SHAMBHALA HOTELS PRIVATE LIMITED ,BENGALURU vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 6(1)(1), BANGALORE, BANGALORE

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ITA 504/BANG/2026Status: DisposedITAT Bangalore07 October 2026AY 2017-187 pages
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What did the Tribunal hold?

The Tribunal held that the penalty levied under section 270A of the Income Tax Act, 1961, cannot be sustained. The Tribunal noted that section 270A(2) and 270A(9) provide for various distinct circumstances constituting under-reporting and misreporting of income. The notices issued by the AO, which merely stated 'under-reporting/misreporting of income' without specifying the particular clause invoked (e.g., section 270A(9)(d)), were found to be vague and defective. This failure to communicate the specific charge at the stage of notice issuance violates the principles of natural justice and the requirement for the assessee to be informed of the precise case it needs to meet. The Tribunal relied on decisions of coordinate benches, including Ishwar Chand Agro (P.) Ltd. and Mr. Nateshan Sampath, which held that such lack of specificity renders penalty proceedings unsustainable. The Tribunal concluded that the subsequent mention of section 270A(9)(d) in the penalty order could not cure the defect in the initial notice. Therefore, the order of the CIT(A) was set aside, and the AO was directed to delete the penalty.

What were the facts?

The assessee, Shambhala Hotels Private Limited, is appealing against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2017-18. The Assessing Officer (AO) had levied a penalty of Rs. 49,32,944/- under section 270A of the Income Tax Act, 1961, alleging under-reporting of income due to misreporting as defined under section 270A(9)(d). The CIT(A) confirmed this penalty. The assessee contends that the penalty proceedings are vitiated because the notices issued by the AO under section 274 read with section 270A did not specify the particular limb of under-reporting or misreporting under which the penalty was proposed. The AO's notices dated 03-12-2019 and 23-02-2021 merely stated 'under-reporting/misreporting of income' without specifying the relevant clause of section 270A(2) or 270A(9).

What were the issues?

1. Whether the penalty proceedings initiated under section 270A of the Income Tax Act, 1961, are invalid due to the AO's failure to specify the particular limb of under-reporting or misreporting in the notice issued under section 274 read with section 270A. The assessee argued that the notices issued by the AO were vague and defective, failing to specify the precise charge under section 270A(2) or 270A(9). This lack of specificity deprived the assessee of a proper opportunity to defend itself, violating principles of natural justice. The assessee relied on the decision in Mr. Nateshan Sampath vs. DCIT. The revenue contended that the notice clearly specified the charge as 'under-reporting of income', making the assessee's argument factually incorrect.

Which sections of the Income-tax Act were involved?

Section 270A,Section 270A(2),Section 270A(9),Section 270A(9)(d),Section 274

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BANGALORE BENCHES, BANGALORE

Before: WASEEM AHMED & SHRI SANDEEP SINGH KARHAIL

PER WASEEM AHMED, ACCOUNTANT MEMBER: The present appeal filed by the assessee is directed against the order under section 250 of the Income Tax Act, 1961 (hereafter the Act) passed by the learned Commissioner of Income Tax (Appeals) under the National Faceless Appeal Centre, Delhi (hereafter the Ld. CIT(A)) for A.Y. 2017-18 bearing DIN & Order No.: ITBA/NFAC/S/250/2025-26/1083562811(1).

2.

The interconnected issue raised by the assessee is the Ld. CIT(A) erred in confirming the levy of penalty under section 270A(9) of the Act.

The necessary facts are that the assessee is a private limited company. In the present case, the AO passed a penalty order under section 270A of the Act, levying a penalty of Rs. 49,32,944/- on the allegation of underreporting of income on account of misreporting as defined under clause (d) of subsection 9 of section 270A of the Act. Subsequently, the learned CIT(A) also confirmed the penalty levied by the AO vide order dated 11-12-2025. The assessee is now in appeal before us.

3.

The Ld. AR for the assessee before us filed a paper book running from pages 1 to 116 and a compilation of case law. The Ld. AR, before us, among other contentions, submitted that the penalty proceedings initiated against the assessee u/s 270A of the Act are vitiated in law. It was submitted that the notice issued by the AO does not specify the particular limb of under-reporting or misreporting of income under which the penalty was proposed to be levied. The notice under section 274 r.w.s. 270A of the Act dated 03-12-2019 merely refers “it appears to me under-reporting/misreporting of income” without specifying the applicable clause of section 270A(2) or 270A(9) of the Act. The assessee was thus not made aware of the precise charge for which the penalty proceedings were initiated.

3.1 The Ld. AR submitted that section 270A(2) and 270A(9) of the Act contain different circumstances in which income is considered to have been under- reported and misreported. Therefore, the AO was required to specify the particular clause applicable to the assessee's case. A general notice referring to under- reporting/misreporting of income does not meet this requirement. The assessee must be informed of the specific charge so as to enable it to furnish an effective explanation in response to the penalty proceedings.

3.2 It was further submitted that the notice issued u/s 274 r.w.s. 270A of the Act is the foundation of the penalty proceedings. In the absence of a specific charge, the assessee was deprived of a proper opportunity to defend its case. The AO cannot leave the assessee to guess the limb under which the penalty is proposed and then sustain the penalty by referring to a specific provision in the penalty order.

3.3 The learned AR further submitted that the show cause notice issued under section 270A of the Act dated 23-02-2021 also does not specify under which limb the penalty is proposed to be imposed. The Ld. AR submitted that the defect in the notice is not a mere technical or clerical error. It goes to the root of the penalty proceedings and violates the principles of natural justice. The AO's failure to specify the applicable limb of section 270A(2) or 270A(9) of the Act has therefore rendered the penalty proceedings invalid.

3.4 In support of the above contention, the Ld. AR placed reliance on several case laws, including the decision of the coordinate Bench in the case of Mr Nateshan Sampath vs. DCIT, Circle-3 (1)(1), Bangalore in ITA No. 1779/Bang/2024 dated 22.01.2025, wherein the Tribunal considered the absence of a specific limb in the notice issued u/s 274 r.w.s. 270A of the Act. Accordingly, the Ld. AR submitted that the notice issued u/s 274 r.w.s. 270A of the Act, being vague and defective, cannot sustain the penalty proceedings. The penalty order passed on the basis of such defective notice is bad in law and deserves to be quashed. It was therefore prayed that the penalty levied u/s 270A of the Act be deleted and the appeal of the assessee be allowed.

4.

The learned DR, on the other hand, supported the orders of the lower authorities and submitted that the notice issued u/s 274 r.w.s. 270A of the Act clearly specifies the charge as “under-reporting of income.” Therefore, the contention of the assessee that the notice does not specify the relevant limb is factually incorrect. The Ld. DR accordingly prayed that the penalty levied by the AO be upheld.

5.

We have considered the rival submissions of both the parties and perused the materials available on record. The short issue before us is whether the penalty levied u/s 270A of the Act can be sustained when the notice issued u/s 274 r.w.s. 270A of the Act merely mentions “it appearing under-reporting/misreporting of income” without specifying the particular clause of section 270A(2) or 270A(9) of the Act under which the assessee's case falls. The AO ultimately levied a penalty of Rs. 49,32,944/- on account of under-reporting of income in consequence of misreporting as defined u/s 270A(9)(d) of the Act.

5.1 First of all, we note that the provision of section 270A(2) of the Act provides different circumstances under clauses (a) to (g) in which a person shall be considered to have under-reported the income. Thus, the expression “under- reporting of income” by itself does not disclose the particular circumstance alleged against the assessee. Similarly, the provision of section 270A(9) of the Act provides different circumstances under clauses (a) to (f) in which a person shall be considered to have misreported the income.

5.2 In the present case, the notice issued u/s 274 r.w.s. 270A of the Act only refers to “it appears to under reporting/misreporting of income”. It does not state that the assessee's case falls u/s 270A(9)(d) of the Act. It is only in the final penalty order that the AO identified section 270A(9)(d) of the Act.

5.3 In our view, the specific charge should be made known to the assessee at the stage of issuance of notice itself. The purpose of issuing notice is to give the assessee a reasonable opportunity to explain why penalty should not be imposed for the particular default alleged against it. When section 270A(2) and 270(9) of the Act itself provide several distinct circumstances of under-reporting and misreporting, merely mentioning “under-reporting/misreporting of income” leaves the assessee to ascertain for itself which particular clause is being invoked. The defect goes to the very initiation of the penalty proceedings.

5.4 In this regard, we find support from the decision of the Coordinate Bench of the Delhi Tribunal in the case of Ishwar Chand Agro (P.) Ltd. v. DCIT [2026] 189 taxmann.com 222 (Delhi - Trib.). The Tribunal held that while initiating penalty for under-reporting of income, the AO is required to identify and communicate the particular circumstance falling under clauses (a) to (g) of section 270A(2) and clause (a) to (f) of section 270A(2)of the Act. Failure to communicate the specific charge makes the proceedings unsustainable as the assessee was not properly informed of the case which it is required to meet. The relevant finding of the Hon’ble Delhi Bench of the Tribunal is extracted as under:

9.

From the above, it is clear that for "under reporting of income", the AO should satisfy the conditions defined in sub clause (a) to (g) of sub section (2) of section 270A of the Act. For "under reporting of income in consequence to misreporting of income" the conditions specify in clause (a) to (f) of sub section (9) of section 270A should be satisfied. In the instant case, it is observed that, the Ld. AO after having clearly analysed facts and circumstances of the case has dejectedly failed to identify or determined and then communicate either through assessment order or through notice, the specific circumstance or incidence i.e. specific clause (a) to clause (g) of s/s (2) of section 270 within which the case of the appellant falls so has to hold income as "under-reported" to trigger said penal provision. The failure continued further in identifying or determining and showcasing the specific action of the appellant in terms of clause (a) to clause (f) to sub-section (9) of section 270A within which such action of the assessee falls so as to jacket or categorise such "under-reported income in consequence of mis-reporting". 5.5 We further found that the identical view has also been taken by the coordinate bench of this tribunal in the case of Mr. Nateshan Sampath vs. DCIT in ITA No. 1779/Bang/2024 wherein it was held as under:

5.1 For the purpose of evaluating the correctness of rival submissions addressed, we deem it apposite to extract section 270A of the Act herein below: ********************************** 5.2 On plain reading of the same, we are of the opinion that when a notice u/s 270A of the Act is issued, the following step ladder should be followed by the AO while levying penalty u/s 270A of the Act. 1. Underreporting – First the onus is on the AO to establish whether any of the contingency spoken of in clauses (a) to (g) of Section 270A(2) in the case of the assessee are attracted or not. If Yes, under which clause (limb) the assessee has underreported the income?

2.

Now the onus shifted on the assessee to refute by establishing that the assessee falls within any of the clauses (a) to (e) of section 270A(6) of the Act & hence there is no underreporting of income & the proceedings end there. Section 270A(6) is a window given by the legislature to give a leave to the Assessee. 3. If the assessee is not able to controvert the charge of under reporting, the under reporting gets confirmed. 4. Once the charge of underreporting is confirmed, then the AO has to establish whether the underreporting is in consequence of any of the clauses (a) to (f) of Section 270A(9) of misreporting. If Yes, under which clause (limb) the assessee has misreported the income? 5.3 Therefore, we are of the considered opinion that without the charge of under reporting of income, the AO cannot straightaway jump with the charge of misreporting of income. In the present case the AO without even a whisper as to how the ingredient of sub-section (2) of section 270A is satisfied, has also not specifically mentioned the exact limb of misreporting as per section 270A(9) of the Act. Further, the AO stated under reported income amounting to Rs.91,47,331/- in his penalty order but levied 200% penalty. 5.4 By respectfully following the judgment of Hon’ble High court of Delhi in the case of Schneider Electric South East Asia (HQ) PTE Ltd. V. Commissioner of Income Tax (International Taxation) & Ors. (2022) 443 ITR 186, we are of the considered view that failure on the part of the AO to show cause which of the specific action of the assessee company from clause (a) to (f) of Section 270A(9) was determinant before imposing penalty u/s 270A of the Act has rendered the proceedings invalid and thus untenable in the eyes of law. 5.5 The contention of the Ld. DR that the notice specifically mentions “under- reporting/misreporting of income” and therefore sufficiently communicates the charge does not persuade us. The question is whether, within the category of under-reporting, the particular circumstance contemplated under clause (a) to (f) of section 270A(9) of the Act was communicated to the assessee. Admittedly, the notice does not mention section 270A(9)(d) of the Act. The specific clause appears only in the penalty order.

5.6 The subsequent reference to section 270A(9)(d) of the Act in the penalty order cannot cure the defect in the notice. The assessee must know the precise charge when it is called upon to show cause and not for the first time when the penalty is finally imposed. The material placed before us also supports the proposition that subsequent clarification in the penalty order cannot cure the lack of specificity at the initiation stage.

5.7 In view of the above, we opine that the notice issued u/s 274 r.w.s. 270A of the Act, without specifying the particular clause of section 270A(2) or 270(9)(d) of the Act, is vague and does not communicate the precise charge to the assessee. Consequently, the penalty proceedings initiated on the basis of such notice cannot be sustained. We therefore set aside the order of the Ld. CIT(A) and direct the AO to delete the penalty levied u/s 270A of the Act. Accordingly, the ground of appeal raised by the assessee is hereby allowed.

6.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 7th October, 2026.

Sd/- Sd/- SANDEEP SINGH KARHAIL WASEEM AHMED JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore Dated: 7th October, 2026 Vms Copy to: SHAMBHALA HOTELS PRIVATE LIMITED , NO 40, 3RD FLOOR, LAKSHMI COMPLEX, 1 K R ROAD,, BENGALURU-560002, KARNATAKA DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 6(1)(1), BANGALORE, 2 BMTC BUILDING, KORAMANGALA, BENGALURU-560095, KARNATAKA

3 THE PCIT / CIT, 4 THE D.R., ITAT, BANGALORE BENCH 5 GUARD FILE By Order ASSISTANT REGISTRAR / I.T.A.T., BANGALORE

Digitally signed P G by P G RAJANI Date: 7 RAJANI 2026.10.21 12:19:52 +05'30'

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