A deduction for prior-year unpaid liabilities is allowed under Section 43B, but only to the extent that the assessee can furnish concrete proof of payment.

By | October 17, 2025
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A deduction for prior-year unpaid liabilities is allowed under Section 43B, but only to the extent that the assessee can furnish concrete proof of payment.

Issue

Is an assessee entitled to claim a deduction under Section 43B for statutory liabilities (like Service Tax, TDS, PF) that were disallowed in a previous assessment year, and what is the extent of proof required to substantiate such a claim?

Facts

  • For the Assessment Year 2018-19, the assessee claimed a deduction of approximately ₹4.10 crores.
  • The claim was for liabilities that had been disallowed in the previous year (AY 2017-18) under Section 43B because they had not been paid by the due date of the return.
  • The assessee contended that these liabilities were paid during the Financial Year 2017-18, making them eligible for deduction in AY 2018-19.
  • The Assessing Officer (AO) disallowed the entire claim.
  • In the appeal, the assessee successfully furnished evidence (ledger accounts, payment challans, bank confirmations) for the payment of Service Tax (~₹1.40 crores) and TDS (~₹1.66 crores).
  • However, it could not produce records for the remaining ₹1.03 crores.

Decision

  • The court ruled partly in favour of the assessee.
  • It held that the deduction was allowable for the amounts of Service Tax and TDS for which concrete proof of payment was provided.
  • The addition for the balance amount of ₹1.03 crores, for which no evidence was furnished, was sustained.

Key Takeaways

  • Burden of Proof is on the Assessee: The core principle of Section 43B is “deduction on actual payment.” The onus is entirely on the taxpayer to prove that the payment was made, and this proof must be documentary (e.g., challans, bank statements).
  • Partial Relief for Partial Proof: The outcome is directly proportional to the evidence provided. If proof is submitted for only a part of the claim, relief will be granted only for that part.
  • Documentation is Non-Negotiable: A mere claim in the return or books of account is insufficient. The deduction is contingent upon verifiable, third-party proof of payment to the government exchequer.

A Section 270A penalty notice is valid if the assessment order clearly specifies the charge, even if the notice itself is in a standard format.

Issue

Can a show-cause notice for penalty under Section 270A be considered vague and invalid if the assessee alleges it does not clearly specify the limb under which the penalty is being proposed?

Facts

  • Following the assessment, the AO initiated a penalty under Section 270A and issued a show-cause notice.
  • The AO had specifically recorded in the assessment order that the penalty was being initiated for “under-reporting of income as a consequence of misreporting of income.”
  • The assessee argued that the notice itself was vague and therefore invalid.

Decision

  • The court ruled in favour of the revenue.
  • It held that the assessee’s argument was without merit because the AO had already recorded a clear and specific satisfaction in the assessment order for initiating the penalty under a particular limb.
  • This prior recording of satisfaction was sufficient to inform the assessee of the precise charge against them.

Key Takeaways

  • Focus on the Record: The validity of a penalty proceeding is determined not just by the notice but by the entire record. If the assessment order clearly specifies the grounds for the penalty, a standard-form notice may not be considered defective.
  • Clarity of Charge is Key: The principle of natural justice requires that the assessee must know the exact charge they have to defend. In this case, the court found that the assessment order fulfilled this requirement.
  • Distinction from Older Law: This ruling contrasts with many judgments under the old penalty regime (Section 271(1)(c)), where striking off the irrelevant limb on the notice itself was often held to be mandatory.

A penalty levied under Section 270A must be recomputed if the underlying quantum addition is reduced in appeal.

Issue

What is the consequential effect on a penalty order levied under Section 270A when the quantum addition, which formed the basis of the penalty, is partly deleted by an appellate authority?

Facts

  • The AO had imposed a penalty under Section 270A based on the entire disallowance of ₹4.10 crores made under Section 43B.
  • In the quantum appeal proceedings (as detailed in Part I), this addition was partly deleted upon the assessee furnishing proof of payment for a majority of the disallowed amount.
  • The penalty, however, remained based on the original, larger addition.

Decision

  • The court held that since the quantum addition had been partly allowed, the penalty order required modification.
  • The matter was remanded back to the Assessing Officer with a specific direction to recompute and modify the penalty in line with the final, reduced quantum addition.

Key Takeaways

  • Penalty is Consequential: The levy of a penalty is entirely dependent on the sustenance of the underlying quantum addition. There can be no penalty without a corresponding addition to income.
  • Automatic Modification: If a quantum addition is reduced or deleted at any appellate stage, the penalty associated with that addition must be correspondingly reduced or deleted. This is a fundamental principle of tax law.
IN THE ITAT HYDERABAD BENCH ‘B’
Magnaquest Technologies Ltd.
v.
Deputy Commissioner of Income-tax
VIJAY PAL RAO, Vice President
and Manjunatha G., Accountant Member
IT Appeal Nos.736 and 743 (Hyd.) of 2025
[Assessment year 2018-2019]
SEPTEMBER  24, 2025
G. Srinivasa Rao, CA for the Appellant. Dr. Sachin Kumar, Sr. AR for the Respondent.
ORDER
Manjunatha G., Accountant Member.- The above appeals are filed by the assessee against the separate Orders both dated 21.02.2025 of the learned CIT(A)-National Faceless Appeal Centre [in short “NFAC”], Delhi, relating to the assessment year 2018-2019. Since common issues are involved in both these appeals, these appeals were heard together and are being disposed of by this single consolidated order for the sake of convenience and brevity.
2. First, we will take-up appeal ITA.No.736/Hyd./2025 of the assessee for the assessment year 20182019 as “lead” appeal, in which, the assessee had pleaded the following grounds :
1. “That on the facts and circumstances of the case and in law, the impugned assessment order dated 27-04-2021 passed u/s 143(3) r.w.s 144B of the Act is bad-in-law as the same was passed without issuing a show-cause notice cum draft assessment order as mandated u/s 144B(xvi)(b) of the Act and hence the impugned assessment order is liable to be quashed.
2. That on the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi erred in not allowing the deduction claimed by the appellant u/s 438 of the Act to the extent of Rs.1,66,44,340/- being the TDS payments pertaining to AY 201718 made by the appellant during the AY 2018-19 using the internet banking facility by opining that the TDS challans submitted by the appellant did not contain the stamp and signature of the Bank the same cannot accepted as genuine.
3. That on the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi erred in not allowing the deduction claimed by the appellant u/s 438 of the Act to the extent of Rs.1,40,23,520/- being the old outstanding Service tax payments made by the appellant during the AY 2018-19 using the internet banking facility by opining that as the Service tax payment challans submitted by the appellant did not contain the stamp and signature of Bank the same cannot accepted as genuine.
4. That on the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi erred in passing the impugned appellate order u/s 250 of the Act dt. 21-02-2025 without giving the adequate opportunity to the appellant to submit the signed and stamped challans and confirmation letter from the bank if in the opinion the CIT(A), NFAC the same is mandatorily to be submitted by the appellant to consider the said challans as genuine.
5. The appellant craves leave to add/alter/modify the grounds of appeal as may be required for proper adjudication of the case.”
3. Brief facts of the case are that, the appellant company is a limited company and for the assessment year 2018-2019, it had filed it’s return of income on 30.11.2018 by disclosing a loss of Rs.1,76,94,705/-. The case was selected for scrutiny and notice u/sec.143(2) of the Income Tax Act, 1961 [in short “the Act”] dated 22.09.2019 was issued and served on the assessee. During the course of assessment proceedings, the Assessing Officer noticed that, the assessee has claimed an amount of Rs.4,10,61,665/- as any other amount allowable as deduction in Schedule-BP of ITR-6 filed for the assessment year under consideration. The Assessing Officer vide notice issued u/sec.142(1) of the Act, dated 25.02.2021 called-upon the assessee to provide complete details of the deduction claimed with documentary evidences and a detailed note on the same. In response, the assessee filed details as Annexure, which had already been filed along with the computation of income. The Assessing Officer after considering the relevant submissions of the assessee observed that, the assessee has nothing to say to explain the amount of deduction claimed under ScheduleBP of ITR-6 amounting to Rs.4,10,61,665/- and thus, made addition of Rs.4,10,61,665/- to the total income of the assessee.
4. Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee claimed that, during the financial year 2016-2017 relevant to assessment year 2017-2018, the appellant has not paid various liabilities in terms of sec.43B of the Act on or before the due date for filing the return of income u/sec.139(1) of the Act and consequently, disallowed an amount of Rs.4,87,72,674/- in the statement of total income and reported in ITR Form filed for the assessment year 2017-2018. Further, out of amount disallowed for the assessment year 2017-2018, the appellant has paid an amount of Rs.4,10,61,665/- during the financial year 2017-2018 relevant to the assessment year 2018-2019 and claimed deduction in terms of sec.43B of the Act, in the ITR, in which, the said deduction has been made and accordingly claimed deduction under any other amount allowable as deduction in Schedule-BP. Out of the total amount, the appellant has filed relevant details including details of payment of service tax for Rs.1,40,23,520/- and towards TDS of Rs.1,66,44,340/- and the remaining amount of unpaid liabilities towards professional tax, PF and sales tax, the appellant could not file relevant evidences. However, the Assessing Officer without considering the relevant evidences filed by the assessee, has simply disallowed the amount and added back to the total income of the assessee.
4.1. The learned CIT(A) after considering the relevant submissions of the assessee and also taking note of relevant reasons given by the Assessing Officer for disallowance of any other amount allowable as deduction in Schedule-BP of ITR-6 observed that, although, the appellant has furnished certain challans for payment of service tax, and TDS through Bank of Baroda, but, failed to file relevant confirmation from the Bank of Baroda. Further, the assessee would have taken stamp and signature of the Bank /Banking Officials along with confirmation letter from Bank of Baroda before submission of the assessee, which the assessee has failed to do so and which would confirm that, the details submitted by the assessee are not genuine. Therefore, observed that, since the assessee has failed to file complete details about total disallowance including towards payment of PF, sales tax and professional tax, the details submitted by the assessee towards payment of service tax and TDS cannot be accepted. Thus, rejected the arguments of the assessee and sustained the additions made by the Assessing Officer towards disallowance of any other amount allowable as deduction in Schedule-BP of ITR-6 for Rs.4,10,61,665/-. The relevant findings of the learned CIT(A) are as under :
“5.1. On going through the submission of the assessee it can be seen that the assessee during the assessment proceedings was provided a number of opportunities for submitting the details regarding the deduction claimed of Rs.4,10,61,665/- as deduction in schedule BP of ITR. However, the assessee failed to comply to the said notice. In view of this fact, the addition of Rs.4,10,61,665/- was made to the total income of the assessee during the assessment proceedings. Further, penalty proceedings u/s.270A of the Act were being initiated and show-cause notice u/s.274 r.w.s. 270A of the Act was issued upon the assessee on 24.04.2021 there by informing the assessee as to why the penalty should not be imposed, for which the assessee failed to respond. In this respect as per the submission of the assessee, it is stated that due to ill health of the Accountant and the accountant of the company was absent for a long period as he was suffering from Covid along with his family members. However, the onus of submitting the information as called for vide the notices is upon the assessee and not on the accountant. Therefore it can be very well presumed that the assessee is just making a story to cover the default caused for non-compliance to the statutory notices issued.
5.2. On further verification of the submission of the assessee it has been stated that the assessee had paid taxes on the amount of Rs.4,10,61,665/- which pertained to financial year 2016-17, and the claim of the assessee of Rs.3,06,67,860/-should be considered and allowed due to details furnished by the assessee, However, the details submitted by the assessee are presumed to be not genuine in nature as the documents submitted by the assessee are not fully complied and the genuineness of the documents cannot be accepted. Further the assessee has stated that the remaining payment of Rs.1,03,93,805/- (i.e. Rs.4,10,61,665/-minus Rs.3,06,67,860/-) the supporting evidences cannot be given as the same have been misplaced by the old accountant who had not handed over the accounts and has left the organization is not acceptable. As it was the onus of the assessee to submit the requisite documentary evidences in support of its claim for claiming deduction, which the assessee failed to do so during the assessment as well as during the appellate proceedings. Therefore, it can be seen that the assessee-company is only making a story to cover up the inability to comply to the notices issued and failure to submit the requisite documentary evidences along with genuineness of the same.
5.3. Further, the assessee during the appellate proceedings vide its submission has stated that the amount of Rs.4,10,61,665/- pertained to A.Y. 2017-18 which was disallowed u/s.43B(1)(B)(b) of the act on non-payment of said amounts before the filing of return of income for the A.Y 2017-18 and the said amount were paid during the year under consideration and are eligible for deduction. However, on going through the submission of the assessee, it can be seen that the assessee has stated that the deductions are genuine and are allowable as the same were being paid during the F.Y.2017-18 corresponding to the year under consideration. However, it can be seen that the assessee during the appellate proceedings has stated that due to unavoidable conditions the assessee was not able to provide all the details with regard to deduction u/s.43B of the Act. However, the assesse stated that the details with regard to payment of Rs.45,39,635/- on account of provident fund against the disallowance of Rs.48,05.151/-. It can be seen from the submission of the assessee that the assessee has provided the chart of provident fund paid amounting to Rs.48,05,151/-, however, it can be seen that the assessee was required to submit the statement from the provident fund office which could prove the genuineness of the seen that the assessee has submitted the details of service tax payment made, TDS challans paid by the company are pertaining to Bank of Baroda. However, on going through the details it can be seen that the details submitted are without any confirmation from the Bank of Baroda. The assessee would have taken the stamp and signature of the Bank/ bank officials along with confirmation letter from Bank of Baroda before submission of the same, which the assessee failed to do so and which would confirm that the details submitted by the assessee are genuine. In view of this fact, I do not find any excuse to take a divergent view from the findings of the AO and thereby reject the contention of the assessee and upheld the findings of the AO. In view of this fact the Ground of appeal raised by the assessee vide Nos.1 to 4 are hereby dismissed.”
5. Aggrieved by the order of the learned CIT(A), the assessee is now, in appeal before the Tribunal.
6. CA, G Srinivasa Rao, Learned Counsel for the Assessee submitted that, the learned CIT(A) was erred in not allowing deduction claimed by the appellant u/sec.43B of the Act to the extent of Rs.1,66,44,340/- towards TDS payments pertaining to assessment year 2017-2018, even though, the assessee has filed relevant challans for payment of TDS, as per which, the challans clearly shows payment for the assessment year 2017-2018. Learned Counsel for the Assessee further submitted that, the learned CIT(A) was erred in not allowing deduction towards service tax payment in terms of sec.43B of the Act to the extent of Rs.1,40,23,520/-, even though, the assessee has furnished relevant evidences including challans only on the ground that, the challans furnished by the assessee are not confirmed by the Bank with their signature and seal. Learned Counsel for the Assessee further referring to various challans submitted that, once payment has been made through Bank A/c, the challans will be automatically generated, for which, there is no requirement of any signature and seal of the Bank Officials. Further, although, the assessee is not required to obtain seal and signature on the challans, but, the assessee to prove the genuineness of the said challans, has obtained Certificate from the Bank of Baroda, Begumpet Branch, Hyderabad, in respect of payment of service tax and TDS, as per which, the Bank has certified payment of service tax to the extent of Rs.1,40,23,520/- and TDS payment to the extent of Rs.1,66,44,340/. Since, the appellant has substantiated payments of TDS and service tax, the additions made by the Assessing Officer towards disallowance of TDS and service tax, should be deleted. Learned Counsel for the Assessee further submitted that, in respect of remaining liabilities of TDS and service tax and also professional tax, PF and sales tax, the appellant could not trace-out relevant records and, therefore, conceded that, the additions made by the Assessing Officer towards unsubstantiated payments may be sustained.
7. Dr. Sachin Kumar, learned Sr. AR for the Revenue, on the other hand, supporting the order of the learned CIT(A) submitted that, the assessee could not reconcile the deductions claimed towards any other amount allowable as deduction in Schedule-BP of ITR with relevant challans either before the Assessing Officer or before the learned CIT(A). Further, although, the assessee has furnished certain evidences like challans, but, in absence of Certificate from the Bank, the authenticity and genuineness of the challans cannot be accepted. Further, payment of service tax and TDS pertains to assessment year 2017-2018 can be traced to the challans along with relevant returns filed with the Authorities. Since, the appellant failed to file relevant return filed before the Authorities along with relevant challans to confirm the payment of TDS and service tax, the mere submission of challans with Certificate from the Bank cannot be accepted. The Assessing Officer and the learned CIT(A) after considering the relevant facts, has rightly disallowed the amount claimed as deduction in Schedule-BP of ITR and the same should be confirmed. The Learned Sr. AR further submitted that, in so far as the payments of sales tax, PF and professional tax and remaining part of TDS and service tax, the appellant could not file any details. The Learned Counsel for the Assessee conceded the additions and thus, the same may be sustained.
8. We have heard both the parties, perused the material on record and the orders of the authorities below. The Assessing Officer made addition of Rs.4,10,61,665/-towards claim of any other amount allowable as deduction in Schedule-BP of ITR-6 filed for the assessment year 20182019 which pertains to deduction towards disallowance of unpaid liabilities in terms of sec.43B of the Act in earlier assessment year and paid during the financial year relevant to assessment year under consideration. The Assessing Officer disallowed any other amount allowable as deduction in Schedule-BP of ITR on the ground that, the appellant could not file relevant evidences to prove the claim of unpaid liabilities for the year under consideration. The amount disallowed by the Assessing Officer includes disallowance of PF, sales tax and TDS u/sec.43B of the Act for the assessment year 2017-2018 and claimed as deduction for the assessment year under consideration upon payment of said liabilities in the financial year 20172018 relevant to assessment year 2018-2019. The Counsel for the Assessee furnished relevant ledger account of service tax payable in the books of accounts of the assessee along with challans of payment of service tax in the financial year 2017-2018. As per the evidences filed by the assessee, the amount outstanding as on 01.04.2017 was at Rs.1,78,69,351/- which was the same amount disallowed in assessment year 2017-2018. Further, out of the opening balance of Rs.1,78,69,351/-, the appellant has made payment of Rs.1,40,23,520/- during the financial year 2017-2018 relevant to assessment year 2018-2019 which is evident from service tax paid challans and confirmation letter issued by the Bank of Baroda along with relevant payments indicating payment to CBEC towards service tax. From the details furnished by the assessee, it is undisputed fact that, out of the amount disallowed for Rs.1,78,69,351/-in assessment year 2017-2018, the appellant has paid a sum of Rs.1,40,23,520/- for the year under consideration and, therefore, in our considered view, the amount paid during the financial year relevant assessment year under consideration is allowable as deduction in terms of sec.43B of the Income Tax Act, 1961 under the Head “Any Other Amount Allowable as Deduction in Schedule-BP of ITR-6”. This fact is further supported by the ITR-6 filed for the assessment year 2017-2018 along with relevant Audit Report filed in Form-3CA and Form-3CD, where the appellant has made disallowance towards unpaid liabilities for the assessment year 2017-2018. Since, the appellant has disallowed unpaid liabilities towards service tax for the assessment year 2017-2018, in our considered view, when the said unpaid liability has been paid during the financial year 2017-2018 relevant to assessment year 2018-2019, the same should be allowed as deduction. Thus, we are of the considered view that, the Assessing Officer was erred in making disallowance of any other amount allowable as deduction in Schedule-BP towards service tax. Thus, we direct the Assessing Officer to delete service tax payment of Rs.1,40,23,520/- out of total disallowance of Rs.4,10,61,665/-.
9. Coming back to payment of TDS. Admittedly, for the assessment year 2017-2018, the appellant has disallowed TDS amount of Rs.1,74,02,356/- towards amount incurred in the previous year relevant to the assessment year and was not paid on or before the due date for filing return of income and the same has been reported in ITR-6 filed for the assessment year 2017-2018 in clause-23 under “any other item or items of additions u/sec.28 to 44DA of the Income Tax Act, 1961” which covers disallowance of unpaid liabilities u/sec.43B of the Act. During the financial year 2017-2018 relevant to assessment year 2018-2019, the appellant has paid TDS amount of Rs.1,66,44,350/-. The appellant has furnished relevant challans for payment of TDS u/sec.92B, 94I and 94J which pertains to payment of TDS towards salaries, rent and professional charges. Further, the appellant has also furnished a confirmation from Bank of Baroda indicating payment through Bank of Baroda to CBDT account towards TDS liabilities. From the details filed by the assessee, we find that, the appellant has furnished sufficient evidence in the form of ledger account of TDS appearing in the books of accounts of the assessee as on 01.04.2017 towards proof of payment of TDS pertains to assessment year 2017-2018 and confirmation from the Bank indicating payment to CBDT. Although, the learned CIT(A) has accepted that, the assessee has furnished relevant challans, but, confirmed the additions only on the ground that, confirmation from the Bank was not furnished. Since, the appellant has furnished confirmation from the Bank along with challans for payment of TDS, in our considered view, the deduction claimed by the assessee under any other amount allowable as deduction in Schedule-BP of ITR-6 towards unpaid liabilities for the assessment year 2017-2018, upon payment for the financial year 2017-2018 relevant to assessment year 2018-2019 should be allowed. Further, deduction claimed u/sec.43B of the Act is supported by necessary ITR-6 filed for the assessment year under consideration and tax audit report issued by the Auditor, where the amount has been certified. Therefore, we are of the considered view that, the Assessing Officer is erred in disallowing a sum of Rs.1,66,44,340/- towards any other amount allowable as deduction in Schedule-BP of ITR and thus, we direct the Assessing Officer to delete the addition of Rs.1,66,44,340/- towards TDS, out of total disallowances of Rs.4,10,61,665/-.
10. In so far as balance amount of Rs.1,03,93,805/-which includes part of TDS liability and part of service tax liability along with unpaid liability towards professional tax, PF and sales tax, the appellant could not furnish relevant evidences including challans for payment to claim deduction u/sec.43B of the Act under any other amount allowable as deduction in Schedule-BP. Since, the appellant failed to file relevant evidences, in our considered view, the addition made by the Assessing Officer towards unpaid liability to the extent of Rs.1,03,93,805/- out of total disallowance of Rs.4,10,61,665/- should be sustained. Thus, we sustain balance amount of Rs.1,03,93,805/-.
11. To sum-up, out of total disallowance made by the Assessing Officer of Rs.4,10,61,665/-, the assessee gets relief of Rs.3,06,67,860/- and the balance amount of Rs.1,03,93,805/- is sustained.
12. In the result, appeal of the Assessee partly allowed.
ITA.No.743/Hyd./2025 – A.Y. 2018-2019 :
13. The assessee has raised the following grounds in the instant appeal :
1. “That on the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi has erred in passing the impugned non-speaking appellate order u/sec.250 of the Act dated 21.02.2025 without applying his mind to the legal grounds raised by the appellant which goes to the root of the matter and hence the impugned appellate order is bad-in-law and is liable to be quashed.
2. That on the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi has erred in not quashing the penalty order passed by the Assessing Officer u/s 270A of the Act dt.25.02.2022 as the AO failed to mention either in the assessment order or in the show cause notice issued for initiation of penalty proceedings, the specific limb in the sub-sections of section 270A under which the penalty proceedings are initiated in the appellant case and hence the penalty order passed by AO u/s 270A is liable to be quashed.
3. That on the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi has erred in not appreciating the position of law that as the quantum appeal is non-est due to nonissuance of show-cause notice cum draft assessment order before finalizing the assessment, the penalty order passed based on the non-est quantum order is also bad-in-law and is liable to be quashed.
Without prejudice to the above legal grounds raised, the appellant is hereby taking following grounds based on the merits of the case
4. That on the facts and circumstances of the case and in law, the Learned Assessing Officer has erred in making the calculation of quantum of penalty imposable u/sec.270A of Act and hence the penalty imposed of Rs.2,56,22,480/- is liable to be deleted.
5. The appellant craves leave to add/alter/modify the grounds of appeal as may be required for proper adjudication of the case.”
14. Brief facts of the case are that, the assessee filed return of income for the assessment year 2018-2019 on 30.11.2018 declaring Rs. NIL income after claiming current loss of Rs.1,76,94,705/-. The case was selected for scrutiny and assessment was completed u/sec.143(3) r.w.s.144B of the Income Tax Act, 1961 on 27.04.2021 and assessed total income at Rs.2,33,66,960/- by making additions of Rs.4,10,61,665/- towards any other amount allowable as deduction in Schedule-BP of ITR. The Assessing Officer initiated penalty proceedings u/sec.270A of the Income Tax Act, 1961 for under-reporting of income as a consequence of misreporting of income. A show cause notice u/sec.274 r.w.s.270A of the Income Tax Act, 1961, dated 27.04.2021 was issued. During the penalty proceedings, the Assessing Officer has provided various opportunities from time to time, but, the assessee did not furnish any justifiable explanation for additions made by the Assessing Officer towards any other amount allowable as deduction in Schedule-BP of ITR. Therefore, the Assessing Officer after considering the relevant facts, levied penalty of Rs.2,56,22,480/- @ 200% of tax payable on under-reported income towards under-reporting of income as a consequence of misreporting of income u/sec.270A(8) of the Income Tax Act, 1961.
15. Aggrieved by the penalty order, the assessee preferred appeal before the learned CIT(A). Before the learned CIT(A), the assessee challenged the penalty levied by the Assessing Officer towards disallowance under ‘any other amount allowable as deduction in Schedule-BP of ITR’ on the ground that, the assessee has claimed deduction towards unpaid liability for assessment year 2017-2018 upon payment of said liabilities during the financial year 2017-2018 relevant to assessment year 2018-2019. Therefore, the Assessing Officer was erred in levying penalty for under-reporting of income as a consequence of misreporting of income. The learned CIT(A) after considering the relevant submissions of the assessee and also taking note of reasons given by the Assessing Officer for levy of penalty, sustained the penalty levied by the Assessing Officer on the ground that, the assessee is unable to explain to the show cause notice issued by the Assessing Officer proposing levy of penalty for under-reporting of income as a consequence of misreporting of income and thus, there is no error in the reasons given by the Assessing Officer to levy penalty u/sec.270A(8) of the Income Tax Act, 1961. The relevant findings of the learned CIT(A) are as under :
“5.1. On going through the submission of the assessee it can be seen that the assessee during the assessment proceedings was provided a number of opportunities for submitting the details regarding the deduction claimed of Rs.4,10,61,665/- as deduction in schedule BP of ITR. However, the assessee failed to comply to the said notice. In view of this fact, the addition of Rs.4,10,61,665/-was made to the total income of the assessee during the assessment proceedings. Further, penalty proceedings u/s 270A of the Act were being initiated and show-cause notice u/s.274 r.w.s. 270A of the Act was issued upon the assessee on 24.04.2021 there by informing the assessee as to why the penalty should not be imposed, for which the assessee failed to respond. In this respect as per the submission of the assessee, it is stated that due to ill health of the Accountant and the accountant of the company was absent for a long period as he was suffering from Covid alongwith his family members. However, the onus of submitting the information as called for vide the notices is upon the assessee and not on the accountant. Therefore it can be very well presumed that the assessee is just making a story to cover the default caused for non-compliance to the statutory notices Issued.
5.2. On further verification of the submission of the assessee, it can be seen that the assessee has submitted the details of service tax payment made, however, on going through the same it can be seen that the service tax payment and TDS challans paid by the company are pertaining to Bank of Baroda. However, on going through the details it can be seen that the details submitted are without any confirmation from the Bank of Baroda. The assessee would have taken the stamp. and signature of the Bank/ bank officials alongwith confirmation letter from Bank of Baroda before submission of the same, which the assessee failed to do so and which would confirm that the details submitted by the assessee are genuine. Further, as per the grounds of appeal it is stated by the assessee that no proper opportunity of being heard was given by the AO during the penalty proceedings. However, it can be very well confirmed from the penalty order that the assessee was being provided with a number of show-cause notices and notices u/s.142(1) for which the assessee merely submitted adjournment letter. It was the duty of the assessee to provide the requisite details as called for by the AO during the assessment proceedings, as the assessment proceedings are time bound and are to be completed in a timely manner. Further, it can be noticed that the assessee was being provided with draft penalty order and was asked as to why the penalty u/s 270A of the Act should not be levied in its case, for which the assessee neither replied nor filed any submission Therefore, the claim of the assessee that no opportunity of being heard was given is rejected.
5.3. On further verification of the submission of the assessee it has been stated that the assessee had paid taxes on the amount of Rs.4,10,61,665/- which pertained to financial year 2016-17, and the claim of the assessee of Rs.3,06,67,860/-should be considered and allowed due to details furnished by the assessee. However, the details submitted by the assessee are presumed to be not genuine in nature as the documents submitted by the assessee are not fully complied and the genuineness of the documents cannot be accepted. Further the assessee has stated that the remaining payment of Rs.1,03,93,805/- (i.e. Rs.4,10,61,665/- minus Rs.3,06,67,860/-) the supporting evidences cannot be given as the same have been misplaced by the old accountant who had not handed over the accounts and has left the organization is not acceptable. As it was the onus of the assessee to submit the requisite documentary evidences in support of its claim for claiming deduction, which the assessee failed to do so during the assessment as well as during the appellate proceedings.
Therefore, it can be seen that the assessee-company is only making a story to cover up the inability to comply to the notices issued and failure to submit the requisite documentary evidences along with genuineness of the same. In view of this fact, I do not find any excuse to take a divergent view from the findings of the AO. Therefore, the penalty levied u/s 270A(8) of the Act for the year under consideration amounting to Rs.2,56,22,480/-is hereby confirmed.
5.4. In view of the facts discussed above, the contentions the appellant are rejected and the action of the AO levying penalty of Rs.2,56,22,480/- u/s 270A of the Act is hereby confirmed. Accordingly, Ground Nos.1 to 5 raised by the appellant are hereby dismissed.”
16. CA, G. Srinivasa Rao, Learned Counsel for the Assessee submitted that, the order passed by the Assessing Officer u/sec.270A of the Income Tax Act, 1961, imposing penalty for un-reporting of income as a consequence of misreporting of income is void abinitio and liable to be quashed because, the Assessing Officer has issued a vague show cause notice u/sec.274 r.w.s.270A of the Income Tax Act, 1961 without specifying the sub-clause, under which, the proposed penalty is leviable. Learned Counsel for the Assessee further submitted that, the Assessing Officer was erred in levying penalty u/sec.270A of the Act for the amount of disallowance towards any other amount claimed as deduction in Schedule-BP of ITR, even though, the assessee has filed relevant evidences in support of it’s claim. Therefore, he submitted that, penalty levied by the Assessing Officer should be deleted. In the alternative, Learned Counsel for the Assessee submitted that, in case, penalty is leviable, then, the penalty to the extent of unproved liability alone can be sustained, but, not to the total disallowance made by the Assessing Officer. Therefore, he submitted that, suitable direction may be given to the Assessing Officer to modify the order passed u/sec.270A of the Income Tax Act, 1961.
17. Dr. Sachin Kumar, learned Sr. AR for the Revenue, on the other hand, supporting the order of the learned CIT(A) submitted that, there is no merit in the arguments of the Counsel for the Assessee on the issue of invalid notice and consequent penalty proceedings because, from the assessment order, it is clearly legible that, the Assessing Officer has initiated penalty proceedings u/sec.270A of the Act for under-reporting of income as a consequence of misreporting of income and followed by issue of show cause notice on very same ground, which is evident from the show cause notice issued by the Assessing Officer dated 27.04.2021 and further followed by the Order u/sec.270A of the Income Tax Act, 1961 dated 25.02.2022 where the penalty has been levied for under-reporting of income as a consequence of misreporting of income. Therefore, the grounds of appeal of assessee should be rejected. The learned Sr. AR further submitted that, the Assessing Officer has rightly levied the penalty for underreporting of income as a consequence of misreporting of income because, the appellant could not substantiate the claim of deduction towards any other amount allowable as deduction in Schedule-BP of ITR with relevant evidences. Therefore, he submitted that, the penalty levied by the Assessing Officer and confirmed by the learned CIT(A) should be sustained.
18. We have heard both the parties, perused the material on record and the orders of the authorities below. In so far as the arguments of the Counsel for the Assessee on the issue of show cause notice issued u/sec.274 r.w.s.270A of the Income Tax Act, 1961, dated 27.04.2021, in our considered view, there is no merit in the arguments of the Counsel for the Assessee for the simple reason that, the Assessing Officer clearly recorded the satisfaction before initiation of penalty proceedings in the assessment order itself where the penalty proceedings u/sec.270A of the Act are initiated for under-reporting of income as a consequence of misreporting of income. This is followed by issuance of show cause notice u/sec.274 r.w.s.270A of the Act, dated 27.04.2021 where the penalty proceedings has been initiated for under-reporting income which is in consequence of misreporting of income thereof. This is further followed by Order u/sec.270A of the Income Tax Act, 1961, dated 25.02.2022, where the Assessing Officer has levied penalty for under-reporting of income as a consequence of misreporting of income. Since, the Assessing Officer has specifically recorded satisfaction and initiated penalty proceedings for under-reporting of income as a consequence of misreporting of income, in our considered view, the arguments advanced by the Learned Counsel for the Assessee in light of certain judicial precedents is devoid of merit and cannot be accepted. Thus, we reject legal ground taken by the assessee.
19. Coming back to penalty levied by the Assessing Officer. The Assessing Officer levied penalty of Rs.2,56,22,480/- u/sec.270A of the Income Tax Act, 1961 towards addition made on account of disallowance of Rs.4,10,61,665/- towards any other amount allowable as deduction in Schedule-BP. This issue has been dealt by us in ITA.No.743/Hyd./2025 for the assessment year 20182019, where the issue has been discussed and after careful consideration of relevant evidences filed by the assessee, relief has been given to the assessee for Rs.3,06,67,860/-,out of additions made by the Assessing Officer for Rs.4,10,61,665/-.
20. In so far as balance amount of addition of Rs.1,03,93,805/-, the Counsel for the Assessee has conceded the issue and, therefore, the addition made by the Assessing Officer to the extent of Rs.1,03,93,805/- has been sustained. Since the addition made by the Assessing Officer towards any other amount allowable as deduction in Schedule-BP has been partly allowed and relief has been given to the assessee, in our considered view, the penalty proceedings initiated u/sec.270A of the Income Tax Act, 1961, should be modified by the Assessing Officer after giving effect to the order passed in ITA.No.743/Hyd./2025 on the issue of additions made by the Assessing Officer for Rs.4,10,61,665/- towards any other amount allowable as deduction in Schedule-BP of ITR. Thus, we set-aside the Order of the learned CIT(A) and restore the issue back to the file of Assessing Officer with a direction to modify the penalty order passed u/sec.270A of the Income Tax Act, 1961. The Assessing Officer after giving effect to the Order passed in ITA.No.743/ Hyd./2025 for the assessment year 2018-2019 on the issue of additions made by the Assessing Officer towards any other amount allowable as deduction in Schedule-BP for Rs.4,10,61,665/- and relief granted for Rs.3,06,67,860/- as per the observations made in the preceding paragraph nos.8 to 11 and by sustaining the balance amount of Rs.1,03,93,805/- which has been unsubstantiated by the assessee towards part of TDS liability and part of service tax liability along with unpaid liability towards professional tax, PF and sales tax.
21. In the result, ITA.No.736/Hyd./2025 of the Assessee is partly allowed for statistical purposes.
22. To sum-up, ITA.No.743/Hyd./2025 of the Assessee is partly allowed and ITA.No.736/Hyd./2025 partly allowed for statistical purposes. A copy of this common order be placed in the respective case files.