ITAT Bangalore: No Section 270A Penalty When Reassessment Accepts Returned Income Without Addition — Karnataka Sheep And Wool Development Corporation Limited Vs ACIT
Overview of the Judgment
The Income Tax Appellate Tribunal, Bangalore Bench, rendered a significant ruling in the matter of Karnataka Sheep And Wool Development Corporation Limited Vs ACIT (ITAT Bangalore), quashing a penalty of INR 18,53,214 imposed under Section 270A of the Income Tax Act, 1961 for alleged under-reporting of income pertaining to Assessment Year 2019-20. The Tribunal's reasoning rested on the applicability of Section 270A(6)(a) and the factual position that the Assessing Officer had ultimately accepted the returned income without making any addition or disallowance during reassessment proceedings.
Background and Profile of the Assessee
Karnataka Sheep And Wool Development Corporation Limited is a company incorporated under the Companies Act, 1956. Its core activities include promotion and scientific development of indigenous and exotic breeds of sheep and goats. Crucially, all subscribers to its Memorandum of Association are representatives of the Government of Karnataka holding shares on behalf of the Governor, making it a Government Company in the fullest sense.
This status as a Government Company carries distinct statutory obligations under the Companies Act, 2013, particularly with respect to audit — a factor that became central to the Tribunal's analysis in this case.
Sequence of Events Leading to Penalty
Non-Filing of Original Return
The assessee did not file its original return of income under Section 139(1) of the Income Tax Act, 1961 for Assessment Year 2019-20.
Revenue's Intelligence and Section 148A Proceedings
The Revenue department gathered information indicating that the assessee had:
- Made a time deposit of INR 1,00,78,632 in State Bank of India
- Earned interest income of INR 81,39,683 from State Bank of India under
Section 194A - Earned interest income of INR 3,66,840 from IDBI Bank Ltd.
Based on this information, proceedings under Section 148A were initiated and concluded, following which a notice under Section 148 was issued on 22/03/2023.
Return Filed Pursuant to Reassessment Notice
In response to the notice under Section 148, the assessee filed its return of income on 20/04/2023, declaring a total income of INR 1,11,02,410.
Assessee's Explanation During Assessment
Source of Time Deposits
During the reassessment proceedings, the assessee demonstrated through bank statements that the time deposits made in State Bank of India originated from grants received from the Government of Karnataka. The Assessing Officer, satisfied with this explanation, drew no adverse inference.
Treatment of Interest Income
With respect to interest income, the assessee's position before the AO was as follows:
- Total interest earned during the year: INR 85,06,523 (INR 81,39,683 from SBI + INR 3,66,840 from IDBI Bank Ltd.)
- Net interest disclosed in the return: INR 38,12,551 (i.e., INR 85,06,523 less INR 46,93,972)
- Deduction claimed: INR 46,93,972, being interest amounts remitted back to the Government of Karnataka as per its circular dated 27.08.2019
In support of this claim, the assessee furnished:
- Bank interest repayment letter
- Copy of the challan
- Bank statements reflecting the interest repaid
- Computation of income
- Government of Karnataka circular dated 27.08.2019 regarding remittance of FD interest