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Facts
The assessee appealed against a penalty order under Section 270A of the Income Tax Act, 1961, levied at 200% of the tax on under-reported income. The assessee contended that the Assessing Officer (AO) did not specify the grounds for misreporting as per Section 270A(9).
Held
The Tribunal held that penalty proceedings are penal in nature and require clarity. The AO failed to specify any clause from Section 270A(9) for misreporting, making the penalty order ambiguous and arbitrary. Following precedent, the Tribunal quashed the penalty.
Key Issues
Validity of a penalty order under Section 270A for misreporting income when the specific instances of misreporting from Section 270A(9) are not mentioned by the Assessing Officer.
Sections Cited
270A, 270AA
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Income Tax Appellate Tribunal, DELHI BENCH “C”, DELHI
Before: SHRI VIKAS AWASTHY& SHRI BRAJESH KUMAR SINGH
ORDER
PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘the CIT(A)’] dated 17.03.2025, for AY 2018-19, confirming levy of penalty u/s.270A of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’).
Shri V.K Tulsian, appearing on behalf of the assessee submits that the Assessing Officer (AO) vide order dated 25.01.2022 passed u/s.270A of the Act has levied penalty of 200% of tax payable on under reported income. He submitted that there is no provision u/s.270A of the Act for levy of penalty of 200% on under reported income. Sub-section (7) to section 270A of the Act empowers the AO to levy penalty in respect of under reporting of the income to the extent of sum equal to 50% of the amount of tax payable on under reported income. He thus prayed for quashing the penalty order.
Per contra, Shri Om Prakash representing the department vehemently defended the penalty order u/s.270A of the Act and the order of CIT(A) confirming the same. The ld. DR pointed that a perusal of the penalty order would show that the Assessing Officer has levied penalty for mis-reporting of income. Sub section (8) to section 270A of the Act provides for levy of penalty equal to 200% of amount of tax payable where under-reporting is in consequence of any misreporting. He thus prayed for upholding the impugned order.
Both sides heard, orders of the authorities below examined. A perusal of the assessment order reveals that the Assessing Officer while passing the assessment order has initiated penalty proceedings u/s.270A of the Act for misreporting of income. Thereafter, the AO has passed penalty order u/s.270A of the Act on 25.01.2022 levying penalty u/s.270A @200% of the tax payable on under reported income. Though, in the body of the order the AO has multiple times used the expression, “the assessee has under reported income in consequence of misreporting thereof”, but has finally levied penalty for under reporting of income.
Here, it would be relevant to mention that penalty proceedings are not automatic. Penalty proceedings are separate independent proceedings and have to stand on their own legs. Since, penalty proceedings are penal in nature there is no scope of any ambiguity in such proceedings to be legally sustainable. In the instant case, we find that in the assessment order the AO has initiated penalty proceedings by recording, “Penalty proceeding u/s.270A of the Act initiated separately for misreporting income”. The instances of misreporting are given in sub section (9) to section 270A of the Act. Sub section (9) to section 270A of the Act is reproduced hereinbelow:
(9)The cases of misreporting of income referred to in sub-section (8) shall be the following, namely:— (a) misrepresentation or suppression of facts; (b) failure to record investments in the books of account; (c) claim of expenditure not substantiated by any evidence; (d) recording of any false entry in the books of account; (e) failure to record any receipt in books of account having a bearing on total income; and (f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.
The AO neither, at the time of initiating penalty nor, anywhere in the penalty order has referred to any of the clause/limb of sub section (9) for which misreporting is attributed to the assessee. Thus, there is ambiguity in levy of penalty u/s.270A of the Act for not specifying clause/limb of sub-section (9) to 270A of the Act that specifies different categories of misreporting of income. The Hon’ble Delhi High Court in the case of Prem Brothers Infrastructure LLP vs. NFAC, 142 taxmann.com 38 has held that non-mentioning of limb from sub-section (9) would make the penalty order arbitrary and hence, liable to be quashed. For the sake of completeness, the relevant excerpts from the said order of Hon’ble High Court are extracted herein under:-
“8. This Court also finds that there is not even a whisper as to which limb of section 270A of the Act is attracted and how the ingredient of sub-section (9) of section 270A is satisfied. In the absence of such particulars, the mere reference to the word "misreporting" by the Respondents in the penalty order to deny immunity from imposition of penalty and prosecution makes the impugned order manifestly arbitrary.
Consequently, the impugned penalty order dated 28th March, 2022 passed by Respondent No. 1 under section 270A of the Act is quashed and Respondent No. 1 is directed to grant immunity under section 270AA of the Act to the Petitioner.” [Emphasized by us] 6. The AO in para 3.5 of the penalty order levies penalty u/s.270A of the Act @200 of the tax payable on under reported income. The rate of penalty for ‘under reporting of income’ and ‘under reporting of income consequent to any misreporting’ is different. Sub section (7) to section 270A of the Act provides for levy of penalty at the rate of 50% of the amount of tax payable on under reported income. Whereas, sub section (8) to section 270A of the Act provides for levy of penalty @200% where under reported income is in consequences of any misreporting. As pointed earlier the instances of misreporting are specified in sub section (9) to section 270A of the Act. While levying penalty for misreporting it is mandatory to specify clause/limb of sub section (9) to remove any element of vagueness in penalty proceedings.
For the reason stated above, we hold penalty order u/s.270A of the Act unsustainable, hence, the same is quashed.
In the result, impugned order is set aside and appeal of the assessee is allowed.
Order pronounced in the open court on Tuesday the 03rd day of February, 2026. Sd/- Sd/- (BRAJESH KUMAR SINGH) (VIKAS AWASTHY) लेखाकार सदस्य/ACCOUNTANT MEMBER न्यानयक सदस्य/JUDICIAL MEMBER धिल्ली / Delhi, ददिांक/Dated 12/02/2026