NAHAR SARVODAYA HEIGHTS CO-OPERATIVE HOUSING SOCIETY LIMITED,MUMBAI vs. INCOME TAX OFFICER - WARD 41(2)(3), MUMBAI, MUMBAI

PER RATNA DASGPUTA, AM The captioned appeal by the assessee emanates from the order dated 24/02/2026 passed by the National Faceless Assessment Centre, Delhi [hereinafter referred to as “Ld. CIT(A)”], which, in turn, has arisen out of penalty order u/s 270A of the

Nahar Sarvodaya Heights Co-Operative 2 Housing Society Limited ITA No. 5293/MUM/2026

Income tax Act (in short, “the Act”) passed by the Assessing Officer (AO) on 08.01.2022. 2. The grounds of appeal raised by assessee are as under ;- i. The order u/s 250 of the Act dated 24.02.2026 is in gross violation of the principles of natural justice, in as much as no adequate opportunity of being heard was provided to the Appellant to file a reply. Therefore, the said order is bad in law and liable to be set aside. ii. The Ld. CIT(A) erred in confirming the penalty of Rs. 9,80,544/- levied by the Ld. AO. iii. The order dated 08.01.2022 passed u/s 270A of the Act is bad in law. iv. The notice u/s 274 of the Act is bad in law.

Nahar Sarvodaya Heights Co-Operative 3 Housing Society Limited ITA No. 5293/MUM/2026

calling for explanation as to why penalty should not be imposed for under-reporting of income which was in consequence of misreporting thereof. But despite opportunities given, the assessee did not respond or give any written submissions. Nothing was brought on record to show that the assessee was persuaded from complying to the notices by any reasonable cause. Accordingly, the Ld. AO, in the absence of any reply to explain why the deduction should not be disallowed, concluded that the assessee had no satisfactory explanation to give, and imposed penalty u/s 270A for under-reporting in consequence of misreporting thereof. 3.1 On appeal against this order, the Ld. CIT(A) confirmed the penalty, with the following observation- “2.2 In the absence of any response by the assessee, it is apparent that the assessee does not have any satisfactory reply with no evidentiary material available contrary to the inference drawn, it seems to be a fit case for penalty under Section 270A, for under reporting of income in consequence of misreporting.” The penalty levied of Rs. 9,80,544/- u/s 270A of the Income Tax Act, 1961 is confirmed. 3.2 It is against the Ld. CIT(A)’s order dated 24.02.2026 that the assessee is in appeal before this Tribunal. 4. Before us, the Ld. Authorized Representative (AR) on behalf of the assessee submitted that since the quantum appeal challenging disallowance of deduction u/s 80P(2)(d) of the Act is pending before

Nahar Sarvodaya Heights Co-Operative 4 Housing Society Limited ITA No. 5293/MUM/2026

the Ld. CIT(A), the very basis of the penalty remains subjudice. Without prejudice to the above, he asserted that the allowability deduction under section 80P(2)(d) on interest earned from deposits with Co-operative banks is a settled issue in favour of the assessee. Therefore, even if the claim is ultimately disallowed, the same cannot be treated as under-reporting or misreporting of income so as to attract penalty under section 270A of the Act. Reliance has been placed on the decision of the Hon'ble Bombay High Court in the case of GM Modular (P.) Ltd vs. PCIT reported in [2026] 185 taxmann.com 495 (Bombay), wherein the Hon'ble Court has held that penalty u/s 270A is only discretionary in nature, and rejection of a legal claim does not automatically lead to levy of penalty. 4.1 The Ld. AR further contended that penalty proceedings are separate and independent from assessment proceedings and the AO is required to independently establish that the conditions prescribed under section 270A of the Act are fulfilled. Under section 270A, penalty cannot be levied merely because an addition has been made. To levy penalty @ 200% the Ld. AO is required to establish that the case falls within the purview of section 270A(8), and he must further show how the under-reported income is in consequence of any of the circumstances specified under section 270A(9). He argued that the claim of the assessee under Section 80P(2)(d) was made transparently in the return of income, that all

Nahar Sarvodaya Heights Co-Operative 5 Housing Society Limited ITA No. 5293/MUM/2026

material facts had been disclosed, and that none of the ingredients specified under Section 270A (9) are applicable in the present case. 5. The Departmental Representative (DR), on the other hand, relied strongly on the orders of the Ld. AO & Ld. CIT(A). He contended that the very fact that the assessee had consistently not complied with the notices issued both by the AO and the Ld. CIT(A) proves that there was nothing to be said to justify the claim made by it. 6. We have considered the submission of both the parties in the light of the records placed before us. It is undisputed that prior to this the assessee had not complied with any of the notices issued by the Department. But in our considered opinion, making of a claim which is unsustainable in law does not automatically fall within this mischief of Section 270A(8). The eligibility of deduction u/s 80P of the Act has historically been litigated, and it is debatable legal issue with conflicting views across different Tribunals & Hon’ble High Courts. We are of the opinion that if all facts are on record, addition on account of a legal issue does not automatically trigger penalty even if it survives the quantum appeal. Section 270A purposefully uses the word “may” and not “shall”, granting absolute judicial discretion to tax authorities. For a case to fall under “misreporting” of income, there should be the following ingredients listed out in Section 270A(9) should be present -

Nahar Sarvodaya Heights Co-Operative 6 Housing Society Limited ITA No. 5293/MUM/2026

a. misrepresentation or suppression of facts; b. failure to record investments in the books; c. claim of expenditure unsupported by evidence; d. recording of false entries; e. omission of receipts from books of account; and f. failure to report any international or specified domestic transaction. 7. In the instant case, there is nothing on record to show that any of these failures/omissions existed. No such case has been made out either by the Ld. AO or the Ld. CIT(A). The disallowance, on the basis of which penalty has been levied, is in respect of a legal issue where two views may be possible. 8. In view of the above, notwithstanding that the quantum appeal is still pending before the Ld. CIT(A), we find it a fit case for directing the Ld. AO to delete the penalty levied u/s 270A of the Act. In view of this, it becomes redundant to adjudicate on the assessee’s other ground that the Ld. CIT(A) had not provided it with adequate opportunity of hearing.

Order pronounced in the open Court on 14/08/2026.

Sd/- Sd/- (BEENA PILLAI) (RATNA DASGPUTA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Nahar Sarvodaya Heights Co-Operative 7 Housing Society Limited ITA No. 5293/MUM/2026

Mumbai; Dated: 14/08/2026 Z.U., P.S. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

BY ORDER,

//True Copy// (Assistant Registrar) ITAT, Mumbai