CYQUREX SYSTEMS PRIVATE LIMITED ,MUMBAI vs. DCIT, CENTRAL CIRCLE -2(3), MUMBAI

ITA 297/MUM/2026Status: DisposedITAT Mumbai30 September 2026AY 2023-2411 pages
AI SummaryAllowed

What were the facts?

The assessee, Cyqurex Systems Private Limited, engaged in cyber-security and software development, filed its return for assessment year 2023-24 declaring a total loss. The Assessing Officer (AO) completed the assessment under section 143(3) and initiated penalty proceedings under section 270A for alleged under-reporting of income amounting to Rs.7,41,16,000. This amount was claimed by the assessee as revenue expenditure but treated by the AO as a capital loss. The AO levied a penalty of Rs.1,23,71,443. The Commissioner of Income-tax (Appeals) confirmed the penalty. The assessee appealed to the ITAT. Three appeals were filed by the assessee, arising from the same penalty order and having identical grounds.

What did the Tribunal hold?

The Tribunal held that the penalty levied under section 270A of the Act cannot be sustained. The Tribunal found that the assessee's claim, though not accepted in the quantum proceedings, was based on disclosed facts and an arguable legal position regarding the characterisation of the expenditure. The Tribunal noted that the expenditure related to software development, with a portion remaining as capital work-in-progress and another part being impairment of an IP asset, both disclosed in financial statements. The Tribunal relied on the principle established in cases like Carona Ltd. and Trigent Software Ltd., which distinguish between a false factual statement and an unsuccessful legal claim. It was held that the mere fact that the Revenue characterised the expenditure differently does not convert a bona fide claim into a non-bona fide one. The Tribunal observed that the CIT(A) himself recorded the disclosure of facts by the assessee. Applying the provisions of section 270A(6)(a), which excludes amounts from under-reported income where an explanation is bona fide and all material facts are disclosed, the Tribunal concluded that the ingredients of the section were satisfied. Consequently, the penalty of Rs.1,23,71,443 was directed to be deleted. The Tribunal also noted that three appeals were filed, and two were dismissed as withdrawn, with the decision pertaining to the main appeal.

What were the issues?

1. Whether the penalty levied under section 270A of the Income-tax Act, 1961, is sustainable when the assessee disclosed the expenditure and its accounting treatment, and the dispute pertains to the legal characterisation of the expenditure as revenue or capital in nature? Assessee's contentions: The assessee argued that the expenditure of Rs.7,41,16,000 comprised two components: Rs.5,88,40,000 for impairment of an internally developed IP asset and Rs.1,52,76,000 for development cost of a platform that remained capital work-in-progress. These were fully disclosed in audited financial statements. The assessee contended that the issue was a debatable one involving legal interpretation and that the conditions for exclusion under section 270A(6)(a) were met, as the explanation was bona fide and all material facts were disclosed. Reliance was placed on judicial precedents including Carona Ltd. v. Deputy Commissioner of Income-tax, Vijay Bhagwandas Raheja v. Deputy Commissioner of Income-tax, CIT v. Reliance Petroproducts Pvt. Ltd., Principal Commissioner of Income-tax v. Trigent Software Ltd., and G.M. Modular (P.) Ltd. v. Principal Commissioner of Income-tax. Revenue's contentions: The Revenue relied on the orders of the AO and CIT(A), arguing that the software constituted a capital asset and its write-off was capital in nature. The Revenue supported the conclusion that the assessee had not established a bona fide explanation under section 270A(6)(a).

Which sections of the Income-tax Act were involved?

Section 270A,Section 143(3),Section 270A(6)(a)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C” BENCH, MUMBAI

Before: SHRI CHALLA NAGENDRA PRASAD & SHRI G. M. DOSS & &

Pronounced: 30.09.2026

PER G.M. DOSS, ACCOUNTANT MEMBER :

These three appeals filed by the assessee arise out of the common appellate order dated 13.11.2025 passed by the learned Commissioner of Income-tax (Appeals)-48, Mumbai, for the assessment year 2023-24, whereby the penalty of Rs.1,23,71,443/- levied by the Assessing Officer under section 270A of the Income-tax Act, 1961 (“the Act”) was Cyqurex Systems Private Limited (A.Y. 2023-24)

confirmed. The three appeals arise from the

The order continues below.

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