Penalty proceedings u/s. 270A for underreporting of income - misreported or suppressed facts with regard to income from house property which resulted in computation of excessive loss under the head ‘income from house property


ITAT CHENNAI _ SHRI DURAISAMY SENTHIL KUMAR VERSUS THE INCOME TAX OFFICER, ERODE.,No.- I.T.A.No. 552/Chny/2023
Dated.- September 27, 2023

Facts the assessee has filed his return of income for the assessment year 2018-19 on 18.03.2019 declaring total income of Rs. 5,10,760/-. The assessment has been completed u/s. 143(3) r.w.s. 143(3A) & 143(3B) of the Income Tax Act, 1961, on 12.04.2021 and determined total income at Rs. 5,73,760/-. During the course of assessment proceedings, on the basis of information submitted by the assessee, the Assessing Officer noticed that the assessee has computed loss from ‘income from house property’ and carried forward house property loss of Rs. 15,05,253/- to subsequent assessment years. On verification of details filed by the assessee, the Assessing Officer noticed that the assessee has wrongly claimed total interest paid on loan borrowed for acquiring self-occupied house property as against maximum limit of Rs. 2 lakhs and carried forward loss of Rs. 15,05,253/-. Therefore, restricted loss from income from house property at Rs. 2.00 lakhs and disallowed carried forward losses amounting to Rs. 15,05,253/-.
The Assessing Officer had also initiated penalty proceedings u/s. 270A of the Income Tax Act, 1961, for underreporting of income, as a consequence of misreporting and called upon the assessee to explain as to why penalty shall not be levied. In response, the assessee submitted that while filing return of income for assessment year 2018-19, he has computed excessive loss under the head ‘income from house property’ and carried forward losses to subsequent years.
 However, while filing return of income for assessment year 2019-20 and the same was filed on 28.07.2020, he has not taken set off of brought forward losses against house property income. Therefore, showing excess loss by mistaken of facts cannot be considered as under-reporting of income
. The Assessing Officer, however, was not satisfied with the explanation furnished by the assessee and according to the Assessing Officer, as per provisions of section 270A(2) of the Act, if the income assessed has effect of reducing loss or converting such loss into income should be considered as under-reporting income and penalty provisions of section 270A of the Act become applicable. The assessee has claimed set off of unabsorbed losses in the next year or not claimed is also does not matter. Since, the assessee has computed excess loss, the Assessing Officer has levied penalty of Rs. 9,69,180/- under provisions of section 270A(8) of the Income Tax Act, 1961, which is equivalent to 200% of tax sought to be evaded.
 Being aggrieved by the assessment order, the assessee carried the matter in appeal before the First Appellate Authority, but could not succeed


HELD THAT:- The concept of underreporting of income should be understood in the context of claiming any deduction or expenses, which is otherwise not allowable for computing loss, which is not otherwise as per law, which resulted in reduction in taxable income for relevant assessment year. Even if you want to apply sub-clause (a) of sub-section (9) of section 270A of the Act, same needs to be understood with the context of reduction in income or reduction in loss computed by the assessee for relevant assessment year.

In the present case, parameters prescribed for levy of penalty u/s. 270A is not satisfied, because the assessee neither claimed excessive loss, which resulted in reduction in taxable income or reduction in loss to be adjusted against income either in the impugned assessment year or subsequent assessment years. Therefore, explanation offered by the assessee that he has computed excessive loss under the head ‘income from house property’ in respect of self-occupied house property needs to be understood in the above context of underreporting of income.

Since, the assessee has neither claimed any benefit of loss against any other income for the impugned assessment year, nor has taken set off of said loss against income from house property in subsequent assessment years, in our considered view, the Assessing Officer has completely erred in considering loss computed by the assessee as underreporting of income on account of mis reporting of income. Thus, we are of the considered view that the AO has completely erred in levying penalty u/s. 270A(8) in respect of loss computed under the head ‘income from house property’. The ld. CIT(A) without appreciating relevant facts has simply sustained penalty levied by the AO and thus, we set aside order passed by the Ld.CIT(A) and direct the Assessing Officer to delete penalty levied u/s. 270A - Appeal filed by the assessee is allowed.