Clear Mention of "Misreporting of Income" Validates Section 270A Penalty: ITAT:

Clear Mention of "Misreporting of Income" Validates Section 270A Penalty: ITAT The Tribunal upheld the penalty under Section 270A, ruling that the AO’s notice clearly specified "under-reporting due to misreporting of income", and therefore the penalty proceedings were valid.

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Prakashnagar Credit Cooperative Society Ltd filed the present case against the ITO, challenging orders passed by CIT(A). The society had filed its income tax return for AY 2020-21, declaring a total income of around Rs.2,65,930. During scrutiny, the AO observed that the society had earned substantial income from loans and other activities and had claimed a deduction under Section 80P. The AO disallowed part of the deduction, mainly on interest income earned from bank deposits, holding that such income was not eligible for deduction under Section 80P. Initially, the AO made a disallowance of Rs.1,21,53,108 and also started penalty proceedings for “misreporting of income". Later, the Commissioner of Income Tax (Appeals) [CIT(A)] partly gave relief to the assessee and reduced the disallowance substantially. However, a small disallowance of about Rs.3,75,205 was sustained. After giving effect to the appellate order, the AO imposed a penalty of about Rs. 84,712 under Section 270A. The assessee submitted that the penalty notice was vague as it did not specify the exact charge under Section 270A. The assessee also submitted that it had filed an application for immunity from penalty under Section 270AA, but the same was not disposed of by the AO.

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The assessee relied on the Karnataka High Court ruling in the case of Schneider Electric South East Asia (HQ) Pte Ltd., where penalty proceedings were quashed due to defective notices. On the other hand, the Revenue argued that the AO had clearly mentioned in the assessment order as well as in the penalty notice that the case involved "under-reporting of income due to misreporting." Therefore, according to the department, there was no ambiguity in the notice. After hearing both sides, the Tribunal held that the AO had properly invoked the provisions relating to misreporting of income under Section 270A(9). The Tribunal observed that the notice clearly mentioned that the assessee had "under-reported income which is in consequence of misreporting of income". Hence, the Tribunal found no defect or confusion in the notice. The Tribunal further stated that the decision in Schneider Electric’s case was different because that matter related to immunity from penalty and not to the validity of the notice itself. It also noted that the assessee had not produced documentary evidence regarding the application for immunity under Section 270AA.

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Accordingly, the Tribunal upheld the penalty order passed by the AO and confirmed by the CIT(A). Since the facts in both assessment years were similar, the Tribunal applied the same reasoning to AY 2018-19 as well. As a result, both appeals filed by the assessee were dismissed.