Saltwater Studio LLP v. NFAC

Case snapshot

Sections / provisions: 270A

Questions before the Court / Tribunal

• Section 270A penalty: whether 200% misreporting penalty is discretionary and sustainable on the facts.
• What factual, statutory and procedural conditions control the relief?
• How does the operative order apply to the parties and the challenged proceeding?

Material facts and procedural background

(अपीलार्थी/ Appellant) .. (प्रत्यर्थी / Respondent)

Assessee by: Shri Dhaval Shah Revenue by: Shri Anil K. Das(Sr. AR)

This is an appeal preferred by the assessee against the order of the Ld. Commissioner Of Income Tax(Appeals)/ NFAC, Mumbai (herein after “CIT(A)”, dated 23-11-2022 for AY 2017-18, wherein the Ld. CIT(A) was pleased to confirm the penalty levied by AO u/s 270A of the Income Tax Act,1961 (herein after “the Act”).

2. Brief facts are that the assessee had filed its return of income for AY 2017- 18 dated 31.10.2017 declaring Rs. 21,21,750/-. Later the case of the assessee was selected for scrutiny under CASS. Thereafter, the AO framed scrutiny assessment

u/s 143(3) by order dated 10-12-2019 by making the inter-alia quantum addition of total Rs 3,94,996/- which action was assailed by assessee before the Ld. CIT(A) who was pleased to dismiss the appeal of the assessee vide order on 23.11.2022, which action of the Ld. CIT(A) was again challenged before this Tribunal. And the Tribunal vide order dated 31.03.2023 has given part relief to the assessee and confirmed certain additions since assessee did not press the addition on following (i) Interest on income tax refund to the tune of Rs. 64,581/- (ii) to interest of late payment of TDS of Rs. 973/-, (iii) disallowance of expenses on estimate basis @ 0.6% i.e, Rs. 2,416/-. Thus addition of total Rs. 67,970/- was not pressed before Tribunal, which was confirmed. Thus, the assessee’s quantum assessment was partly allowed by the Tribunal directing AO, to delete Rs. 3,27,026/- and thus

Appellant / assessee submissions

being 200% of the tax payable, if such under-reported income is in consequence of misreporting of income as per subsection (8) r.w.s. (9) of section 270A of the Act. 7. According to him, as stated earlier, imposition of penalty is at the discretion of AO, since sub-section (1) of section 270A of the Act, refers to the word 'may' and not shall. And further, he pointed out that there are certain specific instances/exceptions given in sub section (6) of section 270A of the Act, [which does not constitute under reported income for the purpose of s. 270A]. Therefore, according to him it is clear that all additions made in the quantum/assessment order cannot culminate into charging of penalty u/s 270A of the Act; and that the penal provision need to be invoked only after considering facts and circumstances of each case. 8. Coming to the penalty levied in the instant case, the Ld AR submitted that section 270A(9) refers to six (6) distinct instances which can qualify underreporting as a consequence of misreporting. And that the provisions of section 270A(9) applied only in case where there is mens-rea as can be deciphered from the instances of misreporting of income as given in sub…

Revenue / respondent submissions

The packaged judgment does not separately label the respondent's submissions in an independently extractable passage. No contention is inferred; read the full order.

Court / Tribunal analysis and reasoning

4. We have heard both the parties and perused the records. It is noted that the assessee’s quantum assessment has been partly allowed by this Tribunal, and the Tribunal was pleased to delete Rs. 3,27,026/- vide order dated - 31.03.2023. Therefore the penalty issue even if leviable is only confined to the balance additions of total Rs 67,970/- and not on the Rs 3,94,996/- as done by 2

action/omission on the part of the assessee in the ken of sub-section (9) of section 270A of the Act which are given (supra), viz (a) to (f) of section 270A(9) of the Act. However, a reading of the reasons given by the AO to levy penalty for misreporting (supra) it is discerned that he has failed to spell out as to how the assessee’s case/additions falls within the ken of instances given in clause (a) to (f) of sub-section (9) of section 270A of the Act. Since AO failed to bring the addition/disallowance he made in quantum assessment, under the ken of (a) to (f) of the sub-section(9) of section 270A of the Act, the penalty levied for misreporting @ 200% cannot be sustained because it is trite law that penalty provisions have to be strictly interpreted. And therefore, taking into consideration, the facts and circumstances of the case, we find that the levy of penalty by the AO u/s 270A of the Act suffers from the vice of non-application of mind as well as violates principles of natural justice. And therefore, the penalty levied on addition of sustained quantum addition of Rs.67,970/- cannot survive. And therefore, it is

Operative decision and relief

u/s 143(3) by order dated 10-12-2019 by making the inter-alia quantum addition of total Rs 3,94,996/- which action was assailed by assessee before the Ld. CIT(A) who was pleased to dismiss the appeal of the assessee vide order on 23.11.2022, which action of the Ld. CIT(A) was again challenged before this Tribunal. And the Tribunal vide order dated 31.03.2023 has given part relief to the assessee and confirmed certain additions since assessee did not press the addition on following (i) Interest on income tax refund to the tune of Rs. 64,581/- (ii) to interest of late payment of TDS of Rs. 973/-, (iii) disallowance of expenses on estimate basis @ 0.6% i.e, Rs. 2,416/-. Thus addition of total Rs. 67,970/- was not pressed before Tribunal, which was confirmed. Thus, the assessee’s quantum assessment was partly allowed by the Tribunal directing AO, to delete Rs. 3,27,026/- and thus

assessee’s appeal(quantum) was partly allowed.

14. In the result, the appeal of the assessee is allowed.

Ratio and legal principle

• The packaged judgment addresses Section 270A penalty: whether 200% misreporting penalty is discretionary and sustainable on the facts. The precise proposition must be read with the Court/Tribunal's reasoning and operative directions.
• Reliance depends on matching the statutory version, jurisdiction, procedural stage and material evidence recorded in the judgment.

Why this judgment matters

This decision is relevant to practitioners and affected parties dealing with section 270a penalty: whether 200% misreporting penalty is discretionary and sustainable on the facts. Its value lies in showing how the adjudicating forum connected the applicable rule to the proved facts and procedural posture.

Practitioner action points

• Match the statutory version, jurisdiction, procedural stage and decisive evidence before relying on the result.
• Verify current appellate, review and SLP history and any later amendment or controlling authority.
• Attach the complete judgment to the working paper or filing and cite the paragraph/page supporting the proposition.

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Section / provision impact

• 270A - apply the exact version considered in the judgment.

Case network

Similar issue / useful comparison

• PCIT v. Valley Iron & Steel Co. Ltd. - Court / Tribunal to be verified
• Footcandles Film Pvt. Ltd. Vs . Income Tax Officer – TDS – 1 - Court / Tribunal to be verified
• Hemant Lalwani v. ITO - Court / Tribunal to be verified

Different outcome / possible distinction

• No source-reviewed contrasting case is linked yet.

Full judgment and source control

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