ITAT Quashes Rs 6.77 Lakh Penalty Over Defective Section 270A Notice

In a major ruling, the Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has cancelled a penalty of Rs. 6,77,651 imposed on an individual taxpayer under Section 270A of the Income Tax Act holding that the penalty proceedings were vitiated as the taxpayer was not clearly informed about the exact charge.

The case was of Jyothi Kodenkiri, whose income tax return for assessment year 2022-23 was picked for scrutiny. The AO disallowed the deductions claimed under Chapter VI-A and added Rs. 30,55,000 to the taxable income of the assessee.

After the assessment, the AO commenced penalty proceedings under section 270A on the basis that the taxpayer had under-reported income due to misreporting. However, on passing of the final penalty order the AO imposed penalty @ 50% of tax payable on the under reported income which is applicable only in case of under reporting and not misreporting. The penalty amounted to Rs 6,77,651.

The taxpayer argued that this inconsistency made the penalty proceedings invalid. While the notice alleged one offence under-reporting due to misreporting the final order penalised only under-reporting. The taxpayer also contended that merely accepting the assessment additions did not automatically justify a penalty.

After examining the matter, the ITAT agreed with the taxpayer. The Tribunal observed that Section 270A prescribes different penalties for under-reporting and misreporting. Under-reporting attracts a penalty of 50%, whereas misreporting attracts a much higher penalty of 200% of the tax payable on the under-reported income.

The Bench noted that the penalty notice issued to the taxpayer referred to under-reporting as a consequence of misreporting, but the final penalty was imposed only for under-reporting. The charge referred to in the notice was not the charge on which the penalty was ultimately imposed, and so the taxpayer was never properly informed of the actual charge.

The Tribunal stated, “we are of the considered view that since the assessee was not made aware of the actual charge on which penalty under section 270A shall be levied, the entire penalty proceedings under section 270A of the Act are vitiated.”

Accordingly, the ITAT has quashed the penalty order and allowed the appeal filed by the taxpayer.