200% Penalty Can’t Be Levied Unless Dept. Specifies Misreporting: ITAT

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that a 200% penalty can’t be levied unless the department specifies misreporting.

The bench of Aby T. Varkey (Judicial Member) and Om Prakash Kant (Accountant Member) has observed that AO failed to bring the addition or disallowance he made in quantum assessment under the ken of (a) to (f) of Section 270A (9) of the Act, and the penalty levied for misreporting at the rate of 200% cannot be sustained because it is trite law that penalty provisions have to be strictly interpreted.

The assessee’s case was selected for scrutiny under CASS. The AO framed scrutiny assessment u/s 143(3) by order by making the inter-alia quantum addition, which action was assailed by the assessee before the CIT (A). The CIT (A) dismissed the appeal of the assessee. The

The Tribunal, vide order dated March 31, 2023, has given part relief to the assessee and confirmed certain additions since the assessee did not press the additions of interest on income tax refund, interest on late payment of TDS, and disallowance of expenses.

The AO levied a penalty under Section 270A, in which he imposed 200% of the tax that he held to be misreported.

The assessee contended that Section 270A(9) refers to six distinct instances that can qualify as underreporting as a consequence of misreporting. The provisions of Section 270A(9) apply only in cases where there is mens rea, as can be deciphered from the instances of misreporting of income. The AO has nowhere stated under which of the six cases the appellant’s case falls, so as to levy a higher penalty of 200%.

The ITAT has held that the AO has to bring the action or omission on the part of the assessee under sub-section (9) of Section 270A. However, a reading of the reasons given by the AO to levy a penalty for misreporting reveals that he has failed to spell out how the assessee’s case or additions fall within the ken of instances given in clauses (a) to (f) of sub-section (9) of Section 270A of the Act.

Case Title: Saltwater Studio LLP Versus NFAC

Case No.: I.T.A. No.13/Mum/2023

Date: 22/05/2023

Counsel For Appellant: Dhaval Shah

Counsel For Respondent: Anil K. Das

Click Here To Read The Order