ITAT Deletes Section 270A Penalty as AO Fails to Specify Misreporting Limb

The Income Tax Appellate Tribunal deleted a penalty under section 270A as there was no misreporting of income, and the AO failed to specify which part of section 270A applied or how section 270A(9) conditions were met.

The assessee, SAS Fashions, received rent income of Rs. 2,36,31,775, on which they claimed a standard deduction at 30% along with depreciation of Rs. 1,53,053. However, the Assessing Officer disallowed the claim of depreciation and other expenses against the rental income received by the assessee. He reassessed the assessee’s income and initiated Penalty proceedings under section 270A of the Income Tax Act. The assessee was issued a show cause notice alleging underreporting of income.

The assessee argued that it was a mere difference of opinion, not misreporting. However, the AO denied it and levied a penalty under section 270A of the Act for underreporting of income at 200% (Rs 48,39,548). The assessee filed an appeal before the CIT(A), which gave partial relief on one expense of Rs 1,53,053, but the balance disallowance of depreciation of Rs 79,12,860, was upheld by the CIT(A), which the assessee did not challenge further.

The assessee filed an appeal before the ITAT challenging the penalty order on the disallowance of depreciation of Rs 79,12,860. However, the appeal was delayed by nine months due to the director’s death and the CA’s cancer illness. The Tribunal, after observing the reasons, condoned the delay.

The main issue before the ITAT was whether the penalty for ‘misreporting’ is applicable to the claim of depreciation being allowable gainst “House property” income or not. The Tribunal observed that the assessee has submitted all the documents regarding the transactions regarding the claim, and so there is no misreporting of income.

The Tribunal criticised the AO for wrongly invoking Sections 270A(1) and 270A(9) without providing the supporting details. It referred to the decision of the Delhi High Court, where the penalty under section 270A was deleted on the ground that there was no misreporting of income and in the absence of details as to which limb of section 270A was attracted and how the ingredient of sub-section (9) of section 270A was satisfied.

Based on these findings, the ITAT held that the penalty order was “manifestly arbitrary” and deleted it entirely.