bogus or excessive or unrelated expenses or has misrepresented the facts. On this issue our attention was invited to the decision of the apex court in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT and M/s Price Waterhouse Coopers Pvt. Ltd 2012 (9) TMI 775 - SUPREME COURT which are though decided in respect of penalty u/s 271(1)(c) but the ratio related to furnishing of inaccurate particulars of income is pari materia with provisions of section 270A dealing with misreporting of income. In addition asseseee also invited our attention to the the latest case laws related to penalty u/s 270A namely Chambal Fertilizers Chemicals Ltd. 2024 (1) TMI 316 - RAJASTHAN HIGH COURT wherein Hon ble Court has confirmed the requirement of clearly specifying the sub-clause of section 270A(9) prior to concluding that assessee has misreported the particulars of income. Similarly in the case of GR Infraproject Ltd. 2024 (1) TMI 163 - RAJASTHAN HIGH COURT as observed that neither in the assessment order nor in the subsequent show cause notice the AO has specified that the assessee is covered by section 270A(9) of the Act. Even in the order imposing penalty it is not specified which part of sub-section (9) of section 270A is attracted in this case. The bench noted from the evidence placed on record that the assessee neither in the show cause notice nor in penalty order it was specified as to under which particular clause of section 270A(9) the case of assessee is covered. Thus the levy of penalty for misreporting of income is not justified on the facts as mentioned and discussed herein above and respectfully following the binding judicial decision. Depreciation on certain house property was claimed by assessee first time in A.Y. 2013-14 on showing the rental income under the head Business Income which was hitherto shown under the head Income from House Property - In the case of Schneider Electric South East Asia (HQ) PTE Ltd. 2022 (3) TMI 1295 - DELHI HIGH COURT considering that in the penalty order there was no mention about which limb of section 270A is attracted and how ingredients of section 270A(9) are satisfied and in absence of such particulars the mere reference to the word misreporting makes the impugned penalty order manifestly arbitrary. Considering the facts of the case under consideration and the various case laws as discussed as above we are of the considered view that penalty so imposed by ld. AO does not stand on merits and is therefore directed to be quashed. Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of penalty u/s 270A for excess depreciation claim.
2. Confirmation of penalty u/s 270A for disallowance of interest on TDS.
3. Non-recording of independent satisfaction before imposing penalty.
4. Rejection of application for immunity from penalty u/s 270AA.

Summary:

Issue 1: Confirmation of penalty u/s 270A for excess depreciation claim

The assessee, a private limited company engaged in lease rentals and real estate development, filed returns for A.Y. 2017-18 and 2018-19. The AO disallowed Rs. 19,59,272/- for excess depreciation and initiated penalty proceedings u/s 270A for under-reporting of income due to misreporting. The assessee argued that the excess depreciation claim was a bona fide mistake based on a previous practice and judicial rulings. The CIT(A) upheld the penalty, stating that the assessee had ample time to correct the depreciation claim after receiving the CIT(A)'s order for A.Y. 2013-14 but failed to do so. The Tribunal, however, found that the claim was made under a bona fide belief and was disclosed in the return of income, thus not amounting to misreporting.

Issue 2: Confirmation of penalty u/s 270A for disallowance of interest on TDS

The AO disallowed Rs. 66,466/- for interest on TDS, considering it penal in nature. The assessee contended that the interest was compensatory and allowable u/s 37(1). The CIT(A) upheld the penalty, but the Tribunal noted that the claim was based on judicial pronouncements and was disclosed in the return of income, thus not constituting misreporting.

Issue 3: Non-recording of independent satisfaction before imposing penalty

The assessee argued that the AO did not record independent satisfaction before imposing the penalty and relied solely on the assessment proceedings. The Tribunal found that the AO failed to specify under which limb of section 270A(9) the case fell, thus not justifying the penalty for misreporting.

Issue 4: Rejection of application for immunity from penalty u/s 270AA

For A.Y. 2018-19, the CIT(A) rejected the assessee's application for immunity from penalty u/s 270AA, citing late filing beyond one month. The assessee argued that the delay was due to the COVID-19 pandemic and the Hon'ble Apex Court's order extending the limitation period. The Tribunal found that the CIT(A) did not appreciate the circumstances of the delay and that the rejection was against the principle of natural justice.

Conclusion:

The Tribunal allowed the appeals for both A.Y. 2017-18 and 2018-19, quashing the penalties imposed u/s 270A for both excess depreciation and interest on TDS, and directed that the assessee be granted immunity from penalty u/s 270AA.