SHARIQ JAVED L/R OF LATE MR. JAWAD ALAM,CHENNAI vs. ITO, NCW-10(1), CHENNAI

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ITA 3762/CHNY/2025Status: DisposedITAT Chennai29 April 2026AY 2017-187 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the AO failed to record his satisfaction or direction for initiating penalty proceedings under Section 270A during the assessment proceedings. Additionally, the penalty notice was issued after the assessment order was finalized, violating the procedural requirements.

What were the facts?

The assessee filed a return of income including long-term capital gains. The Assessing Officer (AO) disallowed a portion of the indexed cost of improvement, increasing the capital gains. The Commissioner (Appeals) later allowed a higher indexed cost of acquisition and improvement, which was accepted by the assessee. Subsequently, the AO initiated penalty proceedings under Section 270A for under-reporting of income.

What were the issues?

Whether the penalty under Section 270A is valid when the AO fails to record satisfaction during assessment proceedings and the notice is issued after the assessment order.

Which sections of the Income-tax Act were involved?

Section 270A,Section 143(3),Section 274

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI

Before: SHRI ABY T. VARKEY & SHRI S.R.RAGHUNATHA

Hearing: 26.03.2026Pronounced: 29.04.2026

आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as “the Ld.CIT(A)”), Delhi, dated 14.11.2025 for the Assessment Year (hereinafter referred to as "AY”) 2017-18 confirming penalty levied u/s.270A of the Income Tax Act, 1961 (hereinafter referred to as "the Act”) amounting to ₹12,20,784/-.

ITA No.3762/Chny/2025 (AY 2017-18) Shariq Javed :: 2 :: 2. Brief facts is that the Assessee is an individual, who for the AY 2017-18 filed his Return of Income (ROI) income on 23.09.2017 admitting a total income of Rs.2,13,23,700/-, inclusive of long term capital gains (LTCG) of Rs.1,99,10,377/-. This ROI was selected for scrutiny and the AO completed the assessment vide order u/s.143(3) of the Act dated 16.12.2019 wherein he disallowed the indexed cost of improvement of Rs.1,83,67,529/- and assessed the long term capital gains at Rs.3,92,77,906/-. Aggrieved by the assessment order, the assessee filed an appeal before the Ld CIT(A). The Ld CIT(A) after considering the relevant documents and especially the comprehensive valuation report prepared by a chartered engineer, suo-motu filed by the assessee, vide his appellate order dated 14.11.2025 allowed indexed cost of acquisition at Rs.1,44,29,628/- and indexed cost of improvement at Rs.51,85,235/-. The Ld CIT(A) assessed the LTCG at Rs.3,01,41,697/-, which order was accepted by the assessee and no further appeal has been filed before the Tribunal.

3.

Coming to the imposition of penalty, the AO after the order of assessment was passed, he initiated penalty proceedings u/s.270A of the Act alleging ‘under-reporting of income’ vide notice u/s.274 r.w.s.270A of the Act dated 16.12.2019. The Ld AR brought to our notice that though the said notice was dated 16.12.2019, the same was neither signed manually/digitally nor it was issued on that date, but only on 30.12.2019.

ITA No.3762/Chny/2025 (AY 2017-18) Shariq Javed :: 3 ::

4.

During the course of penalty proceedings, the assessee had passed away on 09.02.2023, and the same was informed to the AO. The AO passed the penalty order u/s.270A of the Act dated 24.06.2025 in the hands of L/R of deceased assessee, wherein he levied penalty u/s.270A of the Act of Rs.12,20,784/- being 50% of tax, allegedly sought to be evaded for under-reporting of income.

5.

Aggrieved by this order, the Appellant/L.R filed an appeal before the Ld CIT(A), who vide impugned order dated 14.11.2025 had dismissed the Appeal. Aggrieved, the appellant/L.R is before us.

6.

The assessee has raised, inter-alia, legal issue challenging the jurisdiction of the AO to have imposed penalty u/s.270A of the Act, on the ground that the AO during the course of assessment proceedings neither directed nor recorded satisfaction that assessee has ‘underreported his income’ and shall be liable to pay penalty on it. In the absence of such endorsement, as required under sub-section (1) of Section 270A of the Act, the impugned penalty is bad in law. To appreciate such a contention, it would be gainful to reproduce Section 270A(1), which reads as under:-

Penalty for under-reporting & misreporting of income: 270A(1) The Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the course of any proceedings under this Act, direct that any person who has under-reported his income, shall be liable to pay a penalty in addition to tax, if any, on the under-reported income.

ITA No.3762/Chny/2025 (AY 2017-18) Shariq Javed :: 4 :: 7. The Ld.AR buttressing his contention regarding the aforesaid legal issue drew our attention to the assessment order passed by the AO u/s.143(3) of the Act dated 16.12.2019 for AY 2017-18 and especially to the contents of the assessment order and brought to our notice that there is no ‘satisfaction/direction’ recorded by the AO to the effect that the assessee has ‘underreported his income’ and hence shall be liable to pay penalty u/s.270A of the Act on the ‘underreported income’. In the absence of such ‘satisfaction/direction’ recorded by the AO in the course of framing of assessment order as required under sub-section (1) of Section 270A of the Act, the Ld.AR asserted that impugned penalty levied by the AO is bad in law and in support of the same cited case law in the context of levy of penalty u/s.271E of the Act [ which is penalty levied for violation of Section 269T (repayment of loan or deposit or specified advance in cash)] in the case of CIT v. Jai Laxmi Rice Mills reported in [2015] 379 ITR 521 (SC) wherein the Hon’ble Supreme Court held as under:

5.

Likewise, the Ld.AR cited the decision of the Hon’ble Supreme Court in the case of Golden Peace Hotels & Resorts and reported in [2021] 124 taxmann.com 249 wherein the Hon’ble Supreme Court held that omission to record satisfaction about assessee having committed the faults as given in Clause (c) of Section 271(1) of the Act vitiates the penalty levied on assessee. These decisions was followed by this Tribunal in DCIT vs. Jayapriya Company [ITA No.1899/Chny/2025 & C.O No.65/Chny/2025], wherein it was held as under:

24.

Secondly, it is well settled in law by now that, the recording of satisfaction / finding of fact for initiating and levying penalty is mandatory and a condition precedent, without which the penalty order shall stand rendered ab initio void in the eyes of the law.

ITA No.3762/Chny/2025 (AY 2017-18) Shariq Javed :: 5 :: In view of the same, the order levying penalty u/s.270A of the Act is liable to be quashed. 8. Thus, the Ld.AR submitted that the AO in the course of assessment proceedings failed to make any endorsement of his ‘satisfaction/direction’ that the assessee had ‘underreported his income’ and shall be liable to pay penalty on the ‘underreported income’. Such an omission on the part of AO, vitiates the initiation of penalty itself.

9.

Having carefully gone through the assessment order framed by the AO on 16.12.2019 u/s.143(3) of the Act, we note that the AO has not recorded his ‘satisfaction/direction’ that the assessee had ‘underreported his income’ and shall be liable to pay penalty u/s.270A of the Act on the ‘underreported income’. The AO is noted to have omitted to record his satisfaction that assessee has ‘under-reported income’, and didn’t direct penalty u/s 270A in the course of assessment proceedings, which omission vitiates the initiation of penalty proceedings u/s 270A of the Act. Moreover, it is noted that though notice initiating penalty u/s.270A of the Act was dated 16.12.2019, the same was actually issued only on 30.12.2019, which fact is evidenced by the income tax e-filing portal website, [copy of which has been placed before us], which fact we find to be correct. Thus, it is evident that the penalty proceedings were not initiated during the course of assessment proceedings, [but after 14 days from the date of framing assessment order], which doesn’t satisfy the requirement of law as envisaged u/s 270A (1) of the Act. Neither, the AO

ITA No.3762/Chny/2025 (AY 2017-18) Shariq Javed :: 6 :: while framing the assessment order on 16.12.2019, recorded his satisfaction that assessee have ‘under-reported his income’ and liable to levy of penalty under section 270A of the Act nor has issued notice u/s 270A on 16.12.2019 but only on 30.12.2019, which facts clearly shows that AO has not satisfied the requirement of law as stipulated under sub section (1) of section 270A of the Act. Thus, in the absence of AO recording his satisfaction in the assessment order that assessee has ‘under-reported his income’ and directs penalty to be initiated u/s 270A of the Act, vitiates the initiation of penalty u/s.270A of the Act against the assessee and consequently penalty levied is held to be bad in law. Hence, the impugned order of penalty deserves to be quashed on this ground alone, and we order accordingly.

10.

In the light of us allowing the legal issue (supra), other grounds on merit deserves no adjudication as it is academic.

11.

In the result, appeal filed by the assessee is allowed.

Order pronounced on the 29th day of April, 2026, in Chennai.

Sd/- Sd/- (एस. आर. रघुनाथा) (एबी टी. वक�) (S.R.RAGHUNATHA) (ABY T. VARKEY) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER चे�नई/Chennai, �दनांक/Dated: 29th April, 2026. TLN

ITA No.3762/Chny/2025 (AY 2017-18) Shariq Javed :: 7 ::

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF

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