PUNEET PAL,MUMBAI vs. DCIT, CIRCLE 42(3)(1), MUMBAI

The brief facts, as emerging from the penalty order, are that the assessee filed his return of income under section 139(1) of the Act declaring total income of Rs.1,21,83,600/- after claiming deduction of Rs.6,00,000/- under section 80GGC of the Act in respect of a donation made to a political party. Subsequently, information was received by the Assessing Officer regarding the said donation and the assessment was reopened by issuance of notice under section 148 of the Act. In response to the said notice, the assessee filed a return of income on 22.05.2023 declaring total income of Rs.1,27,83,600/-, thereby withdrawing the deduction of Rs.6,00,000/- claimed under section 80GGC and offering the corresponding amount to tax. The reassessment proceedings were thereafter completed under section 147 of the Act on 18.11.2024 by accepting the return of income filed in response to the notice under section 148. Consequent to the reassessment proceedings, penalty proceedings under section 270A were initiated and the Assessing Officer treated the case as one of under-reporting of income in consequence of misreporting and levied penalty under section 270A(8) of the Act at 200 per cent of the tax payable on the alleged under-reported income of Rs.6,00,000/-, resulting in penalty of Rs.4,30,560/-. The learned CIT(A), after considering the submissions of the assessee, confirmed the penalty.

Before us, the learned Authorised Representative (ld.AR) submitted that the assessee had made the payment of Rs.6,00,000/- by cheque to the political party and that, at the relevant point of time when the donation was made, the registration of the political party was intact. It was submitted that the assessee had, therefore, made the payment under a bona fide belief that the donation was eligible for deduction under section 80GGC of the Act. It was further submitted that, on receipt of notice under section 148, the assessee withdrew the claim of deduction of Rs.6,00,000/- and offered the corresponding amount to tax in the return filed in response to the notice and that the reassessment proceedings were thereafter completed by accepting the returned income. The ld.AR also submitted that the consequential tax liability had been discharged. It was further contended that the penalty order merely referred to the alleged modus operandi adopted by the political party for providing accommodation entries, but did not bring out any specific material connecting the assessee with such alleged arrangement. According to the ld.AR the penalty order did not identify whose statement had been recorded, what was stated therein with reference to the assessee, whether any such statement had been confronted to the assessee, or whether any seized or impounded material specifically connected the assessee with the alleged accommodation-entry arrangement. It was also submitted that there was no reference in the penalty order to any specific seized material found during the course of search, any material impounded during survey, any document, communication or bank trail demonstrating that the amount paid by the assessee had subsequently been received back by him in cash. It was accordingly contended that the general modus operandi attributed to the political party could not, by itself, establish that the assessee had participated in such arrangement or that the donation made by him was a bogus donation.

The ld.AR placed reliance upon the decision of the Hon'ble Rajasthan High Court in G.R. Infraprojects Ltd., reported in 158 Taxmann.com 80, and submitted that the principle laid down therein was applicable to the facts of the present case. It was pointed out that the said case also involved withdrawal of a claim for deduction and the consequential question of immunity from imposition of penalty under section 270A in the context of alleged misreporting of income. It was submitted that the Hon'ble Rajasthan High Court considered the statutory scheme contained in sections 270A and 270AA and, following the decisions of the Hon'ble Delhi High Court in Schneider Electric South East Asia (HQ) Pte Ltd. and Ultimate Infratech (P) Ltd., held that where the Revenue seeks to invoke the consequences of misreporting, the particular circumstance contemplated under section 270A(9) has to be specified. According to the ld.AR, in G.R. Infraprojects Ltd. also, although the provisions relating to misreporting had been invoked, the particular part of section 270A(9) which was attracted had not been specified. It was therefore submitted that the principle of the said decision squarely applies to the present case, where also the Assessing Officer has treated the assessee's case as one of under-reporting in consequence of misreporting without specifically identifying the particular clause of section 270A(9) which is stated to have been attracted.

The ld.AR further relied upon the decision of the coordinate Bench of the Tribunal in the case of Raju Arun Malkan, ITA No. 2756/Mum/2026 dated 24.07.2026, and submitted that the facts of that case were also comparable with those of the present case. It was submitted that in the said case also the relevant claim had been withdrawn and the corresponding amount had been offered to tax and that the coordinate Bench, after considering the statutory requirements relating to misreporting, had directed deletion of the penalty. The learned Departmental Representative (ld.DR), on the other hand, supported the orders of the Assessing Officer and the learned CIT(A) and submitted that the assessee had originally claimed deduction of Rs.6,00,000/- under section 80GGC and that the withdrawal of the claim took place only after issuance of notice under section 148. According to the ld.DR, the subsequent withdrawal of the claim could not wipe out the fact that the assessee had originally made the claim and that the penalty had therefore been correctly levied.

We have considered the rival submissions and perused the material available on record. At the outset, we find it appropriate to consider the decision of the Hon'ble Rajasthan High Court in G.R.

In G.R. Infraprojects Ltd. (supra), the Hon'ble Rajasthan High Court considered the circumstance that the Assessing Officer had invoked the provisions relating to misreporting but had not specified the particular part of section 270A(9) which was attracted. The Hon'ble High Court, following the decisions of the Hon'ble Delhi High Court in Schneider Electric South East Asia (HQ) Pte Ltd. and Ultimate Infratech (P) Ltd., held that the particular circumstance constituting misreporting had to be specified. The significance of the decision, therefore, lies in the requirement that the statutory ingredients for treating a case as one of under-reporting in consequence of misreporting must be specifically brought out. The mere general description of a case as one involving misreporting cannot substitute the requirement of identifying the particular statutory circumstance under section 270A(9). This principle assumes importance in the present case because the penalty under section 270A(8) carries a substantially higher consequence and, therefore, the distinction drawn by the statute between ordinary under- reporting and under-reporting in consequence of misreporting has to be given due effect.

Applying the aforesaid principle to the facts of the present case, we find that although the Assessing Officer has treated the assessee's case as one of under-reporting in consequence of misreporting, the particular clause of section 270A(9) which is stated to have been attracted has not been specifically identified. The case has been described as one involving misreporting, but the specific statutory circumstance constituting such misreporting has not been brought out. In our considered view, this is not a matter of mere form or terminology, since the invocation of section 270A(8), carrying a penalty of 200 per cent of the tax payable on the under-reported income, is dependent upon the under-reporting being in consequence of one of the circumstances specifically contemplated by section 270A(9). The principle laid down by the Hon'ble Rajasthan High Court in G.R. Infraprojects Ltd. (supra), therefore, has direct application to the present case.

There is also a further aspect which, in our considered view, assumes significance in the facts before us. The penalty order refers to the alleged modus operandi adopted by the political party whereby donations received through banking channels were allegedly utilised for providing accommodation entries. However, the penalty order does not bring out any specific material connecting the assessee before us with such alleged modus operandi. There is no reference in the penalty order to any particular statement recorded from the assessee, any office bearer of the political party, any intermediary or any other person which specifically implicates the assessee in the alleged arrangement. The penalty order does not disclose whose statement was recorded, what was stated therein with reference to the assessee, or whether any such statement was confronted to the assessee. Similarly, there is no reference to any specific seized material found during the course of search or any material impounded during survey proceedings which establishes the involvement of the assessee in the alleged accommodation-entry arrangement. There is also no specific document, communication, bank trail or other contemporaneous material referred to in the penalty order demonstrating that the amount of Rs.6,00,000/- paid by the assessee was subsequently returned to him in cash.

We are not holding that in every case involving an alleged accommodation entry the Revenue must necessarily establish the allegation through one particular category of evidence. The relevant consideration is whether there is material, specific to the assessee, on the basis of which it can be concluded that the assessee participated in the alleged arrangement. In the present case, however, what emerges from the penalty order is essentially a description of the general modus operandi allegedly followed by the political party. In our view, the general modus operandi, by itself, cannot establish that every person who made a donation to the concerned political party necessarily participated in such arrangement. There has to be a nexus between the general information regarding the alleged modus operandi and the particular transaction of the assessee before a specific charge of misreporting can be sustained. In the absence of such assessee-specific material, the allegation that the assessee's donation was a bogus donation or that the assessee participated in an accommodation-entry arrangement would remain unsupported by the material specifically brought on record in the penalty proceedings.

The submission of the ld.AR that the political party was registered and that its registration was intact at the relevant point of time when the donation was made is also a relevant circumstance while considering the explanation furnished by the assessee. It is equally relevant that the payment of Rs.6,00,000/- was made through cheque. These circumstances may not, by themselves, conclusively establish the genuineness or allowability of the donation; however, they are relevant circumstances in examining whether the assessee's explanation that the claim was made on the basis of the circumstances prevailing at the time of payment has been displaced by any specific material demonstrating his participation in an accommodation-entry arrangement. In the absence of such material, the subsequent investigation into the affairs of the political party cannot, by itself, establish that the assessee was aware of the alleged activities of the political party or had participated in the alleged arrangement.

We may now consider the decision of the coordinate Bench of the Tribunal in Raju Arun Malkan (supra). In that case also, the Tribunal was concerned with penalty proceedings under section 270A in circumstances where the relevant claim had been withdrawn and the corresponding amount had been offered to tax. The coordinate Bench considered the statutory requirements relating to misreporting and directed deletion of the penalty. The facts of the present case are comparable in material respects. In the present case also, the assessee withdrew the claim of Rs.6,00,000/- in the return filed in response to notice under section 148, offered the corresponding amount to tax and paid the consequential tax, and the reassessment proceedings were thereafter completed by accepting the returned income. Thus, the amount in question was brought to tax without any further addition being made in the reassessment order.

We are conscious of the fact that the withdrawal of the claim was made after issuance of notice under section 148 and that the timing of the withdrawal is therefore a circumstance which can be taken into consideration. However, the mere fact that the withdrawal took place after issuance of notice under section 148 cannot, by itself, establish that the assessee had committed any of the specific forms of misreporting enumerated in section 270A(9). The question whether the original claim was ultimately allowable and the distinct question whether the assessee is liable to penalty for under-reporting in consequence of misreporting have to be considered separately. In the present case, the assessee accepted the taxability of the amount by withdrawing the claim and offering the same to tax, and the reassessment was completed by accepting the returned income. The relevant question before us is therefore whether the statutory ingredients necessary for invoking the higher penalty prescribed for misreporting have been established by the Revenue.

In this context, the statutory scheme of section 270AA also assumes significance. The provision seeks, subject to fulfilment of the prescribed conditions, to facilitate expeditious settlement of tax liability, recovery of the tax and reduction of protracted litigation. The principle considered in G.R. Infraprojects Ltd. (supra) has to be viewed in this statutory context. In the present case, on receipt of notice under section 148, the assessee withdrew the claim of Rs.6,00,000/- and offered the same to tax in the return filed in response to the notice; the corresponding tax liability was accepted and discharged by the assessee and the reassessment was thereafter completed by accepting the returned income. The subsequent compliance by the assessee, therefore, assumes relevance when considered along with the absence of specific material establishing that the assessee participated in the alleged accommodation-entry arrangement and the failure to identify the particular statutory circumstance of misreporting under section 270A(9).

On an overall consideration of the matter, we find that there are two material aspects which operate together in the present case. First, the particular circumstance under section 270A(9) constituting the alleged misreporting has not been specifically identified by the Assessing Officer. Second, apart from the general description of the alleged modus operandi of the political party, the penalty order does not bring out specific material connecting the assessee with such modus operandi or establishing that the amount paid by him was returned to him in cash or that he knowingly participated in an accommodation-entry arrangement. The general information regarding the alleged modus operandi may have constituted the basis for examining the claim, however, for sustaining the specific penalty for under-reporting in consequence of misreporting, the Revenue must establish the statutory and factual basis for applying section 270A(8) to the particular assessee. In the facts before us, that nexus has not been established.

We, therefore, find that the principle laid down by the Hon'ble Rajasthan High Court in G.R. Infraprojects Ltd. (supra) is applicable to the present case. The decision of the coordinate Bench in Raju Arun Malkan (supra) also supports the assessee's case in the facts and circumstances before us. The assessee had withdrawn the claim in the return filed in response to notice under section 148, offered the corresponding amount to tax and paid the consequential taxes, and the reassessment was completed by accepting the returned income. More importantly, the specific circumstance of misreporting under section 270A(9) has not been identified and the penalty order does not disclose specific material connecting the assessee with the alleged accommodation-entry arrangement. The mere reference to the general modus operandi of the political party cannot, in the circumstances of the present case, by itself establish that the assessee's claim constituted misreporting within the meaning of section 270A(9).

In view of the foregoing discussion, we hold that the penalty of Rs.4,30,560/- levied under section 270A(8) of the Act is not sustainable. Accordingly, the order of the learned CIT(A) confirming the penalty is set aside and the Assessing Officer is directed to delete the penalty of Rs.4,30,560/-.

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