WADHWAGROUP HOLDINGS PRIVATE LIMITED,MUMBAI vs. CENTRAL CIRCLE 5(4), MUMBAI, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G” MUMBAI

BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI RAHUL CHAUDHARY (JUDICIAL MEMBER)

ITA No. 324/MUM/2026 Assessment Year: 2020-21

Wadhwa Group Holdings Deputy Commissioner of Income Private Limited, 301, 3rd Floor, Tax, Central Circle 5(4), Kautilya Vs. Platina Plot No.C59, G Block, Bhavan, C41-43, Avenue 3, Near Bandra Kurla Complex, Videsh Bhavan, G Block BKC, Bandra East, Mumbai – Gilban Area, Bandra Kurla 400098, Maharashtra. Complex, Bandra East – 400051, Maharashtra. PAN NO. AACCV 3961 G Appellant Respondent

: Shri Madhur Agarwal – Advocate & Assessee by Shalini Jain – CA. Revenue by : Shri Arun Kanti Datta, (CIT. DR)

Date of Hearing : 05/05/2026 Date of pronouncement : 15/05/2026 ORDER PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against the order dated 23.11.2025 passed by the learned Commissioner of Income-Tax (Appeals)-53, Mumbai [hereinafter referred to as “the learned CIT(A)”], for Assessment Year 2020-21, arising out of penalty proceedings initiated under section 270A of the Income-tax Act,

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1961 [hereinafter referred to as “the Act”], whereby penalty was 1961 [hereinafter referred to as “the Act”], whereby penalty was 1961 [hereinafter referred to as “the Act”], whereby penalty was levied by the Assessing Officer on the allegation of under-reporting levied by the Assessing Officer on the allegation of under levied by the Assessing Officer on the allegation of under of income in consequence of misreporting thereof. The relevant of income in consequence of misreporting thereof. of income in consequence of misreporting thereof. grounds raised by the a unds raised by the assessee are reproduced as under: ssessee are reproduced as under:

“1. The Hon'ble Commissioner of Income Tax (Appeals) 1. The Hon'ble Commissioner of Income Tax (Appeals) - 53, Mumbai (hereinafter 53, Mumbai (hereinafter referred as CIT(A) erred in upholding the order passed u/s 270A of the Income referred as CIT(A) erred in upholding the order passed u/s 270A of the Income referred as CIT(A) erred in upholding the order passed u/s 270A of the Income Tax Act, 1961 (hereinafter referred as 'the Ac Tax Act, 1961 (hereinafter referred as 'the Act') of the Assistant Commissioner of t') of the Assistant Commissioner of Income tax, Central Circle Income tax, Central Circle-5(4), Mumbai (hereinafter referred as 'ACIT' or 'AO"). 5(4), Mumbai (hereinafter referred as 'ACIT' or 'AO"). 2. a) The Hon'ble CIT(A) erred in confirming AO's action of levying penalty of Rs. 2. a) The Hon'ble CIT(A) erred in confirming AO's action of levying penalty of Rs. 2. a) The Hon'ble CIT(A) erred in confirming AO's action of levying penalty of Rs. 8,78,66,884/- u/s 270A of the IT Act on the ground tha u/s 270A of the IT Act on the ground that the Appellant has under t the Appellant has under reported the income in consequence of mis he income in consequence of mis-reporting. b) The Hon'ble CIT(A) erred in confirming AO's action of levying penalty of Rs. b) The Hon'ble CIT(A) erred in confirming AO's action of levying penalty of Rs. b) The Hon'ble CIT(A) erred in confirming AO's action of levying penalty of Rs. 8,78,66,884/- disregarding the fact that the AO failed to mention the specific limb disregarding the fact that the AO failed to mention the specific limb disregarding the fact that the AO failed to mention the specific limb of Section 270A(9) under which the Appellant has misreported its income in the 0A(9) under which the Appellant has misreported its income in the 0A(9) under which the Appellant has misreported its income in the notice issued u/s 274 r.w.s 270A and the assessment order u/s 143(3) giving notice issued u/s 274 r.w.s 270A and the assessment order u/s 143(3) giving notice issued u/s 274 r.w.s 270A and the assessment order u/s 143(3) giving rise to penalty. Hence, the notice issued is bad in law and contrary to the rise to penalty. Hence, the notice issued is bad in law and contrary to the rise to penalty. Hence, the notice issued is bad in law and contrary to the provision of the Act and shall be squa provision of the Act and shall be squashed. c) The Hon'ble CIT(A) ignored the various submissions made by the Appellant c) The Hon'ble CIT(A) ignored the various submissions made by the Appellant c) The Hon'ble CIT(A) ignored the various submissions made by the Appellant during assessment/appellate proceeding which is contrary to the principle of during assessment/appellate proceeding which is contrary to the principle of during assessment/appellate proceeding which is contrary to the principle of natural justice and hence the penalty levied shall be deleted. natural justice and hence the penalty levied shall be deleted.” ” 2. Briefly stated, the facts giving rise to the present controversy are Briefly stated, the facts giving rise to the present controversy are Briefly stated, the facts giving rise to the present controversy are that the assessee-company is engaged in the business of real estate company is engaged in the business of real estate company is engaged in the business of real estate development and construction activities. development and construction development and construction activities. The assessee activities. The The assessee had assessee had had undertaken development of a commercial project styled as “Palm undertaken development of a commercial project styled as “Pal undertaken development of a commercial project styled as “Pal Beach Arcade” situated at Navi Mumbai. For the purposes of Beach Arcade” situated at Navi Mumbai. For the purposes of Beach Arcade” situated at Navi Mumbai. For the purposes of execution of the said project, the assessee had availed borrowed execution of the said project, the assessee had availed borrowed execution of the said project, the assessee had availed borrowed funds prior to the year 2009. However, during the course of funds prior to the year 2009. However, during the course of funds prior to the year 2009. However, during the course of development, development, development, the the the project project project allegedly allegedly allegedly encountered encountered encountered substantial substantial substantial impediments, resulting in prolonged stagnation of construction , resulting in prolonged stagnation of construction , resulting in prolonged stagnation of construction activities. According to the assessee, such delay was attributable to activities. According to the assessee, such delay was attributable to activities. According to the assessee, such delay was attributable to

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regulatory compliances, statutory approvals, and certain legal regulatory compliances, statutory approvals, and certain legal regulatory compliances, statutory approvals, and certain legal constraints. The aforesaid explanation, however, did not find favour constraints. The aforesaid explanation, however, did not find favour constraints. The aforesaid explanation, however, did not find favour with the Assessing Officer. th the Assessing Officer.

2.1 It is an admitted position that owing to the stalling of the It is an admitted position that owing to the stalling of the It is an admitted position that owing to the stalling of the project, no sale transactions were effected in respect of the units project, no sale transactions were effected in respect of the units project, no sale transactions were effected in respect of the units from Assessment Year 2015 from Assessment Year 2015-16 onwards. The assessee continued to 16 onwards. The assessee continued to account for the project under th account for the project under the percentage completion method e percentage completion method and had, in the earlier years, capitalized the project-related and had, in the earlier years, capitalized the project and had, in the earlier years, capitalized the project expenditure to work- -in-progress. However, insofar as the borrowing progress. However, insofar as the borrowing cost amounting to Rs.16,89,74,776/ cost amounting to Rs.16,89,74,776/- incurred during the year incurred during the year under consideration is concerned, under consideration is concerned, the assessee, instead of the assessee, instead of capitalizing the same, charged the said expenditure to the Profit & capitalizing the same, charged the said expenditure to the Profit & capitalizing the same, charged the said expenditure to the Profit & Loss Account on the premise that there was neither construction Loss Account on the premise that there was neither construction Loss Account on the premise that there was neither construction activity nor realization of revenue during the relevant previous year. activity nor realization of revenue during the relevant previous year. activity nor realization of revenue during the relevant previous year.

2.2 The case of the assesse The case of the assessee before the Assessing Officer Assessing Officer was that the project had virtually become commercially unviable and the the project had virtually become commercially unviable and the the project had virtually become commercially unviable and the aggregate project cost, including accumulated interest liability, had aggregate project cost, including accumulated interest liability, had aggregate project cost, including accumulated interest liability, had substantially exceeded the anticipated realizable revenue. The substantially exceeded the anticipated realizable revenue. The substantially exceeded the anticipated realizable revenue. The assessee accordingly assessee accordingly took a commercial decision to discontinue took a commercial decision to discontinue capitalization of interest expenditure to the work-in-progress capitalization of interest expenditure to the work capitalization of interest expenditure to the work account and, instead, treated the same as a period cost allowable as account and, instead, treated the same as a period cost allowable as account and, instead, treated the same as a period cost allowable as business expenditure. The assessee further contended that the business expenditure. The assessee further contended that the business expenditure. The assessee further contended that the delay in completion of the project stood aggravated by virtue of the of the project stood aggravated by virtue of the of the project stood aggravated by virtue of the order dated 17.03.2021 passed by the Hon’ble High Court, whereby order dated 17.03.2021 passed by the Hon’ble High Court, whereby order dated 17.03.2021 passed by the Hon’ble High Court, whereby

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restrictions were imposed upon transfer of flats by the flat owners restrictions were imposed upon transfer of flats by the flat owners restrictions were imposed upon transfer of flats by the flat owners as well as the developer without prior leave of the Court. According as well as the developer without prior leave of the Court. According as well as the developer without prior leave of the Court. According to the assessee, the continuing carrying cost of inventory coupled he assessee, the continuing carrying cost of inventory coupled he assessee, the continuing carrying cost of inventory coupled with with with mounting mounting mounting interest interest interest liability, liability, liability, in in in the the the absence absence absence of of of any any any corresponding corresponding corresponding realization, realization, realization, rendered rendered rendered further further further capitalization capitalization capitalization commercially unrealistic. commercially unrealistic.

2.3 The Assessing Officer, however, did not accept The Assessing Officer, however, did not accept The Assessing Officer, however, did not accept the aforesaid explanation. According to him, the assessee had deviated from the explanation. According to him, the assessee had deviated from the explanation. According to him, the assessee had deviated from the consistently followed accounting methodology only in respect of the consistently followed accounting methodology only in respect of the consistently followed accounting methodology only in respect of the impugned project and solely with a view to secure an unintended impugned project and solely with a view to secure an unintended impugned project and solely with a view to secure an unintended tax advantage. The Assessing Officer was of tax advantage. The Assessing Officer was of the opinion that so long the opinion that so long as the occupancy certificate had not been obtained and the project as the occupancy certificate had not been obtained and the project as the occupancy certificate had not been obtained and the project remained incomplete, the interest expenditure was liable to be remained incomplete, the interest expenditure was liable to be remained incomplete, the interest expenditure was liable to be capitalized as part of work capitalized as part of work-in-progress in consonance with the progress in consonance with the matching principle and the percentage matching principle and the percentage completion method regularly completion method regularly followed by the assessee in preceding years. Consequently, the followed by the assessee in preceding years. Consequently, the followed by the assessee in preceding years. Consequently, the claim of deduction was disallowed and the assessee was directed to claim of deduction was disallowed and the assessee was directed to claim of deduction was disallowed and the assessee was directed to capitalize capitalize capitalize the the the said said said expenditure. expenditure. expenditure. Simultaneously, Simultaneously, Simultaneously, penalty penalty penalty proceedings under section 270A of the Act proceedings under section 270A of the Act were initiated on the were initiated on the allegation that the assessee had under allegation that the assessee had under-reported its income in reported its income in consequence of misreporting thereof. consequence of misreporting thereof.

2.4 In response to the show In response to the show-cause notice, the assessee, cause notice, the assessee, inter alia, contended that the notice issued under section 274 read with contended that the notice issued under section 274 read with contended that the notice issued under section 274 read with section 270A of the Act was fundamentally defective inasmuch as it section 270A of the Act was fundamentally defective inasmuch as it section 270A of the Act was fundamentally defective inasmuch as it

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failed to specify the precise limb of section 270A(9) under which the failed to specify the precise limb of section 270A(9) under which the failed to specify the precise limb of section 270A(9) under which the assessee was alleged to have misreported its income. On merits assessee was alleged to have misreported its income. On assessee was alleged to have misreported its income. On also, the assessee asserted that there was neither any suppression also, the assessee asserted that there was neither any suppression also, the assessee asserted that there was neither any suppression nor misrepresentation of facts and that the entire addition arose nor misrepresentation of facts and that the entire addition arose nor misrepresentation of facts and that the entire addition arose merely on account of a difference of opinion regarding the tax merely on account of a difference of opinion regarding the tax merely on account of a difference of opinion regarding the tax treatment of interest expenditure. The assessee maintained that all treatment of interest expenditure. The assessee maint treatment of interest expenditure. The assessee maint primary facts relating to the claim had been fully and truly primary facts relating to the claim had been fully and truly primary facts relating to the claim had been fully and truly disclosed during the assessment proceedings. disclosed during the assessment proceedings.

2.5 The Assessing Officer, however, rejected the explanation The Assessing Officer, however, rejected the explanation The Assessing Officer, however, rejected the explanation furnished by the assessee and proceeded to levy penalty under furnished by the assessee and proceeded to levy penalty under furnished by the assessee and proceeded to levy penalty under section 270A of the Act. The Assessing Officer observed that the A of the Act. The Assessing Officer observed that the A of the Act. The Assessing Officer observed that the assessee had falsely projected the project as being stalled, whereas assessee had falsely projected the project as being stalled, whereas assessee had falsely projected the project as being stalled, whereas enquiries conducted from the office of the Assistant Director, Town enquiries conducted from the office of the Assistant Director, Town enquiries conducted from the office of the Assistant Director, Town Planning, Navi Mumbai Municipal Corporation revealed that the Planning, Navi Mumbai Municipal Corporation revealed that the Planning, Navi Mumbai Municipal Corporation revealed that the occupancy certificate had not been granted owing to alleged upancy certificate had not been granted owing to alleged upancy certificate had not been granted owing to alleged violations of sanctioned plans and misuse of FSI. According to the violations of sanctioned plans and misuse of FSI. According to the violations of sanctioned plans and misuse of FSI. According to the Assessing Officer, the project could have been regularized upon Assessing Officer, the project could have been regularized upon Assessing Officer, the project could have been regularized upon corrective action and payment of requisite penalties and, therefore, corrective action and payment of requisite penalties and, therefore, corrective action and payment of requisite penalties and, therefore, the assessee’s plea regarding stalling of the project lacked bona the assessee’s plea regarding stalling of the project lacked bona the assessee’s plea regarding stalling of the project lacked bona fides. It was further observed that the assessee had selectively fides. It was further observed that the assessee had selectively fides. It was further observed that the assessee had selectively altered its accounting treatment only in respect of the impugned altered its accounting treatment only in respect of the impugned altered its accounting treatment only in respect of the impugned project while continuing to follow the percentage completion method project while continuing to follow the percentage completio project while continuing to follow the percentage completio for other projects, thereby rendering the claim untenable. Reliance for other projects, thereby rendering the claim untenable. Reliance for other projects, thereby rendering the claim untenable. Reliance was accordingly placed upon judicial precedents including Wall was accordingly placed upon judicial precedents including was accordingly placed upon judicial precedents including

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Street Construction Ltd. (supra) Street Construction Ltd. (supra), Taparia Tools Ltd. vs. JCIT(supra) Taparia Tools Ltd. vs. JCIT(supra) and Ace Real Estate & Developers Ace Real Estate & Developers (supra) to con (supra) to conclude that the assessee assessee had had under-reported under reported income income in in consequence consequence of of misreporting and was, therefore, liable for penalty at the rate misreporting and was, therefore, liable for penalty at the rate misreporting and was, therefore, liable for penalty at the rate prescribed under section 270A of the Act. The relevant part of order prescribed under section 270A of the Act. The relevant part of order prescribed under section 270A of the Act. The relevant part of order of ld AO is reproduced of ld AO is reproduced as under:

“2.3 The reply of the 2.3 The reply of the assessee is considered, however, the same is not assessee is considered, however, the same is not acceptable. The penalty proceedings was initiated u/s 270A of the Act for under acceptable. The penalty proceedings was initiated u/s 270A of the Act for under acceptable. The penalty proceedings was initiated u/s 270A of the Act for under reporting income in consequence of misreporting of income. The relevant reporting income in consequence of misreporting of income. The relevant reporting income in consequence of misreporting of income. The relevant provisions of section 270A is reproduced below: provisions of section 270A is reproduced below:

The cases of misreporting of income referred to in sub ases of misreporting of income referred to in sub-section (8) shall be the section (8) shall be the following, namely:— — (a) misrepresentation or suppression of facts; (a) misrepresentation or suppression of facts; (b) failure to record investments in the books of account; (b) failure to record investments in the books of account; (c) claim of expenditure not substantiated by any (c) claim of expenditure not substantiated by any evidence; (d) recording of any false entry in the books of account; (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 (e) failure to record any receipt in books of account having a bearing on total (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 (f) failure to report any international transaction or any transaction deemed to be (f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the ternational transaction or any specified domestic transaction, to which the ternational transaction or any specified domestic transaction, to which the provisions of Chapter X apply. provisions of Chapter X apply. (10) The tax payable in respect of the under (10) The tax payable in respect of the under-reported income shall be reported income shall be— (a) where no return of income has been furnished or where return has been (a) where no return of income has been furnished or where return has been (a) where no return of income has been furnished or where return has been furnished for the first time under section 148 and the income has been assessed furnished for the first time under section 148 and the income has been assessed furnished for the first time under section 148 and the income has been assessed for the first time, the amount of tax calculated on the under-reported income as for the first time, the amount of tax calculated on the under for the first time, the amount of tax calculated on the under increased by the maximum amount not chargeable to tax as if it were the total increased by the maximum amount not chargeable to tax as if it were the total 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 re the total income determined under clause (a) of sub-section (1) of section re the total income determined under clause (a) of sub 143 or assessed, reassessed or recomputed in a preceding order is a loss, the 143 or assessed, reassessed or recomputed in a preceding order is a loss, the 143 or assessed, reassessed or recomputed in a preceding order is a loss, the

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amount of tax calculated on the under amount of tax calculated on the under-reported income as if it were the total reported income as if it were the total income; 2.4 In this case the assessee had misrepresented the facts. It had claimed case the assessee had misrepresented the facts. It had claimed case the assessee had misrepresented the facts. It had claimed deduction of interest expenditure of Rs. 16,89,74,776/ deduction of interest expenditure of Rs. 16,89,74,776/- against the project called against the project called Palm Beach Arcade on the pretext of project being stalled. However, on Palm Beach Arcade on the pretext of project being stalled. However, on Palm Beach Arcade on the pretext of project being stalled. However, on verification from the Assistant directo verification from the Assistant director, Town Planning Navi Mumbai Municipal r, Town Planning Navi Mumbai Municipal Corporation, it was found that the assessee had carried out construction in Corporation, it was found that the assessee had carried out construction in Corporation, it was found that the assessee had carried out construction in violation of the sanctioned plans and hence the Occupancy Certificated was not violation of the sanctioned plans and hence the Occupancy Certificated was not violation of the sanctioned plans and hence the Occupancy Certificated was not granted. The Affidavit filed by the Assistant Director, Town Planning Navi granted. The Affidavit filed by the Assistant Director, Town P granted. The Affidavit filed by the Assistant Director, Town P Mumbai Municipal Corporation, stated that if the assessee has taken corrective Mumbai Municipal Corporation, stated that if the assessee has taken corrective Mumbai Municipal Corporation, stated that if the assessee has taken corrective action in respect of FSI violations/misuse by bringing the construction in action in respect of FSI violations/misuse by bringing the construction in action in respect of FSI violations/misuse by bringing the construction in conformity with the sanctioned plans and by payment of the necessary penalty, conformity with the sanctioned plans and by payment of the necessary penalty, conformity with the sanctioned plans and by payment of the necessary penalty, the process of obtaining Occupancy Certificate could be initiated. Hence, the of obtaining Occupancy Certificate could be initiated. Hence, the of obtaining Occupancy Certificate could be initiated. Hence, the contention of the assessee that the project is stalled, is not correct. The assessee contention of the assessee that the project is stalled, is not correct. The assessee contention of the assessee that the project is stalled, is not correct. The assessee could have initiated the project by confirming with the sanctioned plans and could have initiated the project by confirming with the sanctioned plans and could have initiated the project by confirming with the sanctioned plans and paying off the necessary pe paying off the necessary penalties and hence the reason for not capitalizing the nalties and hence the reason for not capitalizing the interest cost is not bonafide. Till the time occupancy certificate is not available, interest cost is not bonafide. Till the time occupancy certificate is not available, interest cost is not bonafide. Till the time occupancy certificate is not available, the interest cost of Rs. 16,89,74,776/ the interest cost of Rs. 16,89,74,776/- on the said project was required to be on the said project was required to be capitalized in WIP. Assesses was not a capitalized in WIP. Assesses was not allowed to claim deduction of interest llowed to claim deduction of interest expenditure. The assessee has not followed the matching concept of income and expenditure. The assessee has not followed the matching concept of income and expenditure. The assessee has not followed the matching concept of income and expenditure. 2.5 The assessee cannot say that it was not aware of the matching concept of 2.5 The assessee cannot say that it was not aware of the matching concept of 2.5 The assessee cannot say that it was not aware of the matching concept of income and expenditure. The assessee had been income and expenditure. The assessee had been capitalizing the interest as part capitalizing the interest as part of WIP in earlier years. It changed the methodology during the year solely for tax of WIP in earlier years. It changed the methodology during the year solely for tax of WIP in earlier years. It changed the methodology during the year solely for tax purpose, even while not accounting for any income. The assessee has been purpose, even while not accounting for any income. The assessee has been purpose, even while not accounting for any income. The assessee has been following percentage completion method for all the projects. However, it changed following percentage completion method for all the projects. Howev following percentage completion method for all the projects. Howev the methodology for only one project only for tax purpose. the methodology for only one project only for tax purpose. In the case of Wall Street Construction Ltd., [2006] 101 ITD 156 (MUM.) (SB), the In the case of Wall Street Construction Ltd., [2006] 101 ITD 156 (MUM.) (SB), the In the case of Wall Street Construction Ltd., [2006] 101 ITD 156 (MUM.) (SB), the Hon’ble ITAT Special Bench has categorically held as follows: Hon’ble ITAT Special Bench has categorically held as follows: Hon’ble ITAT Special Bench has categorically held as follows: "31. For the reasons discussed above, we hold that where an assessee is "31. For the reasons discussed above, we hold that where an assessee is "31. For the reasons discussed above, we hold that where an assessee is following following project-completion project completion method method of of accounting, accounting, the the interest interest identifiable with that project should be allowed only in the year when the identifiable with that project should be allowed only in the year when the identifiable with that project should be allowed only in the year when the project is completed and the income from that project is completed and the income from that project is offered for project is offered for taxation." The above case pertains to an assessee who was engaged in the same line of The above case pertains to an assessee who was engaged in the same line of The above case pertains to an assessee who was engaged in the same line of business of construction, as that of assessee. business of construction, as that of assessee. 2.6 In the case of Taparia Tools Ltd vs JCIT, [2003] 260 ITR 102 (Bombay), it was 2.6 In the case of Taparia Tools Ltd vs JCIT, [2003] 260 ITR 102 (Bombay), it was 2.6 In the case of Taparia Tools Ltd vs JCIT, [2003] 260 ITR 102 (Bombay), it was held as follows: "... Therefore, under the Mercantile System of Accounting, in : "... Therefore, under the Mercantile System of Accounting, in : "... Therefore, under the Mercantile System of Accounting, in order to determine the net income of an accounting year, the revenue and other order to determine the net income of an accounting year, the revenue and other order to determine the net income of an accounting year, the revenue and other incomes are matched with the cost of resources consumed [expenses]. Under the incomes are matched with the cost of resources consumed [expenses]. Under the incomes are matched with the cost of resources consumed [expenses]. Under the Mercantile System of Accounting, th Mercantile System of Accounting, this Matching is required to be done on accrual is Matching is required to be done on accrual

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basis. Under this Matching concept, revenue and income earned during an basis. Under this Matching concept, revenue and income earned during an basis. Under this Matching concept, revenue and income earned during an Accounting Period, irrespective of actual cash in Accounting Period, irrespective of actual cash in-flow, is required to be compared flow, is required to be compared with expenses incurred during the same period, irrespec with expenses incurred during the same period, irrespective of actual out tive of actual out-flow of cash. In this case, the assessee is following Mercantile System of Accounting. cash. In this case, the assessee is following Mercantile System of Accounting. cash. In this case, the assessee is following Mercantile System of Accounting. This Matching concept is very relevant to compute taxable income particularly in This Matching concept is very relevant to compute taxable income particularly in This Matching concept is very relevant to compute taxable income particularly in cases involving DRE...". cases involving DRE...". 2.7 In the case of Ace Real Estate & Devel 2.7 In the case of Ace Real Estate & Developers, [2018] 100 taxmann.com 228 opers, [2018] 100 taxmann.com 228 (Bombay), the Honble Bombay HC held that where an assessee who engaged in (Bombay), the Honble Bombay HC held that where an assessee who engaged in (Bombay), the Honble Bombay HC held that where an assessee who engaged in business of land development had been consistently following mercantile system business of land development had been consistently following mercantile system business of land development had been consistently following mercantile system of accounting in respect of all its projects, it could not selectively alter the method of accounting in respect of all its projects, it could not selectivel of accounting in respect of all its projects, it could not selectivel of accounting for just one of its projects. of accounting for just one of its projects. 3. In view of the above, it is clear that the assessee has under reported its income In view of the above, it is clear that the assessee has under reported its income In view of the above, it is clear that the assessee has under reported its income in consequence to mis reporting. As the assessee has violated the provisions of in consequence to mis reporting. As the assessee has violated the provisions of in consequence to mis reporting. As the assessee has violated the provisions of section 36(1)(iii) of the Ac section 36(1)(iii) of the Act, it is liable to pay penalty u/s 270A of the Act. t, it is liable to pay penalty u/s 270A of the Act. The total tax sought to be evaded is calculated to be Rs. 4,39,33,442/-. 4. The total tax sought to be evaded is calculated to be The total tax sought to be evaded is calculated to be Accordingly, the assessee is liable to pay Rs. As penalty being 200% of Accordingly, the assessee is liable to pay Rs. As penalty being 200% of Accordingly, the assessee is liable to pay Rs. As penalty being 200% of tax sought to be evaded tax sought to be evaded” 3. In further appeal, the learn In further appeal, the learned CIT(A) affirmed the levy of penalty ed CIT(A) affirmed the levy of penalty primarily on two counts, namely: firstly, that mere non-specification primarily on two counts, namely: firstly, that mere non primarily on two counts, namely: firstly, that mere non of the precise limb of section 270A(9) of the Act would not invalidate of the precise limb of section 270A(9) of the Act would not invalidate of the precise limb of section 270A(9) of the Act would not invalidate the penalty proceedings; and secondly, that the assessee had failed the penalty proceedings; and secondly, that the assessee had failed the penalty proceedings; and secondly, that the assessee had failed to place on record any cogent documentary material justifying its on record any cogent documentary material justifying its on record any cogent documentary material justifying its departure from the consistently followed practice of capitalizing departure from the consistently followed practice of capitalizing departure from the consistently followed practice of capitalizing interest expenditure as part of work interest expenditure as part of work-in-progress in the preceding progress in the preceding years.

3.1 While sustaining the penalty, the learned CIT(A) obser While sustaining the penalty, the learned CIT(A) obser While sustaining the penalty, the learned CIT(A) observed that the genesis of the dispute lay in the assessee’s claim of interest the genesis of the dispute lay in the assessee’s claim of interest the genesis of the dispute lay in the assessee’s claim of interest expenditure expenditure amounting amounting to to Rs.16,89,74,776/ Rs.16,89,74,776/- as revenue expenditure in respect of the “Palm Beach Arcade” project, despite expenditure in respect of the “Palm Beach Arcade” project, despite expenditure in respect of the “Palm Beach Arcade” project, despite the assessee having consistently followed the percentage completion the assessee having consistently followed the percentage co the assessee having consistently followed the percentage co

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method and capitalization of borrowing costs in earlier years. method and capitalization of borrowing costs in earlier years. method and capitalization of borrowing costs in earlier years. According to the learned CIT(A), the Assessing Officer had rightly According to the learned CIT(A), the Assessing Officer had rightly According to the learned CIT(A), the Assessing Officer had rightly held that the interest expenditure ought to have been capitalized to held that the interest expenditure ought to have been capitalized to held that the interest expenditure ought to have been capitalized to work-in-progress in accordance with the matching progress in accordance with the matching principle and progress in accordance with the matching accepted accounting methodology. accepted accounting methodology.

3.2 The learned CIT(A) further recorded that although the assessee The learned CIT(A) further recorded that although the assessee The learned CIT(A) further recorded that although the assessee had contended that complete disclosure of facts had been made had contended that complete disclosure of facts had been made had contended that complete disclosure of facts had been made during the assessment proceedings, such disclosure, by itself, during the assessment proceedings, such disclosure, by itself, during the assessment proceedings, such disclosure, by itself, would not absolve the assessee if the conduct otherwise amounted ve the assessee if the conduct otherwise amounted ve the assessee if the conduct otherwise amounted to misrepresentation within the meaning of section 270A(9) of the to misrepresentation within the meaning of section 270A(9) of the to misrepresentation within the meaning of section 270A(9) of the Act. The learned CIT(A) noted that enquiries conducted by the Act. The learned CIT(A) noted that enquiries conducted by the Act. The learned CIT(A) noted that enquiries conducted by the Assessing Officer from the office of the Assistant Director, Town Assessing Officer from the office of the Assistant Director, Town Assessing Officer from the office of the Assistant Director, Town Planning, Navi Mumbai Municipal Corporation allegedly revealed vi Mumbai Municipal Corporation allegedly revealed vi Mumbai Municipal Corporation allegedly revealed that the project had remained incomplete on account of deviations that the project had remained incomplete on account of deviations that the project had remained incomplete on account of deviations from sanctioned plans and misuse of FSI, resulting in non-grant of from sanctioned plans and misuse of FSI, resulting in non from sanctioned plans and misuse of FSI, resulting in non the Occupancy Certificate. It was further observed that the project the Occupancy Certificate. It was further observed that the project the Occupancy Certificate. It was further observed that the project could have been regularized upon compliance with the prescribed d have been regularized upon compliance with the prescribed d have been regularized upon compliance with the prescribed conditions and payment of requisite penalties and, therefore, the conditions and payment of requisite penalties and, therefore, the conditions and payment of requisite penalties and, therefore, the assessee’s plea that the project had irretrievably stalled was not assessee’s plea that the project had irretrievably stalled was not assessee’s plea that the project had irretrievably stalled was not entirely bona fide.

3.3 Proceeding further, the learned CIT(A) Proceeding further, the learned CIT(A) held that the assessee held that the assessee had consciously altered the accounting treatment only in respect of had consciously altered the accounting treatment only in respect of had consciously altered the accounting treatment only in respect of the impugned project while continuing to follow the percentage the impugned project while continuing to follow the percentage the impugned project while continuing to follow the percentage completion method for all other projects. According to the learned completion method for all other projects. According to the learned completion method for all other projects. According to the learned

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CIT(A), such selective deviation, CIT(A), such selective deviation, unsupported by contemporaneous unsupported by contemporaneous documentary evidence, was indicative of a deliberate attempt to documentary evidence, was indicative of a deliberate attempt to documentary evidence, was indicative of a deliberate attempt to secure immediate tax advantage and, therefore, constituted secure immediate tax advantage and, therefore, constituted secure immediate tax advantage and, therefore, constituted “misreporting” of income within the contemplation of section “misreporting” of income within the contemplation of section “misreporting” of income within the contemplation of section 270A(9) of the Act rather than a mere dif 270A(9) of the Act rather than a mere difference of opinion on an ference of opinion on an accounting issue.

3.4 Dealing with the legal objection raised by the assessee Dealing with the legal objection raised by the assessee Dealing with the legal objection raised by the assessee regarding non-specification of the precise limb of section 270A(9), specification of the precise limb of section 270A(9), specification of the precise limb of section 270A(9), the learned CIT(A) held that the penalty order, read as a whole, the learned CIT(A) held that the penalty order, read as a whole, the learned CIT(A) held that the penalty order, read as a whole, sufficiently disclosed the factual foundation and the basis on which sed the factual foundation and the basis on which sed the factual foundation and the basis on which the Assessing Officer had arrived at the conclusion that the the Assessing Officer had arrived at the conclusion that the the Assessing Officer had arrived at the conclusion that the assessee had misreported its income. According to the learned assessee had misreported its income. According to the learned assessee had misreported its income. According to the learned CIT(A), absence of specific reference to a particular clause of section CIT(A), absence of specific reference to a particular clause of section CIT(A), absence of specific reference to a particular clause of section 270A(9) was not fatal to the validity of the penalty proceedings so not fatal to the validity of the penalty proceedings so not fatal to the validity of the penalty proceedings so long as the substance of the allegation and the satisfaction of the long as the substance of the allegation and the satisfaction of the long as the substance of the allegation and the satisfaction of the Assessing Officer were discernible from the record. Assessing Officer were discernible from the record.

3.5 In support of the aforesaid conclusion, reliance was placed In support of the aforesaid conclusion, reliance was placed In support of the aforesaid conclusion, reliance was placed upon the decision of the ion of the Hon’ble Bombay High Court in its order Hon’ble Bombay High Court in its order dated 11/01/2024 in the case of Veena Estate Pvt. Ltd. Vs dated 11/01/2024 in the case of Veena Estate Pvt. Ltd. Vs dated 11/01/2024 in the case of Veena Estate Pvt. Ltd. Vs Tax Appeal No. 302 of 2002), wherein it was observed , wherein it was observed CIT(Income-Tax Appeal No. 302 of 2002) that a mere technical defect in the notice would not ipso facto that a mere technical defect in the notice would not ipso facto that a mere technical defect in the notice would not ipso facto invalidate penalty proceedings unless prejudice was shown to have invalidate penalty proceedings unless prejudice was shown to have invalidate penalty proceedings unless prejudice was shown to have been caused to the assessee. The learned CIT(A) also referred to the been caused to the assessee. The learned CIT(A) also referred to the been caused to the assessee. The learned CIT(A) also referred to the judgment of the Hon’ble Delhi H judgment of the Hon’ble Delhi High Court in igh Court in CIT Vs. Zoom

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Communications Pvt. Ltd. Communications Pvt. Ltd. to emphasize that wholly untenable to emphasize that wholly untenable claims lacking bona fides cannot escape the rigours of penalty claims lacking bona fides cannot escape the rigours of penalty claims lacking bona fides cannot escape the rigours of penalty merely because disclosure was made in the return of income. merely because disclosure was made in the return of income. merely because disclosure was made in the return of income.

3.6 On the aforesaid reasoning, the learned CI On the aforesaid reasoning, the learned CIT(A) concluded that T(A) concluded that the assessee had failed to substantiate the basis for claiming the the assessee had failed to substantiate the basis for claiming the the assessee had failed to substantiate the basis for claiming the impugned interest expenditure as revenue deduction and had also impugned interest expenditure as revenue deduction and had also impugned interest expenditure as revenue deduction and had also failed to justify the departure from its consistently followed failed to justify the departure from its consistently followed failed to justify the departure from its consistently followed accounting practice. The learned CIT(A), t accounting practice. The learned CIT(A), therefore, upheld the herefore, upheld the action of the Assessing Officer in treating the case as one of under- action of the Assessing Officer in treating the case as one of under action of the Assessing Officer in treating the case as one of under reporting of income in consequence of misreporting thereof and reporting of income in consequence of misreporting thereof and reporting of income in consequence of misreporting thereof and consequently sustained the penalty levied under section 270A of the consequently sustained the penalty levied under section 270A of the consequently sustained the penalty levied under section 270A of the Act amounting to Rs.8,78,66,883/ Act amounting to Rs.8,78,66,883/-.

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surrounding the project, the assessee had bona fide treated the surrounding the project, the assessee had bona fide treated the surrounding the project, the assessee had bona fide treated the borrowing cost as revenue expenditure, whereas the Assessing borrowing cost as revenue expenditure, whereas the Assessing borrowing cost as revenue expenditure, whereas the Assessing Officer took the contrary view that such expenditure ought to have Officer took the contrary view that such expenditure ought to have Officer took the contrary view that such expenditure ought to have been capitalized as part of the project cost. been capitalized as part of the project cost.

4.1 The learned counsel further submitted that, in order to bring a The learned counsel further submitted that, in order to bring a The learned counsel further submitted that, in order to bring a case case case within within within the the the ambit ambit ambit of of of “suppression” “suppression” “suppression” or or or “misreporting” “misreporting” “misreporting” contemplated under section 270A(9) of the Act, there must exist a contemplated under section 270A(9) of the Act, there must exist a contemplated under section 270A(9) of the Act, there must exist a deliberate and wilful non deliberate and wilful non-disclosure of material particulars. In disclosure of material particulars. In the present present present case, case, case, the the the assessee assessee assessee had had had candidly candidly candidly disclosed disclosed disclosed the the the circumstances under which the interest expenditure was claimed as circumstances under which the interest expenditure was claimed as circumstances under which the interest expenditure was claimed as revenue expenditure, namely, that the project had substantially revenue expenditure, namely, that the project had substantially revenue expenditure, namely, that the project had substantially stalled and the assessee had accordingly ceased allocating further stalled and the assessee had accordingly ceased allocating further stalled and the assessee had accordingly ceased allocating further interest cost to work nterest cost to work-in-progress. It was contended that the progress. It was contended that the explanation furnished by the assessee was based on commercial explanation furnished by the assessee was based on commercial explanation furnished by the assessee was based on commercial prudence and business realities and, therefore, could not be prudence and business realities and, therefore, could not be prudence and business realities and, therefore, could not be characterized as mala fide or lacking in bona fides. characterized as mala fide or lacking in bona fides.

4.2 It was further a It was further argued that the sole basis on which the rgued that the sole basis on which the Assessing Officer proceeded against the assessee was the allegation Assessing Officer proceeded against the assessee was the allegation Assessing Officer proceeded against the assessee was the allegation that the project had stalled due to lapses attributable to the that the project had stalled due to lapses attributable to the that the project had stalled due to lapses attributable to the assessee itself. The learned counsel submitted that, irrespective of assessee itself. The learned counsel submitted that, irrespective of assessee itself. The learned counsel submitted that, irrespective of whether the delay or stalling of the project was attributable to the or stalling of the project was attributable to the or stalling of the project was attributable to the assessee or otherwise, the undeniable factual position remained assessee or otherwise, the undeniable factual position remained assessee or otherwise, the undeniable factual position remained that there was no business activity for several years and the that there was no business activity for several years and the that there was no business activity for several years and the aggregate project cost had already exceeded the anticipated aggregate project cost had already exceeded the anticipated aggregate project cost had already exceeded the anticipated

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realizable revenue. In such circumstances, the assessee, acting . In such circumstances, the assessee, acting . In such circumstances, the assessee, acting upon commercial considerations, altered its accounting treatment upon commercial considerations, altered its accounting treatment upon commercial considerations, altered its accounting treatment and claimed the interest expenditure as a period cost instead of and claimed the interest expenditure as a period cost instead of and claimed the interest expenditure as a period cost instead of continuing capitalization thereof to work continuing capitalization thereof to work-in-progress. progress.

4.3 The learned counsel The learned counsel also emphasized that all relevant also emphasized that all relevant particulars and supporting facts had been duly furnished before the particulars and supporting facts had been duly furnished before the particulars and supporting facts had been duly furnished before the Assessing Officer and, therefore, the allegation of misrepresentation Assessing Officer and, therefore, the allegation of misrepresentation Assessing Officer and, therefore, the allegation of misrepresentation was wholly misconceived. It was submitted that the claim made by was wholly misconceived. It was submitted that the claim made by was wholly misconceived. It was submitted that the claim made by the assessee was not t ex-facie impermissible in law nor was it devoid impermissible in law nor was it devoid of legal foundation. Even otherwise, according to the learned of legal foundation. Even otherwise, according to the learned of legal foundation. Even otherwise, according to the learned counsel, capitalization of the expenditure would merely defer the counsel, capitalization of the expenditure would merely defer the counsel, capitalization of the expenditure would merely defer the allowance to a subsequent year and, therefore, the dispute allowance to a subsequent year and, therefore, the dispute allowance to a subsequent year and, therefore, the dispute substantially pertained to the timing of deduction rather than to ined to the timing of deduction rather than to ined to the timing of deduction rather than to any attempt at evasion of tax. any attempt at evasion of tax.

4.4 Without prejudice to the aforesaid submissions on merits, the Without prejudice to the aforesaid submissions on merits, the Without prejudice to the aforesaid submissions on merits, the learned counsel raised an alternate legal contention assailing the learned counsel raised an alternate legal contention assailing the learned counsel raised an alternate legal contention assailing the very validity of the penalty proceedings. It very validity of the penalty proceedings. It was submitted that the was submitted that the show-cause notice issued under section 274 read with section 270A cause notice issued under section 274 read with section 270A cause notice issued under section 274 read with section 270A of the Act failed to specify the precise limb of section 270A(9) under of the Act failed to specify the precise limb of section 270A(9) under of the Act failed to specify the precise limb of section 270A(9) under which the assessee was alleged to have misreported its income. The which the assessee was alleged to have misreported its income. which the assessee was alleged to have misreported its income. assessee referred to the not assessee referred to the notice u/s 274 read with section 270A, ice u/s 274 read with section 270A, wherein the AO has mentioned that “ wherein the AO has mentioned that “whereas in the course of whereas in the course of proceedings before me for the Assessment Year 2020-21, it appears proceedings before me for the Assessment Year 2020 proceedings before me for the Assessment Year 2020 to me that the assessee had under to me that the assessee had under-reporting and misreporting reporting and misreporting

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income”. According to the learned According to the learned counsel, the notice merely counsel, the notice merely contained a vague and omnibus allegation of “under-reporting and contained a vague and omnibus allegation of “under contained a vague and omnibus allegation of “under misreporting of income” without identifying the exact statutory misreporting of income” without identifying the exact statutory misreporting of income” without identifying the exact statutory charge, thereby depriving the assessee of a meaningful opportunity charge, thereby depriving the assessee of a meaningful opportunity charge, thereby depriving the assessee of a meaningful opportunity to defend itself against the pro to defend itself against the proposed penal action carrying posed penal action carrying enhanced consequences at the rate of 200% of the tax allegedly enhanced consequences at the rate of 200% of the tax allegedly enhanced consequences at the rate of 200% of the tax allegedly sought to be evaded.

4.5 In support of the aforesaid contention, reliance was placed In support of the aforesaid contention, reliance was placed In support of the aforesaid contention, reliance was placed upon the decision of the Coordinate Bench of the Tribunal in upon the decision of the Coordinate Bench of the Tribunal in upon the decision of the Coordinate Bench of the Tribunal in Aawagaman Mercanti Aawagaman Mercantile LLP Vs. Income Tax Officer in [ITA No. le LLP Vs. Income Tax Officer in [ITA No. 3235/Mum/2024], wherein it was held that failure on the part of , wherein it was held that failure on the part of , wherein it was held that failure on the part of the Assessing Officer to specify the precise limb of section 270A(9) the Assessing Officer to specify the precise limb of section 270A(9) the Assessing Officer to specify the precise limb of section 270A(9) under which penalty was sought to be imposed rendered the under which penalty was sought to be imposed rendered the under which penalty was sought to be imposed rendered the penalty proceedings uns penalty proceedings unsustainable in law. Reliance was also placed eliance was also placed upon the decision in Smita Virendra Lodha Vs. Income Tax Smita Virendra Lodha Vs. Income Tax upon the decision in Officer [ITA No. 1980/Pun/2024] Officer [ITA No. 1980/Pun/2024], wherein the Coordinate Bench wherein the Coordinate Bench observed that non-compliance with the statutory requirement of compliance with the statutory requirement of compliance with the statutory requirement of identifying the relevant claus identifying the relevant clause of section 270A(9)(a) to (f) defeats the e of section 270A(9)(a) to (f) defeats the legislative intent underlying the provision and vitiates the penalty legislative intent underlying the provision and vitiates the penalty legislative intent underlying the provision and vitiates the penalty proceedings. The learned counsel further relied upon the decision The learned counsel further relied upon the decision The learned counsel further relied upon the decision of the Coordinate Bench in Saltwater Studio LLP. v. National Saltwater Studio LLP. v. National of the Coordinate Bench in Faceless Assessment Centre ent Centre in ITA No. 13/Mum/2023 in ITA No. 13/Mum/2023., wherein it was held that where the Assessing Officer seeks to impose it was held that where the Assessing Officer seeks to impose it was held that where the Assessing Officer seeks to impose enhanced penalty for “misreporting” at the rate prescribed under enhanced penalty for “misreporting” at the rate prescribed under enhanced penalty for “misreporting” at the rate prescribed under

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section 270A, it is incumbent upon the Revenue authorities to section 270A, it is incumbent upon the Revenue authorities to section 270A, it is incumbent upon the Revenue authorities to specifically demonstrate specifically demonstrate as to how the assessee’s conduct falls as to how the assessee’s conduct falls within any of the clauses enumerated in section 270A(9)(a) to (f) of within any of the clauses enumerated in section 270A(9)(a) to (f) of within any of the clauses enumerated in section 270A(9)(a) to (f) of the Act. The Coordinate Bench therein observed that failure to do so the Act. The Coordinate Bench therein observed that failure to do so the Act. The Coordinate Bench therein observed that failure to do so amounts to non-application of mind and violation of principles of application of mind and violation of principles of application of mind and violation of principles of natural justice, thereby rendering the penalty legally unsustainable. ice, thereby rendering the penalty legally unsustainable. ice, thereby rendering the penalty legally unsustainable.

4.6 The learned counsel accordingly submitted that the statutory The learned counsel accordingly submitted that the statutory The learned counsel accordingly submitted that the statutory framework framework framework of of of section section section 270A 270A 270A unmistakably unmistakably unmistakably mandates mandates mandates clear clear clear identification of the precise species of “misreporting” alleged against identification of the precise species of “misreporting” alleged against identification of the precise species of “misreporting” alleged against the assessee before the drastic consequence of enhanced penalty the assessee before the drastic consequence of enhanced penalty the assessee before the drastic consequence of enhanced penalty can be visited upon it. In the absence of such statutory compliance, e visited upon it. In the absence of such statutory compliance, e visited upon it. In the absence of such statutory compliance, the impugned penalty proceedings, according to the assessee, stood the impugned penalty proceedings, according to the assessee, stood the impugned penalty proceedings, according to the assessee, stood vitiated both on jurisdictional grounds as well as on account of vitiated both on jurisdictional grounds as well as on account of vitiated both on jurisdictional grounds as well as on account of violation of principles of natural justice. violation of principles of natural justice. The learned cou The learned counsel also drew support from section 270A(1) of the Act and submitted that drew support from section 270A(1) of the Act and submitted that drew support from section 270A(1) of the Act and submitted that the legislature, by consciously employing the expression “may”, has the legislature, by consciously employing the expression “may”, has the legislature, by consciously employing the expression “may”, has vested discretion in the Assessing Officer regarding imposition of vested discretion in the Assessing Officer regarding imposition of vested discretion in the Assessing Officer regarding imposition of penalty. It was contended that levy of penalty penalty. It was contended that levy of penalty is not automatic and is not automatic and the authority concerned is required to exercise such discretion the authority concerned is required to exercise such discretion the authority concerned is required to exercise such discretion judiciously judiciously judiciously upon upon upon due due due consideration consideration consideration of of of all all all surrounding surrounding surrounding circumstances. In support of the said proposition, reliance was circumstances. In support of the said proposition, reliance was circumstances. In support of the said proposition, reliance was placed upon the celebrated judgment of the Hon’ble Supreme Court placed upon the celebrated judgment of the Hon’ble Su placed upon the celebrated judgment of the Hon’ble Su in Hindustan Steel Ltd vs State of Orrissa [83 ITR 26 SC] Hindustan Steel Ltd vs State of Orrissa [83 ITR 26 SC] Hindustan Steel Ltd vs State of Orrissa [83 ITR 26 SC] wherein it was held that penalty proceedings are quasi-criminal in wherein it was held that penalty proceedings are quasi wherein it was held that penalty proceedings are quasi

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nature and penalty ought not to be imposed merely because it is nature and penalty ought not to be imposed merely because it is nature and penalty ought not to be imposed merely because it is lawful to do so, particularly where the breach is technical, venial, or lawful to do so, particularly where the breach is techn lawful to do so, particularly where the breach is techn founded upon a bona fide belief entertained by the assessee. founded upon a bona fide belief entertained by the assessee. founded upon a bona fide belief entertained by the assessee.

4.7 On the other hand, the learned Departmental Representative On the other hand, the learned Departmental Representative On the other hand, the learned Departmental Representative relied on the order of the lower authorities. relied on the order of the lower authorities.

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violations (which caused the stall) and the selective change in violations (which caused the stall) and the selective change in violations (which caused the stall) and the selective change in accounting methodology amounted to misreporting. The Ld. CIT(A) accounting methodology amounted to misreporting. The Ld. CIT(A) accounting methodology amounted to misreporting. The Ld. CIT(A) further dismissed the Assessee’s legal objection regarding the further dismissed the Assessee’s legal objection regarding the further dismissed the Assessee’s legal objection regarding the vagueness of the penalty notice, citin vagueness of the penalty notice, citing the principle that "prejudice" g the principle that "prejudice" must be demonstrated. must be demonstrated.

5.1 Upon a comprehensive consideration of the factual matrix as Upon a comprehensive consideration of the factual matrix as Upon a comprehensive consideration of the factual matrix as well as the statutory framework governing section 270A of the Act, well as the statutory framework governing section 270A of the Act, well as the statutory framework governing section 270A of the Act, we are unable to persuade ourselves to concur with the findings we are unable to persuade ourselves to concur with the findings we are unable to persuade ourselves to concur with the findings recorded by the lower authorities. ed by the lower authorities.

5.2 At the outset, it is discernible from the record that the At the outset, it is discernible from the record that the At the outset, it is discernible from the record that the assessee had disclosed all primary and material facts relating to the assessee had disclosed all primary and material facts relating to the assessee had disclosed all primary and material facts relating to the impugned claim of interest expenditure in its audited financial impugned claim of interest expenditure in its audited financial impugned claim of interest expenditure in its audited financial statements, return of income, a statements, return of income, and during the course of assessment nd during the course of assessment proceedings. The claim pertained to interest expenditure incurred in proceedings. The claim pertained to interest expenditure incurred in proceedings. The claim pertained to interest expenditure incurred in relation to the “Palm Beach Arcade” project, which, according to the relation to the “Palm Beach Arcade” project, which, according to the relation to the “Palm Beach Arcade” project, which, according to the assessee, had substantially stalled due to prolonged legal and assessee, had substantially stalled due to prolonged legal and assessee, had substantially stalled due to prolonged legal and regulatory impedimen regulatory impediments. The assessee had also explained the ts. The assessee had also explained the rationale rationale rationale for for for treating treating treating the the the interest expenditure interest interest expenditure expenditure as revenue as as expenditure instead of capitalizing the same to work expenditure instead of capitalizing the same to work- -in-progress.

5.3 The disallowance ultimately arose on account of a difference in The disallowance ultimately arose on account of a difference in The disallowance ultimately arose on account of a difference in perception between the perception between the assessee and the Assessing Officer assessee and the Assessing Officer regarding the appropriate accounting and tax treatment of the regarding the appropriate accounting and tax treatment of the regarding the appropriate accounting and tax treatment of the interest expenditure. While the assessee considered the expenditure interest expenditure. While the assessee considered the expenditure interest expenditure. While the assessee considered the expenditure

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to be allowable as revenue expenditure having regard to commercial to be allowable as revenue expenditure having regard to commercial to be allowable as revenue expenditure having regard to commercial realities and the dimin realities and the diminished possibility of recovery from the project, ished possibility of recovery from the project, the Assessing Officer was of the opinion that the same ought to the Assessing Officer was of the opinion that the same ought to the Assessing Officer was of the opinion that the same ought to have continued to be capitalized as part of work-in-progress in have continued to be capitalized as part of work have continued to be capitalized as part of work consonance with the matching principle and the percentage consonance with the matching principle and the percentage consonance with the matching principle and the percentage completion method. Suc completion method. Such divergence, in our considered opinion, h divergence, in our considered opinion, constitutes at best a debatable issue relating to the allowability or constitutes at best a debatable issue relating to the allowability or constitutes at best a debatable issue relating to the allowability or timing of deduction and cannot, by any stretch of legal timing of deduction and cannot, by any stretch of legal timing of deduction and cannot, by any stretch of legal interpretation, be elevated to the level of “misreporting” within the interpretation, be elevated to the level of “misreporting” within the interpretation, be elevated to the level of “misreporting” within the meaning of section meaning of section 270A(9) of the Act. A shift in accounting A shift in accounting treatment necessitated by the commerci treatment necessitated by the commercial reality of a stalled al reality of a stalled project, even if eventually di even if eventually disallowed in quantum proceedings, sallowed in quantum proceedings, cannot be branded as "misreporting" unless it is proven that the cannot be branded as "misreporting" unless it is proven that the cannot be branded as "misreporting" unless it is proven that the facts themselves were fa facts themselves were falsified.

5.4 Before a case can be brought within the ambit of “misreporting Before a case can be brought within the ambit of “misreporting Before a case can be brought within the ambit of “misreporting of income”, the Revenue must establish, on the basis of cogent of income”, the Revenue must establish, on the basis of cogent of income”, the Revenue must establish, on the basis of cogent material, the existence of circumstances specifically contemplated material, the existence of circumstances specifically contemplated material, the existence of circumstances specifically contemplated under clauses (a) to (f) of section 270A(9) of th under clauses (a) to (f) of section 270A(9) of the Act. Mere rejection e Act. Mere rejection of a claim, howsoever unsustainable in the opinion of the Assessing of a claim, howsoever unsustainable in the opinion of the Assessing of a claim, howsoever unsustainable in the opinion of the Assessing Officer, does not ipso facto lead to the conclusion that the assessee Officer, does not ipso facto lead to the conclusion that the assessee Officer, does not ipso facto lead to the conclusion that the assessee has either misrepresented or suppressed material facts. has either misrepresented or suppressed material facts. has either misrepresented or suppressed material facts.

5.6 In the present case, In the present case, the ld CIT(A) has held project was stalled as held project was stalled due due due to to to failure failure failure on on on the the the part part part of of of the the the assessee assessee assessee and and and which which which misrepresentation of suppression of facts. But in our opinion that is misrepresentation of suppression of facts. But in our opinion that is misrepresentation of suppression of facts. But in our opinion that is

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not the fact material to the issue of allowability of interest. The not the fact material to the issue of allowability of interest. not the fact material to the issue of allowability of interest. Revenue has not brought on record an Revenue has not brought on record any material to demonstrate y material to demonstrate that the assessee misrepresented misrepresented any primary fact, , or suppressed any material fact. On the contrary, all facts pertaining to the On the contrary, all facts pertaining to the project, the accounting treatment adopted, the alleged stalling of project, the accounting treatment adopted, the alleged stalling of project, the accounting treatment adopted, the alleged stalling of the project, and the basis for cl the project, and the basis for claiming the expenditure were fully aiming the expenditure were fully disclosed before the authorities below. Once the foundational facts disclosed before the authorities below. Once the foundational facts disclosed before the authorities below. Once the foundational facts were already available on record, the allegation of suppression or were already available on record, the allegation of suppression or were already available on record, the allegation of suppression or misrepresentation becomes inherently untenable. misrepresentation becomes inherently untenable. The Revenue did The Revenue did not discover any hidden not discover any hidden facts; it merely disagreed with the facts; it merely disagreed with the Assessee’s decision to treat the interest as a revenue expenditure Assessee’s decision to treat the interest as a revenue expenditure Assessee’s decision to treat the interest as a revenue expenditure rather than capitalizing it. rather than capitalizing it. In the present case, the primary facts In the present case, the primary facts regarding the project’s status and the interest quantum were never regarding the project’s status and the interest quantum were never regarding the project’s status and the interest quantum were never in doubt. The addition was a result of a difference in interpretation in doubt. The addition was a result of a difference in interpretation in doubt. The addition was a result of a difference in interpretation of the "Matching Concept" versus "Period Cost." Such a conceptual of the "Matching Concept" versus "Period Cost." Such a conceptual of the "Matching Concept" versus "Period Cost." Such a conceptual conflict does not constitute "misreporting." not constitute "misreporting."

5.7 We further find substantial force in the alternate legal We further find substantial force in the alternate legal We further find substantial force in the alternate legal contention advanced on behalf of the assessee that neither the contention advanced on behalf of the assessee that neither the contention advanced on behalf of the assessee that neither the notice issued under section 274 read with section 270A of the Act notice issued under section 274 read with section 270A of the Act notice issued under section 274 read with section 270A of the Act nor the penalty order clearly spe nor the penalty order clearly specified the particular limb of section cified the particular limb of section 270A(9) under which the assessee was alleged to have misreported 270A(9) under which the assessee was alleged to have misreported 270A(9) under which the assessee was alleged to have misreported its income. The Assessing Officer merely employed omnibus its income. The Assessing Officer merely employed omnibus its income. The Assessing Officer merely employed omnibus expressions such as “under expressions such as “under-reporting and misreporting of income” reporting and misreporting of income” without identifying the precis without identifying the precise statutory charge contemplated under e statutory charge contemplated under

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clauses (a) to (f) of section 270A(9). clauses (a) to (f) of section 270A(9). In our considered view, such In our considered view, such failure goes to the root of jurisdiction. The statutory scheme of failure goes to the root of jurisdiction. The statutory scheme of failure goes to the root of jurisdiction. The statutory scheme of section 270A clearly distinguishes between “under-reporting” and section 270A clearly distinguishes between “under section 270A clearly distinguishes between “under “misreporting”, the latter latter carrying carrying far far more more serious serious civil civil consequences by prescribing penalty at the enhanced rate of 200% consequences by prescribing penalty at the enhanced rate of 200% consequences by prescribing penalty at the enhanced rate of 200% of the tax payable on under of the tax payable on under-reported income. Consequently, the reported income. Consequently, the Assessing Officer is under a statutory obligation to put the assessee Assessing Officer is under a statutory obligation to put the assessee Assessing Officer is under a statutory obligation to put the assessee to clear notice regarding the exact nature of the allegation and the garding the exact nature of the allegation and the garding the exact nature of the allegation and the specific limb invoked against it. Absence of such specification specific limb invoked against it. Absence of such specification specific limb invoked against it. Absence of such specification results in manifest ambiguity and causes serious prejudice to the results in manifest ambiguity and causes serious prejudice to the results in manifest ambiguity and causes serious prejudice to the assessee in defending itself effectively against the proposed penal assessee in defending itself effectively against the proposed penal assessee in defending itself effectively against the proposed penal action.

5.8 The coordinate Bench of Tribunal in the case of Aawagaman The coordinate Bench of Tribunal in the case of Aawagaman The coordinate Bench of Tribunal in the case of Aawagaman Mercantile LLP Vs. Income Tax Officer in [Supra], held as under: Mercantile LLP Vs. Income Tax Officer in [ eld as under:

"12. Since, in the present case, from the perusal of the penalty order passed "12. Since, in the present case, from the perusal of the penalty order passed "12. Since, in the present case, from the perusal of the penalty order passed under s. 270A of the Act, it is discernible that t under s. 270A of the Act, it is discernible that the AO has failed to specify the he AO has failed to specify the specific limb of s. 270A(9) of the Act under which the assessee was held to have specific limb of s. 270A(9) of the Act under which the assessee was held to have specific limb of s. 270A(9) of the Act under which the assessee was held to have underreported income in consequence of mis underreported income in consequence of mis-reporting of income, respectfully reporting of income, respectfully following the aforesaid decision of the Co following the aforesaid decision of the Co-ordinate Bench of the T ordinate Bench of the Tribunal, we are of the considered view that the penalty levied under s. 270A of the Act is of the considered view that the penalty levied under s. 270A of the Act is of the considered view that the penalty levied under s. 270A of the Act is unsustainable and therefore is deleted. Accordingly, the impugned order is set unsustainable and therefore is deleted. Accordingly, the impugned order is set unsustainable and therefore is deleted. Accordingly, the impugned order is set aside and grounds raised by the assessee challenging the levy of penalty under aside and grounds raised by the assessee challenging the levy of penalty under aside and grounds raised by the assessee challenging the levy of penalty under s. 270A of the Act are allowed. of the Act are allowed. In the result, the appeal by the assessee is allowed." In the result, the appeal by the assessee is allowed." 5.9 The Hon’ble Coordinate Bench of the Tribunal in the case of Hon’ble Coordinate Bench of the Tribunal in the case of Hon’ble Coordinate Bench of the Tribunal in the case of Saltwater Studio LLP. v. National Faceless Assessment Centre Saltwater Studio LLP. v. National Faceless Assessment Centre Saltwater Studio LLP. v. National Faceless Assessment Centre (supra) held as under: as under:

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“13. The AO has levied the higher penalty of 200 per cent of tax payable . The AO has levied the higher penalty of 200 per cent of tax payable . The AO has levied the higher penalty of 200 per cent of tax payable of misreporting income. Then in such a scenario, the AO has to bring the of misreporting income. Then in such a scenario, the AO has to bring the of misreporting income. Then in such a scenario, the AO has to bring the action/ omission on the part of the assessee in the ken of sub action/ omission on the part of the assessee in the ken of sub action/ omission on the part of the assessee in the ken of sub-s. (9) of s. 270A of the Act which are given (supr 270A of the Act which are given (supra), viz., clauses (a) to (f) of s. 270A(9) a), viz., clauses (a) to (f) of s. 270A(9) of the Act. However, a reading of the reasons given by the AO to levy of the Act. However, a reading of the reasons given by the AO to levy of the Act. However, a reading of the reasons given by the AO to levy penalty for misreporting (supra) it is discerned that he has failed to spell penalty for misreporting (supra) it is discerned that he has failed to spell penalty for misreporting (supra) it is discerned that he has failed to spell out as to how the assessee's case/additions falls within the ken o out as to how the assessee's case/additions falls within the ken o out as to how the assessee's case/additions falls within the ken of instances given in cls. (a) to (f) of sub instances given in cls. (a) to (f) of sub-s. (9) of s. 270A of the Act. Since, the s. (9) of s. 270A of the Act. Since, the AO failed to bring the addition/disallowance he made in quantum AO failed to bring the addition/disallowance he made in quantum AO failed to bring the addition/disallowance he made in quantum assessment, under the ken of cls. (a) to (f) of sub assessment, under the ken of cls. (a) to (f) of sub-s. (9) of s. 270A of the s. (9) of s. 270A of the Act, the penalty levied for mi Act, the penalty levied for misreporting at 200 per cent cannot be sreporting at 200 per cent cannot be sustained because it is trite law that penalty provisions have to be strictly sustained because it is trite law that penalty provisions have to be strictly sustained because it is trite law that penalty provisions have to be strictly interpreted. And therefore, taking into consideration, the facts and interpreted. And therefore, taking into consideration, the facts and interpreted. And therefore, taking into consideration, the facts and circumstances of the case, we find that the levy of penalty by the AO circumstances of the case, we find that the levy of penalty by the AO circumstances of the case, we find that the levy of penalty by the AO under s. 270A of the Act suffers from the vice of non der s. 270A of the Act suffers from the vice of non-application of mind as application of mind as well as violates principles of natural justice. And therefore, the penalty well as violates principles of natural justice. And therefore, the penalty well as violates principles of natural justice. And therefore, the penalty levied on addition of sustained quantum addition of Rs. 67,970 cannot levied on addition of sustained quantum addition of Rs. 67,970 cannot levied on addition of sustained quantum addition of Rs. 67,970 cannot survive. And therefore, it is direct survive. And therefore, it is directed to be deleted. In the result, the appeal of the assessee is allowed.” In the result, the appeal of the assessee is allowed.” 5.10 The Coordinate Benches of the Tribunal in cases including The Coordinate Benches of the Tribunal in cases including The Coordinate Benches of the Tribunal in cases including Aawagaman Mercantile LLP Vs. Income Tax Officer (supra) and Aawagaman Mercantile LLP Vs. Income Tax Officer Aawagaman Mercantile LLP Vs. Income Tax Officer Saltwater Studio LLP Vs. National Faceless Assessment Centre Saltwater Studio LLP Vs. National Faceless Assessment Saltwater Studio LLP Vs. National Faceless Assessment (supra) have consistently held that failure to specify the precise (supra) have consistently held that failure to specify the precise (supra) have consistently held that failure to specify the precise limb limb limb of of of section section section 270A(9) 270A(9) 270A(9) renders renders renders the the the penalty penalty penalty proceedings proceedings proceedings unsustainable in law. We respectfully concur with the ratio laid unsustainable in law. We respectfully concur with the ratio laid unsustainable in law. We respectfully concur with the ratio laid down therein.

5.11 Further, we may like to rely on the deci 5.11 Further, we may like to rely on the decision of the Coordinate sion of the Coordinate Bench of the Tribunal in the case of M/s Allied Photographics M/s Allied Photographics Bench of the Tribunal in the case of India Limited in ITA No.3540/Mum/2023 for the AY 2017-18 in India Limited in ITA No.3540/Mum/2023 for the AY 2017 India Limited in ITA No.3540/Mum/2023 for the AY 2017 support of our view. The relevant finding view. The relevant findings of the Tribunal is of the Tribunal is reproduced as under: reproduced as under:

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“Communication of Charge & Communication of Charge & Notice under Section 274 of the Act” Notice under Section 274 of the Act”

“8. The next issue that arises for consideration is whether or not the Assessee “8. The next issue that arises for consideration is whether or not the Assessee “8. The next issue that arises for consideration is whether or not the Assessee should be informed that the Assessing Officer is proposing to levy penalty for should be informed that the Assessing Officer is proposing to levy penalty for should be informed that the Assessing Officer is proposing to levy penalty for under-reporting of income or penalty for under reporting of income or penalty for under-reporting of income in consequence income in consequence of misreporting. 8.1. It is settled legal position penalty levied under the provisions of the Act are 8.1. It is settled legal position penalty levied under the provisions of the Act are 8.1. It is settled legal position penalty levied under the provisions of the Act are generally in the nature of a civil liability; albeit a strict liability.[Commissioner of generally in the nature of a civil liability; albeit a strict liability.[Commissioner of generally in the nature of a civil liability; albeit a strict liability.[Commissioner of Income-tax, Delhi Vs Atul Mohan Bindal : [ tax, Delhi Vs Atul Mohan Bindal : [2009] 317 ITR 1 (SC)]. Therefore, the 2009] 317 ITR 1 (SC)]. Therefore, the penalty proceedings under the Act cannot be treated at par with criminal nor penalty proceedings under the Act cannot be treated at par with criminal nor penalty proceedings under the Act cannot be treated at par with criminal nor quasi-criminal proceedings to contend that even at the stage of issuing notice criminal proceedings to contend that even at the stage of issuing notice criminal proceedings to contend that even at the stage of issuing notice under Section 274 of the Act the assessee should be confronted with the exact under Section 274 of the Act the assessee should be confronted under Section 274 of the Act the assessee should be confronted charge giving details of section, sub charge giving details of section, sub-section and clause/limb thereof. At the same section and clause/limb thereof. At the same time, it cannot be disputed that assessee ought to be granted an effective time, it cannot be disputed that assessee ought to be granted an effective time, it cannot be disputed that assessee ought to be granted an effective opportunity to defend the allegations against him. In this regard, it would be opportunity to defend the allegations against him. In this regard, it would be opportunity to defend the allegations against him. In this regard, it would be pertinent to consider the provisions contained in Section 270A of the Act in tinent to consider the provisions contained in Section 270A of the Act in tinent to consider the provisions contained in Section 270A of the Act in totality. Section 270A(1) of the Act empowers the Assessing Officer to levy penalty totality. Section 270A(1) of the Act empowers the Assessing Officer to levy penalty totality. Section 270A(1) of the Act empowers the Assessing Officer to levy penalty for under-reporting of income. Section 270A(2) of the Act provides that a person reporting of income. Section 270A(2) of the Act provides that a person reporting of income. Section 270A(2) of the Act provides that a person shall be considered to have under ed to have under-reported income in case of instances specified reported income in case of instances specified in sub-clause (a) to (g) of Section 270A(2) of the Act. Section 270A(3) to 270A(6) of clause (a) to (g) of Section 270A(2) of the Act. Section 270A(3) to 270A(6) of clause (a) to (g) of Section 270A(2) of the Act. Section 270A(3) to 270A(6) of the Act deal with the computation of amount of under the Act deal with the computation of amount of under-reported income. Section reported income. Section 270A(6)(a) of the Act, speci 270A(6)(a) of the Act, specifically excludes from the ambit of amount of under fically excludes from the ambit of amount of under- reported income the amount of income in respect of which the assessee offers reported income the amount of income in respect of which the assessee offers reported income the amount of income in respect of which the assessee offers explanation provided the concerned income tax authority is satisfied that the explanation provided the concerned income tax authority is satisfied that the explanation provided the concerned income tax authority is satisfied that the explanation so offered is bona fide and that the a explanation so offered is bona fide and that the assessee has disclosed all the ssessee has disclosed all the material facts to substantiate the explanation so offered. Section 270A(7) of the material facts to substantiate the explanation so offered. Section 270A(7) of the material facts to substantiate the explanation so offered. Section 270A(7) of the Act provides that penalty equal to 50% of amount tax on under-reported income Act provides that penalty equal to 50% of amount tax on under Act provides that penalty equal to 50% of amount tax on under shall be levied on under shall be levied on under-reported income. However, Section 270A(8) reported income. However, Section 270A(8) of the Act provides that notwithstanding the provisions contained in Section 270A(6) and provides that notwithstanding the provisions contained in Section 270A(6) and provides that notwithstanding the provisions contained in Section 270A(6) and 270A(7) of the Act, where under 270A(7) of the Act, where under-reporting of income is in consequence of any reporting of income is in consequence of any misreporting specified in Section 270A(9) of the Act, the penalty to be levied shall misreporting specified in Section 270A(9) of the Act, the penalty to be levied shall misreporting specified in Section 270A(9) of the Act, the penalty to be levied shall be 200% of the amount of tax on under 00% of the amount of tax on under-reported income. Thus, the scheme of reported income. Thus, the scheme of Section 270A of the Act provides for two separate quantum of penalties for the Section 270A of the Act provides for two separate quantum of penalties for the Section 270A of the Act provides for two separate quantum of penalties for the single charge of under single charge of under-reporting of income on the basis of the reason for such reporting of income on the basis of the reason for such under-reporting. Section 27 reporting. Section 274 of the Act provides that no penalty under Chapter 4 of the Act provides that no penalty under Chapter XXI of the Act (which includes Section 270A) can be levied unless the assessee is XXI of the Act (which includes Section 270A) can be levied unless the assessee is XXI of the Act (which includes Section 270A) can be levied unless the assessee is heard or has been given a reasonable opportunity of being heard. There can be heard or has been given a reasonable opportunity of being heard. There can be heard or has been given a reasonable opportunity of being heard. There can be no dispute that the opportunity of being hea no dispute that the opportunity of being heard granted to the assessee must be rd granted to the assessee must be effective and not merely empty formality. Therefore, the Appellant must be given effective and not merely empty formality. Therefore, the Appellant must be given effective and not merely empty formality. Therefore, the Appellant must be given effective opportunity to defend the charge of under effective opportunity to defend the charge of under-reporting as well as the reporting as well as the quantum of penalty proposed to be levied for such charge. Therefore, the quantum of penalty proposed to be levied for such charge. There quantum of penalty proposed to be levied for such charge. There Appellant should be communicated the charge of under Appellant should be communicated the charge of under-reporting as well as the reporting as well as the reason or quantum of levying penalty. It would be pertinent to note that the reason or quantum of levying penalty. It would be pertinent to note that the reason or quantum of levying penalty. It would be pertinent to note that the Section 274 does not confer jurisdiction upon the Assessing Officer to levy Section 274 does not confer jurisdiction upon the Assessing Officer to levy Section 274 does not confer jurisdiction upon the Assessing Officer to levy penalty. It merely provides an opportunity to the Assessee to set up a case for ely provides an opportunity to the Assessee to set up a case for ely provides an opportunity to the Assessee to set up a case for

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non-levy of penalty. We have concluded hereinabove, that the assessing officer levy of penalty. We have concluded hereinabove, that the assessing officer levy of penalty. We have concluded hereinabove, that the assessing officer must direct initiation of penalty under Section 270A of the Act while passing the must direct initiation of penalty under Section 270A of the Act while passing the must direct initiation of penalty under Section 270A of the Act while passing the assessment/reassessment order assessment/reassessment order and thereby, assume jurisdiction. Therefore, if and thereby, assume jurisdiction. Therefore, if the charge along with the proposed quantum is communicated to the assessee the charge along with the proposed quantum is communicated to the assessee the charge along with the proposed quantum is communicated to the assessee anytime before the passing of the penalty order giving opportunity of being heard anytime before the passing of the penalty order giving opportunity of being heard anytime before the passing of the penalty order giving opportunity of being heard to the Appellant, the requirements of Section 274 o to the Appellant, the requirements of Section 274 of the Act shall stand satisfied f the Act shall stand satisfied irrespective of the fact that the initial/first notice issued under Section 274 of the irrespective of the fact that the initial/first notice issued under Section 274 of the irrespective of the fact that the initial/first notice issued under Section 274 of the Act did not meet the aforesaid requirements. Act did not meet the aforesaid requirements. 8.2. During the course of hearing, it was contended on behalf of the Appellant 8.2. During the course of hearing, it was contended on behalf of the Appellant 8.2. During the course of hearing, it was contended on behalf of the Appellant that the notice issued under Section 274 of the Act was bad in law as it did not ce issued under Section 274 of the Act was bad in law as it did not ce issued under Section 274 of the Act was bad in law as it did not specify the specific limb of Section 270A(9) of the Act which was being invoked by specify the specific limb of Section 270A(9) of the Act which was being invoked by specify the specific limb of Section 270A(9) of the Act which was being invoked by the Assessing Officer. In our view, there is no statutory requirement to this effect the Assessing Officer. In our view, there is no statutory requirement to this effect the Assessing Officer. In our view, there is no statutory requirement to this effect and therefore, we do and therefore, we do not find any merit in the aforesaid submission advanced on not find any merit in the aforesaid submission advanced on behalf of the Appellant. Once the broader charge of under-reporting in behalf of the Appellant. Once the broader charge of under behalf of the Appellant. Once the broader charge of under consequence of misreporting is communicated to the Assessee, the requirements consequence of misreporting is communicated to the Assessee, the requirements consequence of misreporting is communicated to the Assessee, the requirements of Section 274 of the Act stand fulfilled. of Section 274 of the Act stand fulfilled. Penalty Order under Section 270A(1), 270A (8) & 270A(9) alty Order under Section 270A(1), 270A (8) & 270A(9) 9. The next issue that arises for consideration is whether the Assessing Officer is 9. The next issue that arises for consideration is whether the Assessing Officer is 9. The next issue that arises for consideration is whether the Assessing Officer is required to specify in the order levying penalty for under required to specify in the order levying penalty for under-reporting in consequence reporting in consequence of misreporting under Section 270A( of misreporting under Section 270A(1) read with Section 270A(8) of the Act the 1) read with Section 270A(8) of the Act the specific limb of Section 270A(9) of the Act invoked by the Assessing Officer while specific limb of Section 270A(9) of the Act invoked by the Assessing Officer while specific limb of Section 270A(9) of the Act invoked by the Assessing Officer while levying such penalty. levying such penalty. 9.1. In our view, having been confronted with the charge of underreporting in 9.1. In our view, having been confronted with the charge of underreporting in 9.1. In our view, having been confronted with the charge of underreporting in consequence of misreporting, consequence of misreporting, it is for the assessee to take a defense that there is it is for the assessee to take a defense that there is no misreporting as none of the provisions contained in Section 270A(9)(a) to no misreporting as none of the provisions contained in Section 270A(9)(a) to no misreporting as none of the provisions contained in Section 270A(9)(a) to Section 270A(9)(g) of the Act get triggered. On co Section 270A(9)(g) of the Act get triggered. On co-joint reading of various joint reading of various provisions contained in Section 270A of the Act provisions contained in Section 270A of the Act it becomes clear that on it becomes clear that on occurrence of the instance of underreporting of income specified in Section occurrence of the instance of underreporting of income specified in Section occurrence of the instance of underreporting of income specified in Section 270A(2)(a) to 270A(2)(g) of the Act, the assessee is required to provide 270A(2)(a) to 270A(2)(g) of the Act, the assessee is required to provide 270A(2)(a) to 270A(2)(g) of the Act, the assessee is required to provide explanation, inter alia, in terms of Section 270A(6)(a) of the Act and make out a explanation, inter alia, in terms of Section 270A(6)(a) of the Act and make out a explanation, inter alia, in terms of Section 270A(6)(a) of the Act and make out a case for non-levy of penalty. In case the explanation does not meet the levy of penalty. In case the explanation does not meet the levy of penalty. In case the explanation does not meet the requirements of Section 270A(6)(a) of the Act, the Assessing Officer can levy requirements of Section 270A(6)(a) of the Act, the Assessing Officer can levy requirements of Section 270A(6)(a) of the Act, the Assessing Officer can levy penalty under Section 270A(7) of the Act at a rate of 50% of the amount of tax on penalty under Section 270A(7) of the Act at a rate of 50% of the amount of tax on penalty under Section 270A(7) of the Act at a rate of 50% of the amount of tax on under-reported income. H reported income. However, in case the Assessing Officer arrives at a owever, in case the Assessing Officer arrives at a conclusion that the underreporting of income is in consequence of misreporting, conclusion that the underreporting of income is in consequence of misreporting, conclusion that the underreporting of income is in consequence of misreporting, Assessing Officer is required to exhibit that the aforesaid misreporting falls within Assessing Officer is required to exhibit that the aforesaid misreporting falls within Assessing Officer is required to exhibit that the aforesaid misreporting falls within the ambit of the cases of misreporting the ambit of the cases of misreporting specified in Section 270A(9)(a) to 270A(9)(g) specified in Section 270A(9)(a) to 270A(9)(g) of the Act before the Assessing Officer can levy penalty at a higher rate of 200% of the Act before the Assessing Officer can levy penalty at a higher rate of 200% of the Act before the Assessing Officer can levy penalty at a higher rate of 200% of the amount of tax on under of the amount of tax on under-reported income by invoking provisions of Section reported income by invoking provisions of Section 270A(8) of the Act. Therefore, while levying pe 270A(8) of the Act. Therefore, while levying penalty under Section 270A of the Act nalty under Section 270A of the Act for under-reporting income in consequence of misreporting, the Assessing Officer reporting income in consequence of misreporting, the Assessing Officer reporting income in consequence of misreporting, the Assessing Officer is required to establish that there is misreporting and that such misreporting falls is required to establish that there is misreporting and that such misreporting falls is required to establish that there is misreporting and that such misreporting falls within the cases of misreporting specified in Section within the cases of misreporting specified in Section 270A(9)(a) to 270A(9)(g) of 270A(9)(a) to 270A(9)(g) of

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the Act. Therefore, we hold that while passing the penalty order under Section the Act. Therefore, we hold that while passing the penalty order under Section the Act. Therefore, we hold that while passing the penalty order under Section 270A(1) read with Section 270A(8) of the Act the Assessing Officer is required to 270A(1) read with Section 270A(8) of the Act the Assessing Officer is required to 270A(1) read with Section 270A(8) of the Act the Assessing Officer is required to specify the specific limb of Section 270A(9) of the Act under which the Appellant specify the specific limb of Section 270A(9) of the Act under which specify the specific limb of Section 270A(9) of the Act under which was held to have misreported its income leading to under was held to have misreported its income leading to under-reporting of income. The reporting of income. The invocation of specific limb of Section 270A(9)(a) to 270A(9)(g) of the Act should invocation of specific limb of Section 270A(9)(a) to 270A(9)(g) of the Act should invocation of specific limb of Section 270A(9)(a) to 270A(9)(g) of the Act should either be apparent from the express provisions stated in the penalty order or either be apparent from the express provisions stated in the penalty order or either be apparent from the express provisions stated in the penalty order or should be unambiguously discernable from the reading of the penalty order as a should be unambiguously discernable from the reading of the penalty order as a should be unambiguously discernable from the reading of the penalty order as a whole.” 5.12 The reliance placed by the learned CIT(A) upon the decision in The reliance placed by the learned CIT(A) upon the decision in The reliance placed by the learned CIT(A) upon the decision in Veena Estate Pvt. Ltd. Vs. CIT Veena Estate Pvt. Ltd. Vs. CIT, in our considered opinion, does not , in our considered opinion, does not advance the case of the Revenue advance the case of the Revenue in the peculiar facts before us. In in the peculiar facts before us. In the instant case, the defect is not merely procedural or technical in the instant case, the defect is not merely procedural or technical in the instant case, the defect is not merely procedural or technical in nature but strikes at the very foundation of the assumption of nature but strikes at the very foundation of the assumption of nature but strikes at the very foundation of the assumption of jurisdiction for levy of penalty under the enhanced category of jurisdiction for levy of penalty under the enhanced category of jurisdiction for levy of penalty under the enhanced category of “misreporting”.

5.13 Having regard to the totality of facts and circumstances of the ving regard to the totality of facts and circumstances of the ving regard to the totality of facts and circumstances of the case, we are of the considered opinion that the impugned penalty case, we are of the considered opinion that the impugned penalty case, we are of the considered opinion that the impugned penalty could not have been sustained either on facts or in law. could not have been sustained either on facts or in law. could not have been sustained either on facts or in law. Accordingly, the penalty levied under section 270A of the Act is Accordingly, the penalty levied under section 270A of the Act is Accordingly, the penalty levied under section 270A of the Act is directed to be deleted. The impugned order of the learned CIT(A) is d to be deleted. The impugned order of the learned CIT(A) is d to be deleted. The impugned order of the learned CIT(A) is set aside and the grounds raised by the assessee are allowed. set aside and the grounds raised by the assessee are allowed. set aside and the grounds raised by the assessee are allowed.

Order pronounced in the open Court on ounced in the open Court on 15/05/2026. /05/2026.

Sd/- Sd/ Sd/- (RAHUL CHAUDHARY CHAUDHARY) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER

Wadhwa Group Holdings Private Limited Wadhwa Group Holdings Private Limited 25 ITA No. 324/MUM/2026

Mumbai; Dated:15/05/2026 M. Ranganath Vittal , Sr. P.S. M. Ranganath Vittal , Sr. P.S.

Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

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