AB KNOWLEDGE SYSTEMS,PUNE vs. DCIT, PUNE

ITA 92/PUN/2026Status: DisposedITAT Pune25 September 2026AY 2020-2135 pages
AI SummaryDismissed

What were the facts?

The assessee, AB Knowledge Systems, filed its return of income for Assessment Year 2020-21 on January 11, 2021, declaring an income of Rs. 52,01,770 after claiming a deduction of Rs. 6,78,88,735 under Section 10AA of the Income-tax Act, 1961. The Assessing Officer (AO) found that the assessee was entitled to only a 50% deduction under Section 10AA, amounting to Rs. 3,39,44,367, as it was the ninth year of production. The assessee admitted this was a mistake. The AO completed the assessment on September 22, 2022, determining the income at Rs. 3,91,46,140, which included an addition of Rs. 3,39,44,367 for excess deduction claimed. Penalty proceedings under Section 270A were initiated, and a penalty of Rs. 2,03,66,616 was imposed on February 22, 2023, for under-reporting of income due to misreporting. The assessee appealed to the CIT(A)/NFAC, which was dismissed. The present appeal is filed by the assessee against the CIT(A)/NFAC's order.

What did the Tribunal hold?

The Tribunal dismissed the appeal. Regarding the first ground concerning the validity of the show cause notice alleging both under-reporting and misreporting, the Tribunal, respectfully following the Rajasthan High Court's decision in Spunwell Syntex (P.) Ltd., held that even if a specific subcategory of Section 270A(9) was not explicitly mentioned, the reference to 'under-reporting consequences of misreporting' was sufficient. Therefore, there was no error in the notice issued under Section 274 read with Section 270A. The Tribunal found no substance in the assessee's argument that a computational or interpretational error corrected voluntarily cannot be equated with misreporting, especially when the assessment order indicated failure to produce accounting records, bringing it within the scope of 'underreporting in consequence of misreporting'. The Tribunal also addressed the issue of prior approval under Section 274(2), noting the CIT(A)'s observation that in faceless proceedings, every notice/order is issued after prior approval of the range head (JCIT/Addl.CIT), and thus, the penalty order was passed after obtaining necessary approval. The Tribunal found no error in the CIT(A)'s order on this issue. Grounds 4 and 5 were general and not adjudicated. The Tribunal concluded that the appeal filed by the assessee was dismissed.

What were the issues?

1. Whether the penalty under Section 270A was validly initiated given a show cause notice that alleged both 'under-reporting' and 'misreporting' of income, which are contended to be mutually exclusive. - Assessee's argument: The show cause notice was defective as it simultaneously alleged under-reporting and misreporting, which are mutually exclusive under the Act. The penalty was wrongly confirmed as there was no misreporting, only a computational or interpretational error corrected voluntarily without mala fide intent. The assessee also argued that its income was chargeable under Section 115JC, not the normal computation mechanism, and therefore, there was no under-reporting as the returned and assessed total income under Section 115JC were identical. The assessee further contended that the CIT(A) failed to appreciate that penalty provisions are penal in nature and cannot be invoked casually where there is no intent to evade tax. - Revenue's argument: Not recorded in the judgment. 2. Whether the CIT(A) erred in affirming the penalty under Section 270A(8) by ignoring that the provisions of Section 270A(6) cannot be applied subjectively or arbitrarily, and that the assessee was handicapped to submit a revised return due to income being chargeable under Section 115JC. - Assessee's argument: The CIT(A) failed to consider that Section 270A(6) cannot be applied subjectively or arbitrarily. The assessee was handicapped from submitting a revised return under Section 139(3) as its income was chargeable under Section 115JC. The voluntary submission of Form 56F stating the correct deduction under Section 10AA should not be ignored. The AO asked no questions while issuing notice under Section 143(2). There was no under-reporting as returned and assessed income under Section 115JC were identical. The CIT(A) erred in treating the case as misreporting as none of the conditions under Section 270A(9) were present. Computational errors corrected voluntarily cannot be equated with misreporting. There was no loss to the revenue as income was assessed under Section 115JC. Penalty provisions cannot be invoked casually. - Revenue's argument: Not recorded in the judgment. 3. Whether the CIT(A) erred in confirming the penalty without adjudicating the ground challenging the AO's jurisdiction, specifically the mandatory prior approval under Section 274(2) for penalty proceedings. - Assessee's argument: The CIT(A) failed to examine or record any finding on whether the mandatory prior approval of the competent authority under Section 274(2) was obtained before initiating penalty proceedings. In its absence, the penalty is void ab initio. - Revenue's argument: Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 270A,Section 270AA,Section 274,Section 143(2),Section 143(1),Section 142(1),Section 139(3),Section 115JC,Section 10AA,Section 144B,Section 270A(9),Section 274(2)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE

Before: SHRI MANISH BORAD & SHRI VINAY BHAMORE

For Appellant: Shri B. D. Bhide &, Shri Shubhada A. Koppa
For Respondent: Shri Mithun Shete
Hearing: 30.06.2026Pronounced: 25.09.2026

PER VINAY BHAMORE, JM: This appeal filed by the assessee is directed against the order dated 25.11.2025 passed by Ld. CIT(A)/NFAC for the assessment year 2020-21. 2. The appellant has raised the following grounds of appeal :- “1. Invalid initiation of penalty – defective show cause notice The learned Commissioner of Income Tax (Appeals) (hereinafter referred to as the “Ld. CIT(A)”) erred in law and on facts in confirming the penalty charged/ levied U/Sec. 270A of the 2 Income-tax Act, 1961, despite the fact that the penalty show cause notice issued under Section 270A read with Section 274 is vague, ambiguous and legally defective, inasmuch as

The order continues below.

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