CHAITALI KALAPI NAGADA,MUMBAI vs. INCOME TAX OFFICER 34(1)(1), MUMBAI

At the very outset, the ld. AR argued that the notice issued in the present case for initiating penalty proceedings under section 270A of the Income-tax Act was defective and that no penalty could have been levied on the basis of the said show-cause notice. In this regard, the ld. AR drew our attention to three show-cause notices placed at pages 11 to 17 of the paper book. The ld. AR further submitted that he had also filed submissions during the course of the penalty proceedings before the Assessing Officer, which are placed at pages 18 to 22 of the paper book.

The ld. AR submitted that the show-cause notice issued under section 274 read with section 270A of the Income-tax Act was vague, mechanical and defective in law. It was further argued that the notice merely mentioned that penalty proceedings were initiated under section 270A without specifying whether the charge was for under-reporting or misreporting of income, nor did it specify the particular limb/sub-clause of section 270A(9) under which the case of the assessee fell. It was further argued that under- reporting and misreporting of income carry distinct statutory consequences, attracting a penalty of 50% for under-reporting under section 270A(7) and 200% for misreporting under section 270A(8). Therefore, according to the ld. AR, the failure of the AO to specify the exact charge and the relevant sub-clause of section 270A(9) deprived the assessee of a meaningful opportunity to respond, thereby violating the principles of natural justice and rendering the entire penalty proceedings invalid ab initio. In support of his contentions, the ld. AR relied upon the following decisions:

Decision of the Hon'ble Delhi High Court in the case of Prem Brothers Infrastructure LLP v. NFAC [142 taxmann.com 38]. 2. Decision of the Hon'ble Delhi High Court in the case of Schneider Electric South East Asia (HQ) PTE Ltd. v. ACIT [W.P. (C) No. 5111/2022], dated 28.03.2022. 3. Order of the Hon'ble Mumbai Tribunal in the case of Urmila Dhelia v. ITO [ITA No. 4204/Mum/2025], dated 20.01.2026. 4. Decision of the Hon'ble Mumbai Tribunal in the case of Hi-Tech Engineers v. ACIT [182 taxmann.com 385]. 5. Decision of the Hon'ble Mumbai Tribunal in the case of Saltwater Studio LLP v. NFAC [157 taxmann.com 749].

Order of the Hon'ble Surat Tribunal in the case of Jayantibhai Jivabhai Patel v. ITO [ITA No. 962/SRT/2024], dated 28.04.2025. 7. Decision of the Hon'ble Bombay High Court in the case of GM Modular Pvt. Ltd. v. PCIT [185 taxmann.com 495].

On the other hand, the ld. DR relied upon the orders passed by the revenue authorities and submitted that the scheme of section 270A, introduced with effect from assessment year 2017-18, is structurally different from that of the erstwhile section 271(1)(c) of the Income-tax Act. It was further argued that, as long as the assessment order mentions the reasons for the additions, the mere non-specification of the particular limb of section 270A(9) in the statutory show-cause notice does not invalidate the penalty order and, at best, constitutes a curable defect under section 292BB of the Income-tax Act.

We have heard the learned counsel of both the parties, perused the material placed on record, considered the judgments cited before us and examined the orders passed by the revenue authorities. From the records, we notice that the fundamental question arising for our consideration is whether a notice issued under section 274 read with section 270A of the Act, without specifying whether the charge against the assessee is for under-reporting or misreporting of income and, further, without specifying the particular limb/sub-clause of section 270A(9) of the Act, is valid in law.

In this regard, we find that the issue in question is squarely covered by a series of decisions of the coordinate Benches of the ITAT, more particularly, the decision in the case of Smt. Urmila Dhelia v. ITO, in ITA No. 4204/Mum/2025, decided on 20 January 2026. The relevant operative portion of the said order, comprising paragraphs 5 to 7, is reproduced hereinbelow:

We have heard the counsels for both the parties, perused the material placed on record, judgements cited before us and also the orders passed by the revenue authorities. From the records we noticed that AO had not specified the limb of Sec. 270A(9) of the Act at the time when the notice was issued for levy of penalty u/s 274 r.w.s 270(A) of the Act under which the assessee can be said to have misreported the income. On the co-joint reading of various provisions contained in Section 270A of the Act it becomes clear that on occurrence of the instance of under-reporting of income specified in Section 270A(2)(a) to 270A(2)(g) of the Act, in case the Assessing Officer arrives at a conclusion that the under-reporting of income is in consequence of misreporting, Assessing Officer is required to exhibit that the aforesaid misreporting falls within the ambit of the cases of misreporting specified in Section 270A(9)(a) to 270A(9)(g) of the Act before the Assessing Officer can levy penalty at a higher rate of 200% of the amount of tax on under-reported income by invoking provisions of Section 270A(8) of the Act. Accordingly, while levying penalty under Section 270A of the Act for under-reporting income in consequence of misreporting, the Assessing Officer is required to establish that there is misreporting and that such misreporting falls within the cases of misreporting specified in Section 270A(9)(a) to 270A(9)(g) of the Act. Therefore, we hold that while passing the penalty order under Section 270A(1) read with Section 270A(8) of the Act the Assessing Officer is required to specify the specific limb of Section 270A(9) of the Act under which the Appellant was held to have misreported its income leading to under-reporting of income. The invocation of specific limb of Section 270A(9)(a) to 270A(9)(g) of the Act should either be apparent from the express provisions stated in the penalty order or should be unambiguously discernable from the reading of the penalty order as a whole; and in absence of the same penalty levied under Section 270A of the Act cannot be sustained. In the case before us, on perusal of Penalty Order, dated 07/08/2023, we find that the Assessing Officer has not specified the specific limb of Section 270A(9) of the Act which has been invoked. Further, even on perusal of the penalty order as a whole it is not clearly discernible whether the Assessing Officer has invoked provisions contained in Section 270A(a)/(c)/(d) of the Act.

On this preposition, we draw strength from the decision of Coordinate Bench of ITAT in the case titled Hi-Tech Engineers v/s. Assistant Commissioner of Income Tax, ITA No.3165/MUM/2025 (Mumbai-Trib). Therefore considering the entire facts as discussed by us above and also taking into consideration the decision of the Coordinate Bench of ITAT in the case of Hi-Tech Engineers (supra), we held that the penalty order dated 07.08.2023 thereby levying penalty u/s 270A of the Act cannot be sustained therefore the impugned order passed by Ld. CIT(A) is set aside and quashed and penalty levied u/s 270(A) of the Act stands dismissed.

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

After having considered the decisions relied upon by the assessee and the facts of the present case, we notice that a plain reading of the statute makes it evident that under-reporting of income and misreporting of income are two distinct concepts carrying markedly different consequences, namely, a penalty of 50% and 200%, respectively. Furthermore, misreporting of income is not an open-ended charge. It is strictly defined and restricted to the six specific sub-clauses under section 270A(9) of the Act. The purpose of issuing a notice under section 274 is to provide the assessee with a fair, reasonable and effective opportunity to show cause against the proposed penalty. If the notice does not communicate the specific charge, namely, whether the assessee is being charged with under-reporting or misreporting of income and, in the case of misreporting, under which of the sub-clauses (a) to (f) of section 270A(9) the case falls, the assessee is left in the dark and cannot effectively exercise the right to defend itself.

We find that the coordinate Benches of the ITAT and the various judicial decisions, including those of the Hon'ble High Courts, have already dealt with this issue. In the present case, a bare perusal of the show- cause notice issued under section 274 read with section 270A reveals that the AO failed to strike off the inapplicable limb and did not specify whether the penalty was being initiated for under-reporting or misreporting of income. Nor did the notice specify any of the sub-clauses (a) to (f) of section 270A(9) of the Act. Such a vague and ambiguous notice undermines the principles of natural justice and deprives the assessee of a fair opportunity of being heard. Consequently, the show-cause notice issued under section 274 read with section 270A of the Act suffers from an incurable jurisdictional defect.

Thus, the penalty order passed pursuant to such a defective notice cannot be sustained in law and is, accordingly, quashed.

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