PRAGATHI EDUCATION SOCIETY,SECUNDERABAD vs. ITO EXEMPTIONS, WARD 1(3), HYDERABAD

आयकर अपील�य अ�धकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ B ‘ Bench, Hyderabad �ी �वजय पाल राव, उपा� य� एवं �ी मधुसूदन साव�डया, लेखा सद� य के सम� । Before Shri Vijay Pal Rao, Vice-President A N D Shri Madhusudan Sawdia, Accountant Member आ.अपी.सं /ITA No. 2050/Hyd/2026 (िनधा�रण वष�/Assessment Year: 2018-19) Pragathi Education Vs. Income Tax Officer Society, Secunderabad (Exemptions) Ward-1(3) PAN: AAATP2504Q Hyderabad (Appellant) (Respondent) िनधा�रती �ारा/Assessee by: CA T Rajendra Prasad राज� व �ारा/Revenue by: Shri K. Prasad, Sr. AR सुनवाई की तारीख/Date of hearing: 03/09/2026 घोषणा की तारीख/Pronouncement: 18/09/2026 आदेश/ORDER Per Madhusudan Sawdia, A.M.:

This appeal is filed by Pragathi Education Society (“the assessee), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”) dated 04.05.2026 for the A.Y.2018-19. 2. The assessee has raised the following grounds of appeal:

of income for Assessment Year 2018-19 on 16.10.2018 declaring total income at Nil. The gross receipts of the assessee- society were Rs.60,58,977/- and the assessee claimed expenditure of Rs. 1,19,04,769/-. The return of income was processed by the Centralized Processing Center (“CPC”) under section 143(1) of the Act on 03.05.2019, wherein, as against the expenditure of Rs. 1,19,04,769/- claimed by the assessee, expenditure to the extent of Rs. 63,67,087/- was allowed. Thus, expenditure of Rs. 55,37,682/- was not allowed while processing the return under section 143(1) of the Act. Thereafter, the case of the assessee was selected for complete scrutiny and accordingly, notice under section 143(2) of the Act dated 22.09.2019 was issued to the assessee. After considering the submissions of the assessee, the Assessing Officer passed the assessment order under section 143(3) read with sections 143(3A) and 143(3B) of the Act dated 10.03.2021, wherein the expenditure of Rs. 1,19,04,769/- claimed by the assessee was restricted to Rs. 63,67,087/-. Thus, the expenditure of Rs. 55,37,682/-, which had already not been allowed while processing the return under section 143(1) of the Act, continued to remain disallowed in the assessment completed under section 143(3) of the Act. Therefore, there was no further variation in the income assessed under section 143(3) vis-à-vis the income already determined while processing the return under section 143(1) of the Act. 4. Subsequently, the Assessing Officer initiated penalty proceedings under section 270A of the Act in respect of the excess expenditure of Rs. 55,37,682/- claimed by the assessee, being the difference between the expenditure of Rs. 1,19,04,769/- claimed in the return of income and expenditure

of Rs. 63,67,087/- allowed by the Assessing Officer. After considering the submissions of the assessee, the Assessing Officer treated the aforesaid amount of Rs. 55,37,682/- as under-reported income in consequence of misreporting of income and levied penalty of Rs. 35,44,116/- under section 270A(9) of the Act vide order dated 19.02.2022. 5. Aggrieved by the penalty order, the assessee preferred an appeal before the Ld. CIT(A). However, the Ld. CIT(A) upheld the penalty levied by the Assessing Officer. 6. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal. At the outset, the Learned Authorized Representative (“Ld. AR”) submitted that the only issue arising out of the grounds of appeal of the assessee is with regard to the levy of penalty of Rs. 35,44,116/- under section 270A of the Act on account of alleged under- reporting of income in consequence of misreporting. The Ld. AR further submitted that penalty under section 270A, whether for under-reporting of income or for under-reporting of income in consequence of misreporting, cannot be levied unless there exists under-reported income within the meaning of section 270A(2) read with section 270A(3) of the Act. He submitted that in the present case, expenditure of Rs. 55,37,682/- had already been disallowed while processing the return under section 143(1) of the Act and no further disallowance of expenditure or addition to income was made by the Assessing Officer while completing the assessment under section 143(3) of the Act. Therefore, the income assessed under section 143(3) of the Act was not greater than the income determined under section 143(1) of the Act. Accordingly, there was no under-reported

income within the meaning of section 270A of the Act and, in the absence of under-reported income, there could not be any question of such income being treated as under-reported income in consequence of misreporting. He accordingly prayed that the penalty levied by the Assessing Officer be deleted.

(c) the income reassessed is greater than the income assessed or reassessed immediately before such reassessment; (d) the amount of deemed total income assessed or reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income determined in the return processed under clause (a) of sub-section (1) of section 143; (e) the amount of deemed total income assessed as per the provisions of section 115JB or section 115JC is greater than the maximum amount not chargeable to tax, where no return of income has been filed; (f) the amount of deemed total income reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income assessed or reassessed immediately before such reassessment; (g) the income assessed or reassessed has the effect of reducing the loss or converting such loss into income. (3) The amount of under-reported income shall be,— (i) in a case where income has been assessed for the first time,— (a) if return has been furnished, the difference between the amount of income assessed and the amount of income determined under clause (a) of sub-section (1) of section 143; (b) in a case where no return has been furnished,— (A) the amount of income assessed, in the case of a company, firm or local authority; and (B) the difference between the amount of income assessed and the maximum amount not chargeable to tax, in a case not covered in item (A); (ii) in any other case, the difference between the amount of income reassessed or recomputed and the amount of income assessed, reassessed or recomputed in a preceding order: Provided that where under-reported income arises out of determination of deemed total income in accordance with the provisions of section 115JB or section 115JC, the amount of total under-reported income shall be determined in accordance with the following formula— (A — B) + (C — D)

where, A = the total income assessed as per the provisions other than the provisions contained in section 115JB or section 115JC (herein called general provisions); B = the total income that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of under-reported income; C = the total income assessed as per the provisions contained in section 115JB or section 115JC; D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC been reduced by the amount of under-reported income: Provided further that where the amount of under- reported income on any issue is considered both under the provisions contained in section 115JB or section 115JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D. Explanation.—For the purposes of this section,— (a) "preceding order" means an order immediately preceding the order during the course of which the penalty under sub-section (1) has been initiated; (b) in a case where an assessment or reassessment has the effect of reducing the loss declared in the return or converting that loss into income, the amount of under- reported income shall be the difference between the loss claimed and the income or loss, as the case may be, assessed or reassessed. (4) Subject to the provisions of sub-section (6), where the source of any receipt, deposit or investment in any assessment year is claimed to be an amount added to income or deducted while computing loss, as the case may be, in the assessment of such person in any year prior to the assessment year in which such receipt, deposit or investment appears (hereinafter referred to as "preceding year") and no penalty was levied for such preceding year, then, the under-reported income shall include such amount as is sufficient to cover such receipt, deposit or investment. (5) The amount referred to in sub-section (4) shall be deemed to be amount of income under-reported for the preceding year in the following order—

(a) the preceding year immediately before the year in which the receipt, deposit or investment appears, being the first preceding year; and (b) where the amount added or deducted in the first preceding year is not sufficient to cover the receipt, deposit or investment, the year immediately preceding the first preceding year and so on. (6) The under-reported income, for the purposes of this section, shall not include the following, namely:— (a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered; (b) the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom; (c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or disallowance; (d) the amount of under-reported income represented by any addition made in conformity with the arm's length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X, and, disclosed all the material facts relating to the transaction; and (e) the amount of undisclosed income referred to in section 271AAB. (7) The penalty referred to in sub-section (1) shall be a sum equal to fifty per cent of the amount of tax payable on under-reported income. (8) Notwithstanding anything contained in sub-section (6) or sub-section (7), where under-reported income is in consequence of any misreporting thereof by any person, the penalty referred to in sub-section (1) shall be equal to

two hundred per cent of the amount of tax payable on under-reported income. (9) The cases of misreporting of income referred to in sub- section (8) shall be the following, namely:— (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. (10) The tax payable in respect of the under-reported income shall be— (a) where no return of income has been furnished and the income has been assessed for the first time, the amount of tax calculated on the under-reported income as increased by the maximum amount not chargeable to tax as if it were the total income; (b) where the total income determined under clause (a) of sub-section (1) of section 143 or assessed, reassessed or recomputed in a preceding order is a loss, the amount of tax calculated on the under-reported income as if it were the total income; (c) in any other case, determined in accordance with the formula— (X—Y) where, X = the amount of tax calculated on the under-reported income as increased by the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order as if it were the total income; and Y = the amount of tax calculated on the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order.

(11) No addition or disallowance of an amount shall form the basis for imposition of penalty, if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year. (12) The penalty referred to in sub-section (1) shall be imposed, by an order in writing, by the Assessing Officer, the Commissioner (Appeals), the Commissioner or the Principal Commissioner, as the case may be.” 9. On perusal of section 270A of the Act, we find that the foundation for levy of penalty under the said section is the existence of “under-reported income”. Section 270A(1) of the Act empowers the specified income-tax authority to direct payment of penalty by a person who has under-reported his income. Section 270A(2) of the Act specifies the circumstances in which a person shall be considered to have under-reported his income. In a case where a return of income has been furnished and the income is assessed for the first time, section 270A(2)(a) provides that a person shall be considered to have under-reported his income where the income assessed is greater than the income determined in the return processed under section 143(1)(a) of the Act. Further, section 270A(3) provides the mechanism for determination of the amount of under-reported income. In terms of section 270A(3)(i)(a), where income has been assessed for the first time and a return has been furnished, the amount of under-reported income is the difference between the amount of income assessed and the amount of income determined under section 143(1)(a) of the Act. Therefore, for the purpose of determining under-reported income, the statutory comparison is between the income assessed and the income already determined while processing the return under section 143(1)(a), and not merely between the

income returned by the assessee and the income ultimately assessed. 10. We further find that section 270A(8) of the Act provides for a higher penalty where the under-reported income is in consequence of misreporting thereof, while section 270A(9) of the Act enumerates the circumstances which constitute misreporting of income. Thus, the existence of under-reported income is a condition precedent even for invoking the provisions relating to misreporting of income. Unless an amount first qualifies as “under-reported income” within the meaning of section 270A(2) read with section 270A(3), the question of examining whether such under- reporting is in consequence of misreporting within the meaning of section 270A(8) and 270A(9) of the Act does not arise. 11. In the present case, there is no dispute that the assessee had claimed expenditure of Rs. 1,19,04,769/- in its return of income. While processing the return under section 143(1) of the Act, the CPC allowed expenditure only to the extent of Rs. 63,67,087/- and consequently expenditure of Rs. 55,37,682/- was not allowed. Subsequently, while completing the assessment under section 143(3) of the Act, the Assessing Officer also restricted the allowable expenditure to the very same amount of Rs. 63,67,087/-. Thus, the disallowance of Rs. 55,37,682/- made in the assessment under section 143(3) was already embedded in the income determined while processing the return under section 143(1) of the Act. No further disallowance or addition over and above the amount determined under section 143(1) of the Act was made by the Assessing Officer. Therefore, there is no difference between the

income determined under section 143(1) of the Act and the income assessed under section 143(3) of the Act insofar as the impugned amount of Rs. 55,37,682/- is concerned. Consequently, the condition prescribed under section 270A(2)(a) of the Act, namely, that the income assessed should be greater than the income determined under section 143(1)(a) of the Act, is not satisfied. Correspondingly, applying the computation mechanism prescribed under section 270A(3)(i)(a) of the Act, the amount of under-reported income in respect of the impugned disallowance works out to Nil. Once there is no under-reported income within the meaning of section 270A(2) read with section 270A(3) of the Act, there can consequently be no under-reported income in consequence of misreporting so as to attract the provisions of section 270A(8) read with section 270A(9) of the Act. In our considered view, the Assessing Officer has proceeded on an erroneous basis by comparing the expenditure claimed by the assessee in the original return with the expenditure ultimately allowed in the assessment, whereas, for the purposes of section 270A of the Act, the statute specifically requires comparison of the income assessed with the income determined while processing the return under section 143(1)(a) of the Act. Accordingly, in the absence of any under-reported income as contemplated under section 270A(2) read with section 270A(3) of the Act, the very foundation for levy of penalty under section 270A of the Act fails. The provisions relating to misreporting under section 270A(8) and 270A(9) of the Act cannot independently sustain a penalty where there is no under-reported income in the first place. We, therefore, hold that the penalty of Rs. 35,44,116/- levied by the Assessing Officer under section 270A of the Act and sustained

by the Ld. CIT(A) is not sustainable. Accordingly, we direct the Assessing Officer to delete the same. 12. In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 18th September,2026. Sd/- Sd/- (VIJAY PAL RAO) (MADHUSUDAN SAWDIA) VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad, dated 18th September,2026 Vinodan/sps Copy to: S.No Addresses 1 PRAGATHI EDUCATION SOCIETY 11-1-276/3 ,MYLARGADDA SEETHAFALMANDI SECUNDERABAD 500061 ,Telangana 2 Income Tax Officer (Exemptions) Ward-1(3) 2nd Floor, Aayakar Bhavan, Opp: LB Stadium, Hyderabad 500004 3 Pr. CIT – Exemptions, Hyderabad 4 DR, ITAT Hyderabad Benches 5 Guard File By Order

VADREVU Digitally signed by VADREVU PRASADA PRASADA RAO Date: 2026.09.18 RAO 14:42:55 +05'30'