COLOUR YELLOW PRODUCTIONS PVT LTD,ANDHERI-WEST vs. ITO- WARD -16.1.1, MUMBAI, AAYAKAR BHAVAN M.K. ROAD

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH MUMBAI BEFORE MS. KAVITHA RAJAGOPAL, JUDICIAL MEMBER & SHRI MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER ITA No. 462/Mum/2026 (Assessment Year: 2018-19) Colour Yellow ITO Ward 16(1)(1), Productions Pvt. Ltd. Aayakar Bhavan, B-53, Indus House, Off Vs. Maharashi Karve New Link Road, Andheri Marg, Mumbai- West, Mumbai-400053 400020 PAN/GIR No. AAFCC4036L (Applicant) (Respondent) Assessee by Shri Ravindra Poojary, Ld. AR Revenue by Shri Virabhadra Mahajan, Ld. DR Date of Hearing 19.05.2026 Date of Pronouncement 22.05.2026 आदेश / ORDER PER MAKARAND VASANT MAHADEOKAR, AM: The present appeal is directed against the order passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as "CIT(A)"]under section 250 of the Income Tax Act, 1961 [hereinafter referred to as "the Act"] dated 21.12.2025 for Assessment Year 2018-19, arising from the penalty order passed under section 270A of the Act dated 20.09.2023. The penalty

2 ITA No. 462/Mum/2026 Colour Yellow Productions Pvt. Ltd. proceedings emanate from the assessment order passed under section 147 r.w.s. 143(3) r.w.s. 144B of the Act dated 22.03.2023. 2. Brief facts of the case, as emanating from the assessment order, are that the assessee is a private limited company engaged in the business of production of feature films and web series. The assessee had originally filed its return of income for A.Y. 2018-19 declaring total income of Rs. 6,34,19,690/-. During the relevant year, the assessee had made donation of Rs. 17,50,000/- to AISECT (All India Social Education Charitable Trust) and claimed deduction under section 80G amounting to Rs. 8,75,000/-, being 50% of the donation amount. 3. The case of the assessee was reopened on the basis of information available with the department that certain entities had allegedly indulged in providing accommodation entries in the guise of donations eligible for deduction under sections 80GGC/80GGB and section 80G of the Act. The Assessing Officer observed that the assessee had made donation to AISECT and claimed deduction under section 80G of the Act. According to the Assessing Officer, the trust had allegedly received such donations with the sole purpose of earning commission income and facilitating bogus claims of deduction. It was further noted by the Assessing Officer that an order under clause (d) of section 148A of the Act was passed on 31.03.2022 with prior approval of the competent authority and notice under section 148 of the Act was issued on 31.03.2022.

3 ITA No. 462/Mum/2026 Colour Yellow Productions Pvt. Ltd. 4. During the reassessment proceedings, notices under sections 143(2) and 142(1) of the Act were issued. Before the Assessing Officer, the assessee submitted that it is a private limited company registered under the Companies Act, 1956 on 12.09.2013 and engaged in the business of production of feature films and web series. The assessee further submitted that in response to notice issued under section 148 of the Act, it had filed return of income wherein no deduction under section 80G was claimed and additional tax together with applicable interest had already been paid in respect of the earlier deduction claimed in the original return filed under section 139 of the Act. 5. The Assessing Officer recorded in the assessment order that in the return of income filed in response to notice under section 148, the assessee had not claimed deduction under section 80G and had paid additional taxes and interest pertaining to the donation earlier claimed in the original return. Upon verification of the revised computation furnished in response to notice under section 148, the Assessing Officer accepted the returned income and concluded that no adverse inference was required to be drawn and no addition was made on the issue. Consequently, the total income was assessed at Rs. 6,42,94,686/- under section 147/143(3) r.w.s. 144B of the Act. However, while completing the reassessment, the Assessing Officer initiated penalty proceedings under section 270A of the Act for under-reporting of income in consequence of misreporting thereof.

4 ITA No. 462/Mum/2026 Colour Yellow Productions Pvt. Ltd. 6. Thereafter, penalty proceedings under section 270A of the Act were initiated by issuance of show cause notices under section 274 r.w.s. 270A dated 22.03.2023, 18.07.2023 and 02.08.2023. The Assessing Officer recorded that the assessee had initially not responded to the notices and, therefore, communication dated 11.08.2023 was also issued. Subsequently, the assessee vide response dated 09.09.2023 sought extension of time by 30 days for furnishing details. However, according to the Assessing Officer, no further details were furnished by the assessee. 7. In the penalty order, the Assessing Officer observed that the assessee had initially claimed deduction under section 80G in the original return and only after reopening proceedings were initiated under section 147 of the Act, the assessee withdrew such claim in the return filed in response to notice under section 148. According to the Assessing Officer, the assessee had under- reported income in consequence of misreporting and failed to furnish any valid explanation. The Assessing Officer accordingly held it to be a fit case for levy of penalty under section 270A of the Act. The Assessing Officer computed the under-reported income at Rs. 8,75,000/- and levied penalty at 200% of the tax payable thereon amounting to Rs. 5,78,022/- under section 270A(9) of the Act vide order dated 20.09.2023. 8. Aggrieved by the penalty order, the assessee preferred appeal before the CIT(A), NFAC. The CIT(A) noted that there was a

5 ITA No. 462/Mum/2026 Colour Yellow Productions Pvt. Ltd. delay of 90 days in filing the appeal. The assessee submitted that the appeal papers had been handed over to the Chartered Accountant for filing within time and the delay came to its knowledge subsequently. Considering the explanation furnished, the delay was condoned by the CIT(A) under section 249(3) of the Act in the interest of substantial justice. 9. Before the CIT(A), the assessee challenged the validity of the penalty proceedings as well as the levy of penalty on merits. The assessee submitted that the Assessing Officer had erred in issuing defective notice under section 270A without specifying whether penalty was proposed for “under-reporting” or “misreporting” of income. The assessee further contended that it had voluntarily withdrawn the deduction claimed under section 80G in the return filed in response to notice under section 148 and had paid taxes and interest thereon. It was argued that no addition was ultimately made in the reassessment proceedings and, therefore, there could not be any under-reporting or misreporting of income warranting levy of penalty under section 270A of the Act. The assessee also submitted that the donation had been made through banking channels and proper receipt thereof was available. 10. The CIT(A), after considering the submissions of the assessee and findings of the Assessing Officer, observed that the assessee had originally claimed deduction under section 80G in the return filed under section 139(1) of the Act and had

6 ITA No. 462/Mum/2026 Colour Yellow Productions Pvt. Ltd. withdrawn the same only after the reassessment proceedings were initiated on the basis of specific information received by the department regarding bogus donation claims. The CIT(A) held that the income assessed under section 147 was greater than the income processed under section 143(1)(a) and therefore the case squarely fell within clause (a) of section 270A(2) of the Act. The CIT(A) further held that the difference between the income assessed under section 147 and the income determined under section 143(1)(a) constituted under-reported income within the meaning of section 270A(3) of the Act. 11. The CIT(A) further observed that the assessee did not voluntarily withdraw the claim by filing any revised return prior to reopening, but withdrew the deduction only after notice under section 148 was issued on the basis of information regarding bogus donations. According to the CIT(A), the conduct of the assessee amounted to concealment of real taxable income with clear intent and design. The CIT(A) also relied upon the decisions of the Hon’ble Supreme Court in the cases of Gangotri Textiles vs. DCIT[2022] 137 taxmann.com 198 (SC) and Mak Data Pvt. Ltd. vs. CIT and upheld the levy of penalty under section 270A of the Act. Accordingly, the appeal of the assessee was dismissed. 12. The assessee is now in appeal before the Tribunal and has raised the following grounds of appeal: 1. The ld Assessing Officer erred in issuing the penalty notice u/s 270A dated 22/03/2023 which is do not specify the limb of section 270A which is attracted i.e. whether it is for underreporting or for

7 ITA No. 462/Mum/2026 Colour Yellow Productions Pvt. Ltd.

misreporting. Therefore penalty notice is defective and the penalty order is bad in law. 2. The ld Assessing Officer erred in imposing penalty u/s. 270A of the Act of Rs. 5,78,022/- on the basis of assessee withdrawal deduction claimed u/s 80G in its return in response to notice under section 148 without appreciating that the assessee voluntarily withdrew the claim due to peace and avoid litigation. Thus, A.O. levied the penalty merely based on the assessee withdrawing the claim of donation without any evidence against the assessee to prove the donation was bogus. Thus, there could be no under-reporting or misreporting of income and penalty ought to be deleted. 13. During the course of hearing before us, the learned Authorised Representative (“AR”) for the assessee submitted that the impugned penalty levied under section 270A of the Act is liable to be deleted on the ground that the Assessing Officer has failed to specify the exact limb and sub-clause under which penalty proceedings were initiated. It was contended that neither in the assessment order nor in the notice issued under section 274 r.w.s. 270A of the Act has the Assessing Officer specified whether the penalty proceedings were initiated for “under- reporting” of income under section 270A(2) or for “misreporting” of income under section 270A(9) of the Act. According to the learned AR, the Assessing Officer has merely used general expressions without identifying the precise default allegedly committed by the assessee.

8 ITA No. 462/Mum/2026 Colour Yellow Productions Pvt. Ltd. communicate the exact charge to the assessee before levying penalty. It was argued that in the absence of such specific charge, the assessee was deprived of proper opportunity to rebut the allegations and consequently the entire penalty proceedings stand vitiated in law. 15. The learned AR submitted that where penalty is levied at the enhanced rate of 200% treating the case as one involving “misreporting” of income under section 270A(8), the Assessing Officer is mandatorily required to demonstrate as to how the case falls within any of the specific categories prescribed under clauses (a) to (f) of section 270A(9) of the Act. However, in the present case, neither the assessment order nor the penalty notice nor even the penalty order specifies as to which particular clause of section 270A(9) is alleged to have been violated by the assessee. It was therefore contended that the impugned penalty order suffers from complete non-application of mind and violation of principles of natural justice. 16. The learned AR further submitted that the assessee had disclosed all primary facts relating to the donation transaction in the original return itself and subsequently withdrew the claim in the return filed in response to notice under section 148 of the Act in order to buy peace and avoid protracted litigation. According to the learned AR, there was no suppression of facts, false entry or concealment so as to attract the provisions of section 270A(9) of the Act.

9 ITA No. 462/Mum/2026 Colour Yellow Productions Pvt. Ltd. 17. In support of the aforesaid contentions, the learned AR placed reliance upon the following judicial precedents: i. Prem Brothers Infrastructure LLP vs. National Faceless Assessment Centre reported in [2022] 142 taxmann.com 38 (Delhi) ii. Saltwater Studio LLP vs. NFAC, Delhi reported in [2023] 157 taxmann.com 749 (Mumbai - Trib.) iii. Manish Manohardas Asrani vs. ITO reported in [2025] 170 taxmann.com 792 (Mumbai - Trib.) 18. The learned Departmental Representative (“DR”), on the other hand, strongly relied upon the orders of the Assessing Officer and the CIT(A). The learned DR submitted that the provisions of section 270A clearly contemplate levy of penalty where the reassessed income is greater than the income originally assessed or processed under section 143(1)(a) of the Act. It was contended that once the assessee had originally claimed inadmissible deduction and subsequently withdrew the same only after detection by the department, the case squarely falls within the ambit of “under-reporting” of income under section 270A(2) of the Act. 19. In support of the aforesaid contentions, the learned DR placed reliance upon the following judicial precedents: i. Sanjeev Kumar Manchand Rajput vs. ITO reported in [2023] 157 taxmann.com 747 (Pune - Trib.)

10 ITA No. 462/Mum/2026 Colour Yellow Productions Pvt. Ltd. ii. Gunmala Jain vs. ITO reported in [2026] 182 taxmann.com 451 (Jaipur - Trib.) 20. The learned DR accordingly submitted that the assessee having failed to establish the genuineness of the original deduction claimed under section 80G, and having withdrawn the same only after reopening proceedings were initiated by the department, the Assessing Officer was fully justified in levying penalty under section 270A of the Act and the order of the CIT(A) deserves to be upheld. 21. We have heard the rival submissions and perused the material available on record including the assessment order, penalty order, impugned order passed by the learned CIT(A), notices issued under section 274 r.w.s. 270A of the Act and the judicial precedents relied upon by both the parties. The solitary issue arising for our consideration is whether, on the facts of the present case, the Assessing Officer was justified in levying penalty under section 270A of the Act for “misreporting” of income and whether the initiation as well as levy of penalty satisfies the statutory requirements contemplated under section 270A of the Act. 22. At the outset, it would be apposite to examine the statutory framework governing levy of penalty under section 270A of the Act. Section 270A was inserted by the Finance Act, 2016 with effect from 01.04.2017 replacing the erstwhile provisions of section 271(1)(c). The legislative scheme consciously demarcates

11 ITA No. 462/Mum/2026 Colour Yellow Productions Pvt. Ltd. two distinct categories, namely, “under-reporting of income” contemplated under sub-sections (1) to (7) of section 270A and “misreporting of income” contemplated under sub-sections (8) and (9) thereof. 23. Section 270A(2) enumerates the circumstances in which a person shall be considered to have under-reported income. Section 270A(6) carves out exclusions where no penalty is leviable despite variation in assessed income, provided the explanation furnished by the assessee is bona fide and all material facts have been disclosed. Section 270A(8), beginning with a non-obstante clause, provides for enhanced penalty at 200% of tax payable where under-reported income is in consequence of “misreporting” thereof. Section 270A(9) then specifically enumerates the categories which constitute misreporting of income, namely: (a) misrepresentation or suppression of facts; (b) failure to record investments; (c) claim of expenditure not substantiated by evidence; (d) false entries in books; (e) failure to record receipts; and (f) failure to report international or specified domestic transactions. 24. Thus, the statutory scheme clearly demonstrates that every case of under-reporting does not automatically become a case of

12 ITA No. 462/Mum/2026 Colour Yellow Productions Pvt. Ltd.

misreporting. For invoking section 270A(8) and levying enhanced penalty at 200%, the Assessing Officer is mandatorily required to demonstrate as to which specific limb of section 270A(9) stands attracted on the facts of the case. Since penal provisions entail serious civil consequences, the charge must be specific, unambiguous and clearly communicated to the assessee.

13 ITA No. 462/Mum/2026 Colour Yellow Productions Pvt. Ltd. facts and circumstances of the case, we find that the levy of penalty by the AO u/s 270A of the Act suffers from the vice of non-application of mind as well as violates principles of natural justice. And therefore, the penalty levied on addition of sustained quantum addition of Rs.67,970/- cannot survive. And therefore, it is directed to be deleted. 26. Similarly, in the case of Manish Manohardas Asrani vs. INT Tax (supra), the Coordinate Bench deleted the penalty where the notice issued under section 274 r.w.s. 270A did not specify the precise limb or sub-clause under which penalty was proposed. The Coordinate Bench categorically held that “under- reporting” and “misreporting” operate in different fields and carry different legal consequences, and therefore vague notice without specifying the precise charge vitiates the penalty proceedings. The Coordinate Bench further observed that where there is no whisper in the show cause notice regarding “misreporting” but penalty is ultimately levied for misreporting under section 270A(9), such action is unsustainable in law. 27. The Hon’ble Delhi High Court in the case of Prem Brothers Infrastructure LLP vs. NFAC (supra)held that mere use of the expression “misreporting” without specifying which limb of section 270A(9) is attracted and how the ingredients thereof are satisfied renders the penalty order arbitrary and unsustainable. The Hon’ble High Court further held that where all primary facts were disclosed and the dispute merely related to quantification or estimation, the same could by no stretch of imagination constitute “misreporting” of income.

14 ITA No. 462/Mum/2026 Colour Yellow Productions Pvt. Ltd. 28. Keeping in view the aforesaid statutory scheme and judicial principles, when we advert to the facts of the present case, we find that the Assessing Officer, while initiating penalty proceedings, has broadly referred to section 270A without clearly and specifically setting out the precise limb of section 270A(9) alleged to have been violated by the assessee. The show cause notice issued under section 274 r.w.s. 270A also does not clearly communicate the exact default alleged against the assessee. The notice merely refers to initiation of penalty proceedings under section 270A without setting out whether the assessee is being proceeded against for “under-reporting” simpliciter or for “misreporting” falling under any of the clauses (a) to (f) of section 270A(9). 29. In our considered view, such omnibus and vague initiation fails to satisfy the mandatory requirement of law. The assessee must be made aware with reasonable certainty as to the exact allegation which he is required to meet. The absence of a clear charge strikes at the very root of the assumption of jurisdiction under the penal provisions. 30. The Revenue has heavily relied upon the decision of the Pune Bench in the case of Sanjeev Kumar Manchand Rajput vs. ITOand the Jaipur Bench decision in the case of Gunmala Jain vs. ITO. However, on careful examination, we find that both the aforesaid decisions are clearly distinguishable on facts. In the case of Sanjeev Kumar Manchand Rajput (supra), the assessee

15 ITA No. 462/Mum/2026 Colour Yellow Productions Pvt. Ltd. had admittedly suppressed salary income despite Form-16 clearly reflecting correct salary and had inflated deductions under Chapter VI-A without offering any explanation whatsoever. The Co-ordinate Bench specifically recorded a finding that the assessee had failed to furnish any plausible explanation and that the case squarely fell within clauses (a) and (c) of section 270A(9). 31. Likewise, in Gunmala Jain (supra), the Co-ordinate Bench found as a matter of fact that the Assessing Officer had specifically mentioned initiation of penalty for “misrepresentation or suppression of facts” under section 270A(9)(a) both in the assessment order as well as in the penalty proceedings. The Tribunal therefore distinguished the decisions relating to vague notices and upheld the penalty because the specific charge was clearly discernible from the assessment order and penalty notice. 32. In the present case, however, the Revenue has failed to demonstrate that the exact limb of section 270A(9) was clearly communicated to the assessee at the stage of initiation itself. Unlike the facts before the Jaipur Bench in Gunmala Jain (supra), the notice issued in the present case does not specifically spell out the precise clause of section 270A(9) alleged to have been violated. 33. Further, the material available on record does not establish deliberate suppression of facts or furnishing of false particulars so as to bring the case squarely within the ambit of “misreporting” contemplated under section 270A(9). The

16 ITA No. 462/Mum/2026 Colour Yellow Productions Pvt. Ltd. distinction between a legally unsustainable claim and deliberate misreporting has been consistently recognised in judicial precedents. Penalty provisions, being quasi-criminal in nature, require strict interpretation and the burden lies upon the Revenue to clearly establish the precise default contemplated by statute. 34. We further find merit in the contention of the assessee that the foundational requirement of principles of natural justice has not been adequately satisfied inasmuch as the assessee was never put to notice regarding the exact statutory limb under which enhanced penalty at the rate of 200% was sought to be imposed. 35. It is trite law that where two views are possible and the Revenue seeks to invoke a penal provision carrying enhanced consequences, the statutory requirements must be complied with in strict terms. Any ambiguity in the initiation notice or absence of clear charge vitiates the penalty proceedings. 36. Considering the totality of facts and circumstances of the case, the statutory framework of section 270A, and respectfully following the ratio laid down in the decisions of the Hon’ble Delhi High Court in Prem Brothers Infrastructure LLP (supra) and the Coordinate Benches in Saltwater Studio LLP (supra) and Manish Manohardas Asrani (supra), we are of the considered view that the impugned penalty levied under section 270A cannot be sustained in the eyes of law.

17 ITA No. 462/Mum/2026 Colour Yellow Productions Pvt. Ltd.

Order pronounced in the open court on 22.05.2026.

Sd/- Sd/- (KAVITHA RAJAGOPAL) (MAKARAND VASANT MAHADEOKAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 22/05/2026 Dhananjay, Sr.PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. संबंधधत आयकर आयुक्त / The CIT(A) आयकर आयुक्त(अपील) / Concerned CIT 4. धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, मुम्बई / DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, सत्याधपत प्रधत //True Copy// 1. उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, मुम्बई / ITAT, Mumbai