MANOJ KUMAR DIVAKARAN,MUMBAI vs. DCIT, CIRCLE 42(2)(1), MUMBAI

PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee is directed against the separate orders of ld. CIT(A) / NFAC dated 23.01.2026 for Assessment Year (AY) 2022-23. The assessee vide application dated 25.06.2026 has raised following revised grounds of appeal: “1. That the learned Commissioner of Income Tax (NFAC) has erred both in law and on facts in upholding penalty of Rs. 23,93,980/- levied in order dated 23.09.2024 under section 270A of the Act. 2. That learned Commissioner of Income Tax (NFAC) has failed to appreciate that in absence of any specific show cause notice having been issued, the levy of penalty was wholly illegal. 2.1 That impugned notice dated 26.03.2024 and notice dated 30.08.2024 are vague notice and therefore penalty levied is untenable. 3. That furthermore that since no valid satisfaction was recorded in the order of assessment, penalty levied was otherwise too not in accordance with law. 4. That the learned Commissioner of Income Tax (NFAC) has further erred both in facts and law in upholding penalty @ 200% of the amount of tax

Manoj Kumar Divakaran ITA No. 1297/M/2026 (AY: 2022-23) payable on addition of Rs. 11,96,988/- on account of underreported income in consequence of misreporting of income. 5. That the learned Commissioner of Income Tax (NFAC) has failed to appreciate the fact that the return of income assessed by the learned Assessing officer under the Act was duly considered and accepted by the appellant as such and therefore no penalty can be levied and upheld. 6. That the learned Commissioner of Income Tax (NFAC) has failed to appreciate the relevant evidence placed on record and drawn factually incorrect and legally unsustainable inferences based on irrelevant and extraneous consideration and thus, penalty upheld is wholly unwarranted and not in accordance with law. 7. That the learned Commissioner of Income Tax (NFAC) has failed to appreciate that no independent order u/s 270AA (4) has been passed by the learned Assessing officer on application filed by the appellant seeking immunity u/s 270AA of the Act. 8. It is therefore, prayed that it be held that penalty levied by the learned Assessing Officer and sustained by the learned National Faceless Appeal Centre (NFAC) deserves to be deleted as such and appeal of the appellant be allowed.” 2. Rival submissions of both the parties have been heard and the record perused. The learned Authorised Representative (learned AR) of the assessee submits that the assessee filed the original return of income under section 139(1) on 05-07-2022, declaring income of Rs. 47,42,500/-. The case was selected for scrutiny. Before any specific show-cause notice could be issued to the assessee, the assessee filed a revised computation of income on 25- 11-2023. In the revised computation of income, the assessee included cash deposits in his two bank accounts aggregating of Rs. 38,36,500/-. The assessee also paid the due tax of Rs. 19,89,030/- by way of self assessment on the revised return of income, copy of revised computation and tax receipt is also placed on record. The cash deposits in the bank were left due to 2

Manoj Kumar Divakaran ITA No. 1297/M/2026 (AY: 2022-23) communication gap with tax advisor. The Assessing Officer/ National Faceless Appeal Centre (AO/ NFAC) passed the assessment order under section 143(3) read with section 144B on 26-03-2024. The AO made an addition of Rs. 38,36,500/- to the total income of the assessee on account of undisclosed cash deposits and initiated penalty proceedings under section 270 for under- reporting of income in consequence of misreporting. Notice under section 274 read with section 270A dated 26-03-2024 was issued to the assessee. The assessee filed an application in Form 68 on 30-04-2024 for seeking immunity from penalty. The application was filed within the time limit of one month from the end of the month in which the assessment order was passed. The assessee has not filed further appeal against the addition in the quantum assessment. The assessee fulfilled the twin conditions for seeking immunity, that is, payment of tax with interest and not challenging the addition in appeal before the CIT(A). The AO has neither accepted nor rejected such application for immunity. The assessee is eligible for immunity. The penalty order has been passed in violation of the provisions of section 270A(4). Even otherwise, once the assessee has included all the cash deposits in his return of income and filed a revised return, in such circumstances, at the worst, it could be a case of under-reporting of income and the assessee was eligible for immunity. 3. In an alternative submission, the learned AR of the assessee submits that, in the show-cause notice, the AO has not specified the specific limb. The AO simply recorded that “you have under-reported income, which is in 3

Manoj Kumar Divakaran ITA No. 1297/M/2026 (AY: 2022-23) consequence of misreporting thereof as per details given in the assessment order.” The notice does not specify as to which clause of section 270A(9) is applicable. The notice is vague. The AO nowhere in his order adjudicated upon the bona fide conduct of the assessee and passed the penalty order imposing penalty at 200 per cent. No other addition was made in the assessment order. To support his various contentions, the learned AR of the assessee relied upon the following decisions.  Schneider Electric South East Asia (HQ) Pte. Ltd. vs. ACIT 145 taxmann.com 665  Prem Brothers Infrastructure LLP vs NFAC142 taxmann.com 38  Anshul Specialty Molecules Ltd. vs. DCIT ITA No. 8509/Mum/2025  Shree Balaji Chain vs. ITOITA No. 3341/Mum/2026  Shri Omprakash Singh vs. ITOITA No. 9326/Mum/202  Monisha Ravi Jaising vs ACITITA No. 533/Mum/2026  Shri Prathamesh Vivek Khot vs. ITOITA No.3091/Mum/2023  Rajesh C. Dalal-HUF vs. ACITITA No. 249/Srt/2022  Ajay Maheshwari vs. ACITITA Nos. 222 & 223/Nag/2025  Sangam Almirah Private Limited vs. NFACITA No. 338/Pat/2025  Mehul Pravinchandra Sheth vs. DCITITA No. 4702/Mum/202  Shri Nirjeet Singh vs. ITOITA No. 5151/Del/202  Citadines OMR Aparthotel Pvt. Ltd. vs. ITOITA No.303/Chny/2026 4. On the other hand, the learned Senior Departmental Representative (ld. Sr. DR) for the Revenue supported the order of the lower authorities. The learned Senior DR for the Revenue submits that the under-reporting of income was in consequence of misreporting; therefore, the assessee was liable to pay penalty at the rate of 200 per cent of the tax payable. The assessee has not offered the cash deposits suo moto. The assessee offered

Manoj Kumar Divakaran ITA No. 1297/M/2026 (AY: 2022-23) the same when it was detected by the AO on the basis of the information available with him. 5. We have considered the rival submissions of both the parties and have gone through the orders of the learned authorities carefully. We have also gone through assessment order and the penalty levied under section 270A of the Act. We have also deliberated on various documents and the case laws relied by the ld AR of the assessee. We find that during assessment the AO issued show cause notice dated 26.10.2023. In response to such notice the assessee obtained adjournment till 25.11.2023. On 25.11.2023, the assessee filed detailed written reply, which is extracted in para-3.2 of assessment order. In the reply the assessee stated that he has already filed a revised computation of income on 25-11-2023. In the revised computation the assessee included cash deposits in his two bank accounts aggregating of Rs. 38,36,500/- and also paid tax of Rs. 19,89,030/-. The cash deposits in the bank were left due to communication gap with tax advisor. The cash deposit was part of certain capital receipt earned on sale of old furniture or part of sale of property. The revised computation of income was not rejected by AO. We find that the AO while passing assessment order treated the cash deposited as income from ‘other sources’. The AO initiated penalty for under reporting income in consequences to misreporting. The assessment was completed on 26.03.2024. It is an admitted position that no further appeal is filed by the assessee. Further the assessee also filed application for seeking immunity under section 27AA on 30.04.2024. We find that in response to specific show 5

Manoj Kumar Divakaran ITA No. 1297/M/2026 (AY: 2022-23) cause notice issued by AO under section 274 rws 270A, the assessee filed his reply dated 30.04.2024, contents of which are extracted in para-2 of penalty order. In the reply to the show cause notice the assessee specifically stated that he has applied for immunity and fulfilled the requite conditions. The AO held that the penalty was initiated for under reporting of income in consequences of misreporting thus, the assessee is not eligible for immunity under section 270AA(3). 6. We find that Delhi High Court in Prem Brothers Vs NFAC (supra) held that where are penalty was levied on assessee under section 270A alleging misreporting of income, however, fact that assessee had furnished all details of transaction relating to disallowances made and the assessing officer as well as assessee had used the same detail to arrive at different points of disallowance, this by no stretch of imagination would be held to be misreporting. And further, in the absence of details as to which limb of section 270A was attracted, impugned penalty order was to be quashed and revenue was to be directed to grant immunity under section 270AA. It was also held that there is no whisper as to which limb of section 270A of the Act is attracted and how the ingredient of sub-section (9) of section 270A is satisfied. In the absence of such particulars, made reference to the word “misreporting” by revenue in the penalty order to deny immunity from imposition of penalty and prosecution makes the impugned penalty manifestly arbitrary.

Manoj Kumar Divakaran ITA No. 1297/M/2026 (AY: 2022-23) 7. We also find that Surat bench of Tribunal in Rajesh C Dalal (supra) while considering the similar grounds of appeal held that when the assessee during assessment filed revised computation of income and included entire income from house property in its income and such revised computation was accepted by assessing officer, in such circumstances, at the best it would be a case of underreporting of income. And by no stretch of imagination it could be a case of under reporting in consequences of misreporting. We find that in the assessment order there is no whisper as how the ingredient of sub- section (9) of section 270A is satisfied. Thus in view of aforesaid factual and legal discussion we do not find any justification in making reference in the assessment order about underreporting of income as a consequence of misreporting. Hence, in our view the assessee is entitled for immunity from penalty. In the result the grounds of appeal raised by assessee are allowed. 8. In the result appeal of the assessee is allowed. Order was pronounced in the open Court on 10/09/2026. /- /- Sd/- /- Sd/- Sd/-S Sd/- VIKRAM SINGH YADAV PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 10/09/2026 Biswajit Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); By order (4) The DR, ITAT, Mumbai; and (5) Guard file. Assistant Registrar ITAT, Mumbai