Whether it is Mandatory to Mention Nature of Penalty w.r.t. Section 270A in Assessment Order

Assessment order

Insertion of latest penalty provision u/s. 270A :

The Finance Act, 2016 replaces section 271 by section 270A and provides penalty for ‘under-reporting’ and ‘misreporting’ of income w.e.f. AY 2017-18 and onwards.

The replacement is explained by the Memorandum to Finance Bill, 2016 as under :

“Under the prevailing provisions, penalty on account of concealment of particulars of income or furnishing of inaccurate particulars of income is leviable under section 271(1)(c) of the tax Act. so as to rationalize and convey objectivity, certainty and clarity within the penalty provisions, it's proposed that section 271 shall not apply to and in reference to any assessment for the assessment year commencing on or after the first day of April, 2017 and subsequent years and penalty be levied under the newly inserted section 270A w.e.f. 1st April, 2017. The new section 270A provides for levy of under-reporting and misreporting of income.”

(Emphasis Added)

1.  Whether “Misreporting” may be a a part of “Under-reporting” ?

*a. Under-reported income :
Sub-section (1) to the said section gives an authority to AO / CIT(A) / Pr. CIT / CIT to direct a person who has “under-reported” his income during any proceedings to pay penalty additionally to tax on such under-reported income. Such person shall be responsible for 50% penalty on an amount of tax payable on such under-reported income.

*b.Misreporting of income :
Sub-section (8) states that where an under-reported income is in consequence of any misreporting by a person , such person shall be susceptible to pay 200% penalty on an amount of tax payable on such under-reported income.As per the said sub-section, penalty just in case of misreporting is adequate to 200% of under-reported income.

Thus, it are often said that “misreporting of income” may be a a part of “under-reported income” and comes into picture only there's under-reporting of income.

Instances when an individual shall be considered to haveunder-reported his income :

The legislature has provided instances on when an individual shall be considered to possess “under-reported” his income u/s. 270A(2) and when such “under-reported income” shall be treated as “misreporting of income” u/s. 270A(9).

*2. Is it essential to say in assessment order whether an under-reported income is eligible for penalty u/s. 270A(2) or 270A(9) ?

The said question are often understood with regard to section 270AA – Immunity from imposition of penalty. As per said section, an assessee may make an application to the AO to grant immunity from imposition of penalty u/s. 270A and initiation of prosecution u/s. 276A / 276CC, if he fulfils certain conditions as mentioned in sub-section (1). As per sub-section (2), such application has got to be made by the assessee within one month from the date of receiving the assessment order.

On receipt of such application, the AO has an authority under sub-section (3) to grant imposition of penalty subject to certain conditions where one among the condition is that the proceedings for penalty haven't been initiated u/s. 270A(9) i.e. for misreporting of income.

This sub-section (3) to section 270A implies that the assessee cannot make an application for immunity from imposition of penalty where the penalty has been initiated for “misreporting of income” u/s. 270A(9). Therefore, it are often said that the assessment order has got to specifically mention whether the penalty is initiated u/s. 270A(2) or 270A(9).

*Conclusion :
The AO while initiating penalty within the assessment order has got to specifically mentioned whether a penalty is being levied for “under-reporting u/s. 270A(2)” or “misreporting of income u/s. 270A(9)”.Non specifying of the bottom will create a confusion within the mind of the assessee whether the assessee is eligible for application of immunity u/s. 270AA or not. Thus, not scoring out of inapplicable ground would end in settled legal principles of distinction between the 2 expressions has been disregarded. Recently, the Apex Court within the case of latest Delhi Television Ltd. v. DCIT bearing Civil Appeal no. 1008 of 2020, order dt. 03/04/2020 while deciding the difficulty concerning section 148 held that “the assessee couldn't be taken all of sudden at the stage of rejection of its obligations or at the stage of proceedings before the supreme court that the notice is to be treated as notice invoking provisions of section proviso of section 147 of the Act”. The said decision hold good while deciding the appliance for immunity u/s. 270AA where the assessee shouldn't be surprised that the appliance is rejected because the penalty initiated in assessment order was for “misreporting of income u/s. 270A(9)” and not for “under-reporting of income u/s. 270A(2)”. Thus, it are often stated that it's mandatory for the AO to specifically mention the character of penalty i.e. whether an under-reported income is responsible for penalty u/s. 270A(2) or 270A(9) within the assessment order itself.