Case Law Details
Rajah Uma Vs DCIT (ITAT Chennai)
The assessee initially declared capital gains on sale of land and paid tax, but later filed a revised return claiming it as agricultural land (not a capital asset) based on distance criteria from municipal limits. The AO rejected the claim and levied penalty u/s 270A alleging misreporting of income.
Before the Tribunal, it was established that all facts were fully disclosed and the dispute was purely regarding whether the land was within or beyond 6 km-i.e., a factual and debatable issue.
The ITAT held that:
- There was no concealment or false reporting
- The assessee’s conduct showed bona fide belief (initial tax payment + revised claim)
- The AO failed to clearly establish whether penalty was for under-reporting or misreporting, as required under section 270A
The Tribunal emphasized that mere rejection of a claim does not amount to misreporting, especially where full disclosure is made.
Accordingly, the ITAT deleted the penalty of ₹5.59 lakh, holding it unsustainable in law and allowed the appeal.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This captioned Appeal filed by the Assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi, [CIT(A)] dated 21.10.2025 Assessment Year 2020-21 confirming penalty levied under section 270A of the Income Tax Act, 1961.
2. The assessee filed her original return of income declaring capital gains arising on sale of land situated at Andankoil Village and paid due taxes thereon. Subsequently, based on information received from her relatives at Karur, the assessee came to know that the said land was situated beyond 6 km from the municipal limits and thus qualified as agricultural land not constituting a capital asset under the Act. Accordingly, the assessee filed a revised return treating the profit of Rs.8,97,394/- from sale of the said land as agricultural income. However, the Assessing Officer, while passing the assessment order u/s. 143(3) dated 07.09.2022, held that the land was situated within 6 km from municipal limits and treated it as a capital asset, thereby making an addition of Rs.8,97,394/- as long-term capital gain. Thereafter, the AO initiated penalty proceedings u/s. 270A alleging misreporting of income and imposed penalty of Rs.5,59,974/-.
3. The Ld. CIT(A) confirmed the penalty. Aggrieved, the assessee is now in appeal before the Tribunal.
4. The assessee has challenged the penalty primarily on the grounds that the issue relates to classification of land and is highly debatable. All material facts were fully disclosed in both original and revised returns. The AO failed to specify whether the penalty was for under-reporting or misreporting, as mandated under section 270A. The Ld. CIT(A) passed the order without appreciating facts and despite the quantum appeal being pending.
5. The Ld. Departmental Representative, on the other hand, supported the orders of the lower authorities.
6. We have heard both the parties and perused the material available on record. It is an admitted position that the assessee initially offered the income as capital gains and paid taxes. Subsequently, based on a bona fide belief regarding distance criteria, she revised the return and claimed the income as agricultural income. All facts relating to the transaction were duly disclosed.
7. The dispute essentially revolves around whether the land is situated within or beyond 6 km from municipal limits, which is a factual and interpretational issue. The provisions of section 270A clearly distinguish between under-reporting and misreporting of income. In the present case the AO has alleged misreporting but has not brought any material on record to establish deliberate falsification or suppression of facts. There is no finding that the assessee furnished false particulars. The conduct of the assessee, in fact, shows bona fides:
- Initially offering the income to tax, and
- Subsequently revising the return based on new understanding of facts.
We find that this is not a case of misreporting but at best a difference of opinion regarding taxability.
8. We draw support from the decision of the Delhi Tribunal in Kirpalani Business School Vs ITO, wherein it was held that where the assessee has disclosed all primary facts and the issue pertains to characterization of income, penalty is not leviable. In the said decision, it was observed that where the assessee has neither concealed income nor furnished inaccurate particulars, penalty cannot be sustained merely because the claim was not accepted by the Revenue. The order of the Delhi Tribunal in the case of Kirpalani Business School Vs ITO [I.T.A .No.978/DEL/2016 AY: 2011-12 dated 18.05.2018 was held as under:
8. We have heard both the parties and perused the material available on record. It is pertinent to note that the assessee at no stage concealed his income or furnish inaccurate particulars. The assessee revealed in its return of income that the assessee sold the land within four months of its purchase as the land was of agricultural land and its nomenclature has not been changed by the assessee while selling the said land. Thus, the penalty levied by the Revenue authorities is not justified. The Assessing Officer as well as the CIT(A) ignored this crucial aspects. Therefore, we set aside the order of the CIT(A) and allow the appeal of the assessee.
9. In result, the appeal of the assessee is allowed.
Applying the above ratio to the present case, we hold that there is no concealment or misreporting. The issue is debatable and based on bona fide belief, and the penalty has been levied mechanically without proper satisfaction. In view of the above facts and judicial precedent, we are of the considered opinion that the penalty levied under section 270A is not sustainable in law. Accordingly, the penalty of Rs.5,59,974/- is deleted.
9. In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on the 01st day of April 2026, in Chennai.
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