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Facts
The assessee filed an ITR for AY 2022-23, claiming a large refund. The AO disallowed Rs. 7,92,500 for cost of improvement and Rs. 25,90,875 for deduction u/s 54F, totaling Rs. 33,83,375, and levied a penalty of Rs. 15,48,234 u/s 270A for underreporting/misreporting of income. The CIT(A) confirmed the penalty, rejecting the assessee's arguments of bona fide mistake and reliance on incorrect professional advice.
Held
The Tribunal held that the penalty notice was invalid as it failed to specify which limb of Section 270A(9) was attracted, as required by judicial precedents. It also found that the assessee's claims were made under a bona fide belief and that the assessee had already paid the entire demand, including excess interest. Consequently, the Tribunal concluded that the assessee was not guilty of underreporting or misreporting of income and vacated the penalty.
Key Issues
Whether penalty u/s 270A is exigible if the penalty notice fails to specify the limb of Section 270A(9) of the Income Tax Act. Whether an inadvertent claim for deduction and cost of improvement, later rectified by payment, constitutes underreporting or misreporting of income.
Sections Cited
Section 270A, Section 274, Section 270A(9), Section 270A(8), Section 270A(2), Section 142(1), Section 143(2), Section 144, Section 144B, Section 54F, Section 270AA, Section 195, Section 143(3), Section 147
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI R.K. PANDA & MS. ASTHA CHANDRA
Assessment Year : 2022-23 Mustafa Alihusain Sunelwala, ITO, Ward-14(1), Pune Flat No. 1004, Brahma Exuberance, A Wing, Kondhwa Khurd, NIBM Road, Vs. Pune-411048 PAN : DCNPS4268E अपीलार्थी / Appellant प्रत्यर्थी / Respondent Assessee by : Smt. Deepa Khare Department by : Shri Madhan Thirmanpalli Date of hearing : 14-01-2026 Date of 16-02-2026 Pronouncement : आदेश / ORDER
PER ASTHA CHANDRA, JM :
The appeal filed by the assessee is directed against the order dated 24.03.2025 of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)”] wherein he has confirmed the penalty of Rs.15,48,234/- levied by the Ld. Assessing Officer (“AO”) u/s 270A of the Income Tax Act, 1961 (the “Act”) pertaining to Assessment Year (“AY”) 2022-23.
Briefly stated, the facts of the case are that the assessee is an individual. He filed his return of income for AY 2022-23 on 15.07.2022 declaring total income of Rs.40,17,320/- and claimed refund of Rs.45,24,010/-. The assessee disclosed income from house property and capital gain in his return for AY 2022-23. The case of the assessee was selected for scrutiny under CASS to verify the issue of high ratio of refund. Statutory notice(s) u/s 142(1) and 143(2) of the Act were issued and served upon the assessee. In response thereto, the assessee submitted part detail/documents/evidences. Subsequently, a show cause notice issued to the assessee was also partly complied with. Therefore based on the information available with him, the Ld. AO completed the assessment u/s 144 r.w.s. 144B of the Act vide his order dated 11.03.2024 thereby disallowing : (i) Rs.7,92,500/- towards cost of improvement claimed by the assessee and (ii) Rs.25,90,875/- towards claim of deduction u/s 54F of the Act aggregating to total disallowances of Rs.33,83,375/-. The Ld. AO initiated penalty proceedings u/s 274 of the Act for underreporting of income which is in consequences of misreporting thereof. During the penalty proceedings, in response to show cause notice, the assessee submitted his reply on 02.04.2024 and 04.05.2024 which was not found to satisfactory by the Ld. AO for the reason of absence of any documentary evidence or reasonable cause. The Ld. AO, therefore, concluded that since the assessee has not filed appeal before the Ld. CIT(A)/NFAC and also in the absence of any satisfactory explanation offered by the assessee, it is a fit case for levy of penalty u/s 270A of the Act. He, therefore, levied penalty of Rs.15,48,234/- being 200% of tax payable on underreported income u/s 270A of the Act vide his order dated 27.09.2024.
Aggrieved, the assessee filed an appeal before the Ld. CIT(A)/NFAC. During the appellate proceedings before him, the assessee filed detailed written submissions which is placed on record at pages 14 to 34 of the paper book contending that there was bonafide mistake on the part of the assessee while claiming exemption u/s 54F of the Act and it is completely attributable to the incorrect professional advice rendered to the assessee by his Chartered Accountant. It was also contended that the penalty proceedings initiated by the Ld. AO are fundamentally flawed as there is no clear specification under which sub-section of section 270A the alleged misreporting has been covered. While passing the impugned penalty order u/s 270A, the Ld. AO failed to adhere to the requirements of section 270(9) of the Act. The Ld. CIT(A) rejecting the contentions of the assessee and dismissed the appeal by observing as under : “Decision- I have examined facts of the case and gone through, SOF, GOA, written submission (the 'WS') and records in the present case. GoA no. 1 and GoA no. 2 challenge the penalty on the ground that the additions made by the AO were a result of fault of the tax-consultant in claiming deduction and the reliance of the appellant over the advice of tax-consultant. In this case, additions of Rs. 7,92,500/- towards disallowance of claim for cost of improvement and of Rs. 25,90,875/- for disallowance of deduction claimed u/s 54F of the Act were made. The appellant accepted both the additions and did not prefer appeal. GoA no. 4 is also taken for the fault of the tax-consultant in not applying for immunity u/s 270AA of the Act. The appellant's shifting of his liability over his tax-consultant is not accepted. A tax-consultant or counsel is only are presentative of his client who appoints him. The represented person is liable for the action of his representative. What was the direction of the client and what was the action of the representative is not a matter of scrutiny for the tax- authorities particularly when there is no evidence for the carelessness of the representative. These grounds are, therefore, dismissed. GoA no. 3 challenges the penalty on the ground that the appellant and accepted his tax-liability and paid the tax. In this case, while passing the assessment order, the AO disallowed this cost as the assessee failed to prove genuineness of this claim. It is noticed from the Order that the appellant did not dispute the addition. When the claim of the appellant was disallowed for want of any documentary evidence, the addition attained finality and looking to the nature of addition, it cannot be said that the additions were result e result of any difference in opinion. False claim of deduction falls in the category of misreporting of income and, therefore, penalty was rightly imposed in this case. The case-laws cited by the appellant are distinguishable on facts of the case as in the present case, no documentary evidence was filed in support of claim towards cost of improvement etc. Further with respect to the argument of the appellant regarding failure of the AQ to classify the case either in the category of 'under-reporting' or misreporting', it is clear from the language of provisions of section 270A(1) of the Act that the penalty is to be levied when there is under reporting of income. Only the quantum of penalty varies when there is 'under-reporting' and 'misreporting' which terms have been explained in section 270A(2) and section 270A(9), respectively. The AO has used words "for under reporting of income in consequence of misreporting" which are the same as mentioned in provisions of sub-section (8) of section 270A of the Act. This argument is dismissed. This ground is, therefore, dismissed.”
Dissatisfied, the assessee is in appeal before the Tribunal raising the following grounds of appeal :
1. Ld CIT(A) erred in law and on facts in confirming levy of penalty of Rs 1548234/- u/s 270A(9) on account of misreporting of income in respect of addition of capital gains without appreciating the facts and circumstances of the case.
2. Ld CIT(A) erred in law and on facts in confirming levy of penalty of Rs 1548234/- u/s 270A(9) without appreciating that the specific limb of Sub- Section (9) of Sec 270A is not invoked nor the specific charge is being made out in the impugned order.
3. Ld CIT(A) erred in law and on facts in confirming levy of penalty of Rs 1548234/- u/s 270A(9) without appreciating that the claim of exemption u/s 54F was made out of inadvertent mistake and all the facts were already available on record of the Income Tax Authorities.
4. Ld CIT(A) erred in law and on facts in confirming levy of penalty of Rs 1548234/- u/s 270A(9) without appreciating that the claim of cost of improvement was disallowed for want of supporting documents without there being any material indicating falsity of the claim.
5. The appellant craves a leave to add, alter, modify, substitute any ground of appeal at the time of hearing.”
The Ld. AR submitted that there was no malafide intention on the part of the assessee while inadvertently claiming cost of improvement and deduction u/s 54F of the Act which is evident from the reply provided by the assessee to the Ld. AO in respect of queries raised by him (pages 27 and 28 of the paper book refers) which is reproduced below :
“3.1 It is further stated that you have failed to furnish documentary evidence in support of your claim of incurring of expenses for improvement - Rs. 7,92,500/- (with indexation) (without indexation - Rs.7,00,000/-). Hence, the same cannot be allowed. Comments:
Despite numerous follow-ups with the vendors, they have been unable to furnish the requested invoice copies even payment has been made from bank accounts. In light of this, I respectfully request your honor to consider taking kind measures to address this matter. 2.4 Cost of further development is to be taken at Rs. 46,44,222/- (50% of Rs.92,88,444/-) (after indexation). Comments: The assessee remained a non-resident in 2018, during the period when the development expenses were incurred using his Non-Resident Income. The details of these payments, including the relevant bank statements from which these expenditures were made, have been submitted for your review in earlier submission. 2.5 Apart, as discussed in earlier notice, you are not eligible for claim of deduction u/s 54F of the Act of Rs. 25,90,875/-. Hence, same is to be disallowed. More than one house property is in your ownership which is evident from the data available on system, as also established vide your reply dated 02/09/2023, wherein in reply to the details of house property, you have accepted to own two flats.”
5.1 The Ld. AR brought our attention to the notice dated 11.03.2024 (copy at page 1 of the paper book) for penalty u/s 274 r.w.s. 270A of the Act and submitted that the notice does not mention which limb of section 270A(9) is attracted. She submitted that the assessee made detailed submissions on this contention before the Ld. CIT(A)/NFAC which is reproduced by him on pages 14 and 15 of the impugned appellate order. Placing reliance on the decision of the Hon’ble Delhi High Court in the case of Prem Brothers Infrastructure LLP Vs. National Faceless Assessment Centre (2022) 142 taxmann.com 38 (Delhi) and in the case of Schneider Electric Sought East Asia (HQ) Pte. Ltd. Vs. Asst. Commissioner of Income Tax (2022) 145 taxmann.com 665 (Delhi) and the decision of the Pune Tribunal in the case of DCIT Vs. Chakradhar Contractors and Engineers P. Ltd. (2025) 171 taxmann.com 133 (Pune-Trib.), the Ld. AR submitted that if the penalty notice does not mention which limb of section 270A of the Act is attracted and how the ingredients of sub-section (9) of section 270A is specified, mere reference to the word misreporting in the assessment order for imposition of penalty is manifestly arbitrary and deserves to be quashed. The Ld. AR submitted that the Ld. AO as well as Ld. CIT(A)/NFAC also disregarded the fact that the assessee has paid the entire demand raised by the Department including the excess interest received on the income tax refund which was inadvertently claimed by the assessee. She further submitted that there is absolutely no mention of any malafide intention on the part of the assessee by the Ld. AO. The Ld. AR submitted that it cannot therefore be said that the assessee underreported or misreported his income.
The Ld. DR supported the order of the Ld. CIT(A)/NFAC but could not bring to our notice any contrary decision to rebut the above submissions of the Ld. AR.
We have given our careful thought to the rival submissions of the parties and perused the material available on record as well as paper book filed by the Ld. AR on behalf of the assessee and the judicial precedents cited before us. It is matter of fact that the penalty notice by the Ld. AO (reproduced below) does not mention which limb of section 270A(9) of the Act is attracted : if that be so, the decision (supra) squarely apply to the facts of the assessee’s case.
We find that the Pune Tribunal in the case of Chakradhar Contractors and Engineers P. Ltd. (supra) has dismissed the appeal of the Revenue relying on the decision(s) of the Hon’ble Delhi High Court in the case of Prem Brothers Infrastructure LLP (supra) and in the case of Schneider Electric Sought East Asia (HQ) Pte. Ltd. (supra) holding that “where neither in the assessment order nor in the notice issued u/sec.274 r.w.s.270A the Assessing Officer has specified as to under which limb of provisions of sec.270A(2) or 270A(9) the case of the assessee falls, then in that case, no penalty u/sec.270A is leviable”.
Moreover, we are of the view that the case of the assessee is neither that of the underreporting nor misreporting of income. Sub-section (8) of section 270A specifies the quantum of penalty leviable and in this context reference to underreported income in consequences of any misreporting thereof. Sub- section (9) of section 270A enumerates what constitutes misreporting of income. It is an admitted fact that the assessee filed the return of income for the AY 2022-23 on 15.07.2022, declaring a total Income of Rs.40,17,320/-, which included capital gain of Rs.38,11,873/- from the sale of property. As the assessee is a non-resident applicable, tax was deducted at source u/s 195 of the Act. It is the contention of the Ld. AR that the assessee inadvertently claimed deduction u/s 54F and sought a full refund under the erroneous belief that the deduction could be availed despite holding more than two residential properties. The return was processed by the Centralized Processing Centre, which issued a refund of Rs.45,24,010/-, including interest of Rs.190,480/-. The refund was duly granted post the passing of the order u/s 143(3), and the tax demand has since been paid. We find that the scrutiny proceedings were completed ex-parte u/s 147 r.w.s. 144 r.w.s. 144B of the Act on 28.03.2022. However as contended by the Ld. AR the fact on record reveals that the assessee had filed part replies to the notices issued by the Ld. AO during the course of assessment proceedings. It is also a matter of fact that the assessee has paid the entire demand raised by the Department including excess interest received on the income tax refund which was inadvertently claimed. The assessee had also duly brought to the notice of the Ld. AO, his inability to produce the documentary evidences (invoice from the vendors) in respect of his claim towards the claim of cost of improvement. It is not the case of the Revenue that anything more than what was declared and claimed inadvertently but under a bonafide belief by the assessee was found by the Revenue. The AY 2022-23 case of the assessee all along has been that it was under bonafide belief that he was eligible for claim of deduction u/s 54F of the Act. On the face of these facts, in our opinion, it cannot be alleged that the assessee is guilty of underreporting and/or misreporting of income. None-the-less, the fact remained that the assessee had cleared all dues against the demand raised by the Ld. AO including the excess interest received on the income tax refund which was inadvertently claimed.
On the aforesaid facts and in the circumstances of the case and following the decisions (supra) in the case of Prem Brothers Infrastructure LLP (supra), Schneider Electric Sought East Asia (HQ) Pte. Ltd. (supra) and Chakradhar Contractors and Engineers P. Ltd. (supra), we hold that the impugned penalty is not exigible which we hereby vacate. The grounds raised by the assessee are accordingly allowed.
In the result, the appeal of the assessee is allowed.