YADAVA REDDY APPIDI,HYDERABAD vs. DCIT, CENTRAL CIRCLE-1(1), HYDERABAD

आदेश / O R D E R PER MANJUNATHA.G, AM:

This appeal filed by the assessee is directed against the order of the

Commissioner of Income Tax (Appeals), Hyderabad-11, dated

06.09.2025, and pertains to assessment year 2022-23.

:: 2 :: 2. The brief facts of the case are that the assessee filed his return of

income (RoI) for AY 2022-23 on 30.07.2022, declaring total income of

Rs.1,21,73,440/-, which includes capital gains from security transactions.

The case was selected for scrutiny and the assessement has been

completed u/s.143(3) r.w.s.144B of the Income Tax Act, 1961 (in short

“the Act“) on 22.03.2024 by making addition towards Shrot Term Capital

Gains (STCG) and Long-Term Capital Gains (LTCG) derived from

‘redemption of Mutual Funds’. Accordingly, penalty proceedings u/s.270A

of the Act for ‘underreporting of income’ has been initiated. During the

course of penalty proceedings, a show cause notice (SCN) dated

07.06.2024 & 06.08.2024 was issued requesting the assessee to explain

‘as to why’ order imposing penalty u/s.270A of the Act shall not be levied

for ‘underreporting of income, is in consequence of misreporting of

income thereof’. In response, the assessee vide letter dated 22.08.2024

submitted that addition made towards STCG/LTCG towards ‘redemption of

Mutual Funds’ is not a case of ‘underreporting of income is in consequence

of misreporting of income thereof’, because, the assessee has voluntarily

reported capital gains in respect of security transaction on the basis of

statement from the PMS Portfolio Management Service provider where the

‘redemption of Mutual Funds’ was not reported. However, subsequently

during the course of assessement proceedings, the assessee admitted

lapse and also paid relevant taxes, therefore, he claimed that it is not a

case of underreporting of income for levy of penalty u/s.270A of the Act.

:: 3 :: The AO after considering the relevant submissions of the assessee

observed that the assessee has ‘underreported of income’ in respect of

STCG/LTCG derived from ‘redemption of Mutual Funds’ and the same has

not been explained to the satisfaction of the AO. Therefore, observed

that it is a case of ‘underreporting of income is in consequence of

misreporting of income thereof’ and levied penalty of Rs.3,62,030/-,

which is equivalent to 200% tax to be evaded.

before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has filed written

submissions which have been reproduced at Para No.5 at Page No.4 of

the Ld.CIT(A)’s order. During the appellate proceedings, the Ld.CIT(A)

has provided ‘8’ opportunities to the assessee but no response from the

assessee. The assessee neither appeared nor submitted any explanation.

Therefore, the Ld.CIT(A) on the basis of material available on record,

upheld the penalty levied by the AO u/s.270A of the Act by holding that

the facts would clearly indicating the suppression of certain facts in

respect of ‘redemption of Mutual Funds’ which is evident from the reasons

given by the AO, where assessee has failed to record any receipt in books

of accounts having a bearing of total income by which the provisions of

Sec.270A(9)(a) & 270A(9)(e) of the Act are squarely attracted.

:: 4 :: 4. Aggrieved by the order of the Ld.CIT(A), the assessee is now in

appeal before this Tribunal.

submitted that the Ld.CIT(A) erred in sustaining penalty levied

u/s.270A(9)(a) of the Act, without appreciating the fact that mere

addition of STCG/LTCG towards ‘redemption of Mutual Funds’ doesn’t

leads to a conclusion that the assessee has ‘underreporting of income is in

consequence of misreporting of income thereof’. The Ld. Counsel for the

assessee further referring to various documents submitted that the

assessee is into security transaction and has reported capital gains

derived from purchase and sale of shares as per statement provided by

PMS providers. However, the assessee has not reported capital gains

derived from ‘redemption of Mutual Funds’, because he was not aware of

the transactions at the time of filing RoI. But, at the time of assessement

proceedings, after noticing the fact that ‘redemption of Mutual Funds’

transaction has not been reported, the assessee has admitted additions

made by the AO and paid taxes, therefore, he submitted that mere

admission of addition towards capital gains can’t be considered

‘underreporting of income is in consequence of misreporting of income

thereof’ for the purpose of Section 270A of the Act. Therefore, he

submitted that penalty levied by the AO should be deleted. In this

regard, relied upon the decision of the Hon’ble Supreme Court in the case :: 5 :: of Price Waterhouse Coopers P.Ltd v. CIT reported in [2012] 348 ITR 306

(SC).

and submitted that it is a clear case ‘underreporting of income is in

consequence of misreporting of income thereof’ which is evident from the

additions made by the AO towards STCG/LTCG towards ‘redemption of

Mutual Funds’. ‘Redemption of Mutual Funds itself in the knowledge of

the assessee as redemption comes to the bank account of the assessee.

The assessee while filing RoI ought to have considered relevant bank

entries. Further, the assessee admitted ‘underreporting of income’ and

also paid taxes. The AO after considering relevant facts has rightly levied

penalty for ‘underreporting of income is in consequence of misreporting of

income thereof’ and thus, the order of the Ld.CIT(A) should be upheld.

record and had gone through orders of the authorities below. There is no

dispute with regard to the fact that the additions made by the AO towards

computation of STCG/LTCG towards ‘redemption of Mutual Funds have

been accepted by the assessee and no further appeal has been preferred

before the appellate authorities. The only argument of the assessee is

that mere addition towards capital gains is not a case of ‘underreporting

of income is in consequence of misreporting of income thereof’. The

assessee explained that due to inadvertent mistake, ‘redemption of :: 6 :: Mutual Funds’ was not considered by the assessee while filing return and

the said mistake was due to the fact that PMS has furnished statement of

transaction for the year under consideration which doesn’t include

‘redemption of Mutual Funds’. Except this, the assessee never disputed

the fact that the transaction of ‘redemption of Mutual Funds’ was not

reported in ITR filed for the year under consideration and also not

disputed the fact that there is ‘underreporting of income’ to the extent of

Rs.15,12,141 in respect of STCG/LTCG.

Section 270A of the Act and as per Section 270A of the Act, the amount

of ‘underreporting of income’ shall be difference between the RoI and the

assessed income. In the present case, there is no dispute with regard to

the fact that there is a difference between RoI and assessed income in

respect of additions made by the AO towards STCG/LTCG. The above

‘underreporting of income is in consequence of misreporting of income

thereof’ which is evident from the relevant reasons given by the AO,

where the AO brought out clear reason to the effect that the assessee has

failed to record proceeds received from ‘redemption of Mutual Funds’ in

the RoI. Therefore, in our considered view, failure to record ‘redemption

of Mutual Funds’ and consequence reporting of capital gains is a clear

case of misreporting of income referred to in section 270A(9)(e) the Act

i.e. failure to record any receipts in books of accounts having bearing on

total income. Therefore, we are of the considered view that the AO has :: 7 :: rightly levied penalty u/s.270A for the Act for ‘underreporting of income is

in consequence of misreporting of income thereof’. In so far as the case

law, relied upon by the assessee in the case of Price Waterhouse Coopers

P.Ltd vs. CIT(Supra), in the above case, it was the argument of the

assessee that the assessee has furnished particulars of payment of

gratuity and the same has been reported by the auditor. The assessee

failed to add said provision to the total income. Under those facts, the

Hon’ble Supreme Court came to conclusion that it is only a human error

and prone to happen in every case but not a case of furnishing of

inaccurate particulars of income. In the present case, it is a clear case

not reporting income derived from ‘redemption of Mutual Funds’ which is

evident from the non-disclosure of relevant facts in the ITR filed for the

year under consideration. Therefore, in our considered view, the above

case law relied upon the by the assessee is not applicable and thus

rejected.

circumstances of the case, we are of the considered view that the AO has

rightly levied penalty u/s.270A(9) of the Act in respect of additions made

towards STCG/LTCG derived from ‘redemption of Mutual Funds’, because,

assessee has failed to record the receipt of ‘redemption of Mutual Funds’

in the books of accounts which squarely falls under sub-section 9 of

section 270A of the Act. The Ld.CIT(A) after considering relevant facts

has rightly upheld the penalty levied by the AO and thus, we are inclined :: 8 :: to uphold the findings of the Ld.CIT(A) and dismiss the appeal filed by the

assessee.

Order pronounced on the 19th day of June, 2026, in Hyderabad.

Sd/- Sd/- (िवजय पाल राव) (मंजूनाथा. जी) (VIJAY PAL RAO) (MANJUNATHA.G) उपा�� /VICE-PRESIDENT लेखा सद�/ACCOUNTANT MEMBER

Hyderabad, dated 19.06.2026. TLN

आदेशकी �ितिलिप अ�ेिषत/ Copy of the order forwarded to:

िनधा�रती/The 1 : Yadava Reddy Appidi, 7-9/3, St.No.8, Sarada Nagar, Kalvancha, Hayathnagar, K.V. Ranga Assessee Reddy, Hyderabad-500 070. राज�/ The Revenue : The DCIT, Central Circle-1(1), Hyderabad. 2

3 The Principal Commissioner of Income Tax, Hyderabad. िवभागीय�ितिनिध, आयकर अपीलीय अिधकरण, हैदराबाद / DR, ITAT Hyderabad. 4 गाड�फ़ाईल / Guard file 5

आदेशानुसार / BY ORDER Digitally signed by TUMMALACHARLA TUMMALACHARLA LAKSHMI NARAYANA DN: cn=TUMMALACHARLA LAKSHMI LAKSHMI NARAYANA, c=IN, o=INCOME TAX APPELLATE TRIBUNAL, ou=INCOME TAX NARAYANA APPELLATE TRIBUNAL, CHENNAI BENCH Date: 2026.06.19 11:35:56 +05'30'

Sr. Private Secretary ITAT, Hyderabad