ITAT Deletes Income Tax penalty against incorrect HRA Exemption

ITAT Delhi has quashed a penalty order passed under Section 270A of the Income Tax Act, 1961, on the ground that the penalty notice did not specify the particular sub-clause of Section 270A under which the penalty was being initiated.

The assessee filed his return of income for the assessment year 2022-23 declaring a total income of Rs. 79.62 lakh but during the assessment proceedings under Section 143(3) read with Section 144B, it was found that the assessee had claimed HRA exemption under Section 10(13A) of the Act amounting to Rs. 25.46 lakh against actual rent paid of Rs. 10.20 lakh. The assessee failed to furnish details in support of the higher HRA exemption claimed, the Assessing Officer (AO) disallowed the same and added it back to the total income, determining total income at Rs. 1.05 Crore.

The assessee before the Tribunal argued that the notice dated 13/03/2024 issued under Section 270A has not specified any particular limb or sub clause of the section under which the penalty proceedings were to be initiated.

The Tax authorities referred to the decisions by the earlier authorities and argued that the assessee has committed a default within the meaning of section 270A and a penalty should rightly be imposed.

ITAT after relying on the paperbook submitted on record, found that the notice actually did not specify any particular sub-clause under which the proceedings were being initiated. The court referred to the decision of the Delhi High Court in Prem Brothers Infrastructure LLP v. NFAC in which it was specifically held that a notice under Section 270A that does not specify the sub-clause under which the penalty is being levied is vague and unsustainable in the eyes of the law.

Accordingly, the Tribunal treated such a notice as void ab initio, and consequently, both the penalty notice and the penalty order passed in pursuance thereof were quashed and the appeal was allowed.