ITAT Upheld Penalty Levied on Employee Who Habitually Claimed Refunds by Overstating Deduction Under Chapter VI-A

Case Details: Sanjeev Kumar Manchand Rajput vs. ITO - [2023] 157 taxmann.com 747 (Pune - Trib.)

Judiciary and Counsel Details

• Inturi Rama Rao, Accountant Member & Partha Sarathi Chaudhury, Judicial Member
• Ms Abhilasha Pawar, AR for the Appellant.
• M.G. Jasnani, DR for the Respondent.

Facts of the Case

The assessee, an individual, filed his return of income for the relevant assessment year. Subsequently, a survey was conducted, and based on information from the Investigation Wing, the case was reopened by issue of notice under section 148.

In response, the assessee filed a return of income wherein he claimed lesser deductions under Chapter VI-A than claimed in the original return. Further, the assessee offered no explanation as to why the gross total income was understated, causing the misreporting of income in the original return. Consequently, the Assessing Officer (AO) initiated penalty proceedings.

During the penalty proceedings, the assessee requested a grant of immunity under section 270AA. The AO rejected such a request, and a penalty at the rate of 200% was levied on misreporting of income.

The aggrieved-assessee filed an appeal to the National Faceless Appeal Centre (NFAC), Delhi. The NFAC confirmed the penalty imposed by AO, and the matter reached before the Pune Tribunal.

ITAT Held

The Tribunal held that the assessee was specifically asked to explain the reasons for the differences between the original return filed and the return filed in response to notice under section 148. However, the assessee responded that he had nothing further to state in respect of the difference between the figures of gross total income and Chapter VI-A deduction between the original return and the later return.

The assessee, who had a history of habitually claiming fraudulent refunds by increasing deductions and reducing his taxable income since A.Y. 2016-17 onwards, could not justify why he had continuously misreported his income and what was the legal basis for such action. No plausible legal explanations were submitted as to why the assessee did such misreporting.

The scheme of the provisions of section 270A provides that if it is a case of under-reporting, it attracts a penalty of 50% with certain exclusions. However, if it is a case of misreporting, it attracts a higher penalty of 200%.

The assessee admittedly declared a lower salary than that reported by his employer in Form 16 and further had yet to disclose the basis for such misreporting. This is a clear case of misrepresentation or suppression of facts. Similarly, the assessee had inflated his claim of deduction under Chapter VI-A of the Act and again had not revealed the basis for such a higher claim of deduction. It was evident that this was a fraud committed to evade tax.

Accordingly, the Tribunal upheld the levy of penalty by the AO.

List of Cases Reviewed

• Mc Dowell & Company Ltd. v. CTO [1985] 154 ITR 148 (SC),
• DCIT v. Pawan Kumar Malhotra [2010] 2 ITR 250 (Del – Trib.),
• Sumati Dayal v. CIT [1995] 214 ITR 801 (SC),
• M/s. Friends Trading Company v. Union of India in Civil Appeal No.5608/2011,
• Badami (deceased) by her LRs v. Bhali in Civil Appeal No. 1723/2008 (Para 6.1) followed.

List of Cases Referred to

• Mc Dowell & Co. Ltd. v. Commercial tax Officer [1985] 22 Taxman 11/154 ITR 148 (SC) (para 6.1),
• DCIT v. Pawan Kumar Malhotra [2010] 2 ITR 250 (para 6.1)
• Sumati Dayal v. CIT [1995] 80 Taxman 89/214 ITR 801 (SC) (para 6.1).