The concepts of 'underreporting of income' and 'misreporting of income' are two different charges with very clear boundaries. Sec. 270A(2) of the Income Tax Act deals with the concept of 'underreporting of income,' and for this, a 50% penalty is provided. Section 270A(9) deals with the concept of 'misreporting of income,' and for this, a 200% penalty is provided. Therefore, 'underreporting of income' and 'misreporting of income' shall not be used interchangeably nor are they synonymous, but each operates under strict definitions and does not overlap each other. The AO, before initiating penalty proceedings, should specifically arrive at satisfaction to the effect that, for which charge, he has initiated penalty Sec. 270A of the Act.
In case of 'misreporting of income,' the specifics of the 6 clauses of Sec 270A(9) should be specified as follows:
(a) misrepresentation or suppression of facts;
(b) failure to record investments in the books of account;
(c) claim of expenditure not substantiated by any evidence;
(d) recording of any false entry in the books of account;
(e) failure to record any receipt in books of account having a bearing on total income; and
(f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.
In case the clause reference is not there, then the notice would be considered as a vague notice, and initiation of penalty u/s. 270A of the Act for 'misreporting of income' would be erroneous, arbitrary, and thus, penalty proceedings cannot be sustained.
This legal position was held in JAYASAKTHI KNIT WEAR Vs THE ITO [2024-VIL-1611-ITAT-CHE], taking a cue from the decision of the Hon'ble Delhi High Court in the case of Prem Brothers Infrastructure LLP. A similar view was upheld by the Hon'ble Supreme Court in the case of CIT v. SSA's Emerald Meadows reported in [2016] 73 taxmann.com 241.
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