ITAT Mumbai: Section 270A Penalty Quashed – Vague Notice Without Specific Charge Invalid

Monisha Ravi Jaising Vs ACIT (ITAT Mumbai)

ITAT Mumbai: Section 270A Penalty Quashed – Vague Notice Without Specific Charge Invalid

In this case, the ITAT Mumbai deleted a hefty penalty of ₹3.22 crore levied u/s 270A on alleged under-reporting/misreporting of LTCG arising from sale of property.

The Tribunal did not go into merits of capital gains taxability and instead decided the case on a fundamental legal defect—the penalty notice and order failed to specify the exact limb of “misreporting” under Section 270A(9).

It was observed that:

• Section 270A(9) provides specific categories of misreporting (clauses a to f)
• The AO merely used generic language like “under-reporting due to misreporting”
• There was no clarity on which specific default was alleged
• Such vague initiation violates principles of natural justice and settled jurisprudence

Relying on judicial precedents, the Tribunal held that penalty cannot survive where the charge itself is unclear or unspecified.

Final Outcome:

• Penalty u/s 270A deleted in full
• CIT(A) order set aside
• Appeal of assessee allowed

This ruling reinforces a crucial principle: penalty proceedings must be precise and specific-vague notices are fatal.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

This appeal by the assessee is directed against order dated 18.12.2025 passed by the Ld. Commissioner of Income-tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi[in short the “Ld. CIT(A)”] for A.Y. 2022-23, in relation to penalty u/s. Section 270A of the Income Tax Act, 1961 (in short “the Act”), which was levied by the ld Assessing Officer(AO) and sustained by the Ld. CIT(A).The sole ground raised by the assessee is reproduced as under:

GROUND NO. I:• LEVY OF PENALTY U/ S. 270A OF THE ACT:•

1.1 On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in upholding the action of the ld. AO in levying penalty u/ s. 270A of the Act.

1.2 The Appellant prays that the levy of penalty u/ s. 270A of the Act be deleted/ appropriately reduced.

2. Briefly stated, facts of the case are that assessee is an individual, filed the return of income for a year under consideration on 31.12.2022 declaring total income at Rs. 1,15,54,630/-. The return was selected for scrutiny assessment and statutory notices under the Act were issued and duly served upon the assessee. During the course of assessment proceedings, the ld. AO noticed a sale of property reported by the ‘transferee’ or buyer in the TDS return filed in form No. 26Q but the same was not appearing in the return of income of assessee. Further, ld AO observed, large refund out of the self assessment tax which according to him was unusual. In response, the assessee submitted that she entered into a sale agreement for sale of the property i.e. a flat was entered into on 31.03.2022 at total consideration of Rs. 12,11,40,000/- to Shri. Anil R. Malhotra and Seema A. Malhotra and the said buyer deducted TDS on sale consideration and deposited into govt account on 31.03.2022 itself, which is reflecting in the form no. 26(AS) of the assessee for the year under consideration. But the assessee explained that possession of the property was provided only after receipt of the payment and registration of the sale deed on 11.05.2022. Further, it was submitted that the shares of the cooperative society in which flat was located, were also transferred in favour of the purchaser only on 28.06.2022. The the assessee submitted that though the assessee paid self assessment tax of Rs. 1,48,00,000/- computing income from the long term capital gain(LTCG) but later on the assessee was advised that the capital gain was not taxable in the assessment year under consideration i.e. A.Y. 2022-23 and therefore, the assessee filed return of income for the year under consideration without declaring ‘ LTCG’ on above transaction.

2.1 The ld AO, however was not convinced with the submission of the assessee and he computed long term capital gain on sale of the property at Rs. 5,66,56,708/- and added the same to the total income of the assessee for the year under consideration in the assessment order passed. The ld AO also initiated penalty proceeding u/s. 217(A) of the Act. The assessee accepted the finding of the ld AO and did not prefer any appeal against the quantum assessment proceeding.

2.2 As no appeal was preferred by the assessee against the quantum assessment proceedings, the ld AO issued a show cause notice for levy of penalty and after considering the submission of the assessee, he found it to be fit case for levy of the penalty for `under reporting’ in consequences of the ‘misreporting’ in respect of addition of the LTCG of Rs. 5,66,56,708/- and computed the penalty invoking Section 270A(9) of the Act at the rate of 200% amounting to Rs. 3,22,89,792/-

2.3 Before the Ld. CIT(A), the assessee made detailed submission, relevant part of which is reproduced as under:-

“1.3.1. As stated above, the Appellant respectfully submits that the omission to report the capital gains in the ROI was a result of inadvertence error of the Accountant. Importantly, the Appellant had already discharged her tax liability by paying Rs. 1,48,00,000/- towards LTCG even prior to filing the ROI and further, tax had also been deducted by the purchaser of the property u/ s. 194- IA of the Act. This conduct clearly evidences a bona fide intention to pay due taxes and negates any allegation of concealment or mala fide intent.

1.3.2. Further, since the LTCG was erroneously not reported in the ROI, the self assessment tax already paid was refunded while processing of the ROI u/ s. 143(1)(a) of the Act. Such refund was not claimed in the ROI with the intent to obtain undue benefit, rather, it was a mechanical consequence of the omission to report income from capital gains in the ROI.

1.3.3. At this stage, the Appellant invites Your Honour’s attention to section 270A(6) of the Act which provides specific exceptions where an addition shall not be treated as a case of under-reporting. Clause (a) thereof stipulates that where the assessee offers an explanation and the AO is satisfied that the explanation is bona fide and all material facts have been disclosed, the same shall not constitute under reporting of income.

1.3.4. In the present case, the Appellant suo mote disclosed the transaction and furnished all relevant details in the course of assessment proceedings. The ld. AO computed the LTCG based on the particulars submitted by the Appellant. This clearly demonstrates that the explanation offered by the Appellant was bona fide and substantiated by complete material facts. Accordingly, the Appellant’s case squarely falls within the exception u/ s. 270A(6)(a) of the Act.

1.4. SUBMISSION BASED ON LEGAL JURISPRUDENCE:

Assessee cannot be made to suffer because of error on the part of consultants/ advisor

1.4.1. It is a settled principle that all cases of “misreporting of income” necessarily involve an element of intent to evade taxes or furnish inaccurate particulars of income, resulting in tax escapement. In the present case, the Appellant had no such intent, as evident from advance tax payment and deduction of tax at source.

1.4.2. Without prejudice to the foregoing, even if the non-reporting of LTCG in the ROI is attributed to professional negligence or error of the Accountant, it is a settled position in law that the Assessee cannot be penalized for mistakes of legal counsel/ accountant.

1.4.2.1. Reliance in this regard is placed on the decision of the Supreme Court in the case of Rafiq & Anr v. Munshilal & Anr (AIR 1981 SUPREME COURT 1400) (refer page numbers 1 – 3 of Legal paper Book “LPB”) wherein the Apex Court observed that in no uncertain terms that a person who selects his advocate, briefs him, pays the fees demanded by him and then trusts him to do the rest of the things cannot be made to suffer for not acting as a watch dog of the advocate. In nutshell, it was held that the petitioner should not be made to suffer due to laches on the part of her CA.

1.4.2.2. Reliance is also placed on the decision of the Calcutta High Court in the case of in the case of Jayshree Bhardwah v. Deputy Commissioner of Revenue W.B. State Tax [2023] 156 taxmann.com 329 (refer page numbers 4 – 9 of LPB), wherein it was held that the Petitioner i.e. Jayshree Bhardwah should not suffer due to the fraudulent and negligent conduct of her Chartered Accountant. The court set aside an order dismissing the Petitioner’s appeal as timebarred and directed the authorities to reconsider the appeal on its merits after providing an opportunity for a hearing, emphasizing that the Petitioner should not be made to suffer due to the adverse actions of their Cas.

1.4.2.3. Reliance is further placed on the decision of the Bombay High Court in the case of Subhkaran & Sons v. ITO [1985] 152 ITR 231 (refer page numbers 10 – 12 of LPB), wherein it was held that a party must not suffer for no default on its part and for a sheer mistake or oversight on the part of its legal advisors. Relevant extract of the decision is reproduced herewith:

“A party must not suffer for no default on its part and for a sheer mistake or oversight on the part of its legal advisors. All that was necessary for the firm to do was in fact done by it and its partners. That the chartered accountants made a mistake through oversight should not have been considered a fatal circumstance outweighing all other facts and circumstances in favour of the assessee.”

1.4.3. The Assessee also relies on the principle laid down by the Hon’ble Supreme Court in Hindustan Steel Ltd. v. State of Orissa (83 ITR 26) (refer page numbers 13 – 17 of LPB) that penalty will not be imposed merely because it is lawful to impose it; unless the party deliberately acted in defiance of law or was guilty of conduct or was dishonest or acted in conscious disregard of its obligations, penalty cannot be imposed.

1.4.4. In the instant case, as the Appellant had made complete disclosure of facts before the ld. AO and paid due tax thereon, penalty u/ s. 270A of the Act cannot be imposed.

1.4.5. In view of the above, the Appellant prays that the penalty levied u/ s. 270A of the Act alleging misreporting of income be dropped.

Penalty proceedings initiated u/ s 270A of the Act without specifying the limb under which the said proceedings are initiated is illegal

1.4.6. The Assessee draws attention to Section 270A(9) of the Act which states as under:

“(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.”

On bare perusal of the above sub-section, we note that the Act categorically provides an exhaustive list as to what constitutes ‘misreporting of income’.

1.4.7. In the instant case, the captioned show cause notice u/s 270A proposes to levy penalty for “Under reporting of income in consequence of misreporting” without specifying specific limb of sub-section (9) which lists down situations which will be treated as misreporting of income. In such a case, the entire penalty proceedings is erroneous and bad-in-law.

1.4.8. In this regard reliance is placed on the decision of the Hon’ble Jurisdictional Tribunal in the case of Alrameez Construction (P.) Ltd. [2023] 202 ITD 379 (Mumbai – Trib.) (refer page numbers 18 – 25 of LPB) inter alia, held that unless the order specified as to how ingredients of sub-section (9) of section the limb under which the which penalty was being levied, penalty u/s 270A of the Act was wrongly levied. The relevant extract of the decision is reproduced hereunder:

“5. Penalty was initiated and imposed under section 270A of the Act for misreporting of income is not only erroneous but also arbitrary and bereft of any reason as in the penalty notice the Respondents have failed to specify the limb -“underreporting” or “misreporting” of income, under which the penalty proceedings had been initiated. We also found 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 Revenue in the assessment order, for imposition of penalty makes the impugned order manifestly arbitrary.”

2.4 After considering the submission of the assessee, the Ld. CIT(A) dismissed the appeal of the assessee observing as under:

“5. Decision: I have gone through the facts of the case and have considered the written submissions filed by the appellant as well as material on record. There is no dispute about the fact that the appellant has not disclosed her income under the head Long Term Capital Gains in the return if income filed for the year. The fact came to light in view of the information available in Form No. 26QB statement. The appellant in her written submission tried to shift the burden of disclosure upon an accountant for not disclosing income under the head capital gains for the year. The appellant is an individual the appellant cannot be held responsible for any omission or commission on the part of the appellant. All responsibility lied upon the appellant only for furnishing incomplete and incorrect details of her income. Before the case was selected for scrutiny, the appellant, suo-motto, did not make any attempt to rectify the defect by filing a revised return. It has been noted further that whatever self assessment tax was paid in contemplation of tax on Long term capital gains was claimed back as refund in her return of income due to no income being disclosed under the head capital gains. The appellant being an individual was solely responsible as per law to furnish true and fair statement of her income. Under oath in the verification part of her return she has given false statement by not disclosing complete and correct details of her income. The case decisions relied upon by the appellant are distinguishable with the factual matrix of the present case under consideration, hence, not acceptable. Having regard to the facts of the case and the extant provision of law, I do not find any reason to interfere with the order of the AO. In view of facts afore-stated the penalty imposed u/ s 270A by the AO for the year, is confirmed.”

3. Before us, the Ld. Counsel for the assessee firstly, submitted that the penalty is not liable to levy on the merit of the addition. The Ld. Counsel submitted that in the year under consideration only agreement to sale was entered into and under the clauses of the said agreement the possession was to be given to the assessee on making of full payment. Since, the purchaser party made the payment only in the subsequent assessment year and registration of the property was also entered into in subsequent assessment year, so, according to interpretation of the provisions of the Section 2(47) of the Act, the property in dispute has been transferred to the purchaser only in the subsequent assessment year. The Ld. Counsel in support thereof relied on the decision of the Hon’ble Supreme Court in the case of Commissioner of Income-Tax Vs. Balbir Singh Maini reported in [2017] 398 ITR 531 (SC).

3.1 Secondly, the Ld. Counsel for the assessee submitted that even if it is considered that the said capital gain was liable to be taxed in the year under consideration, the assessee had already paid the self assessment tax with the intention to declare the said long term capital gain in the year under consideration but in view of the confusion of the advice by some consultants, he could not report the said capital gain in the year under consideration. Further, he submitted that since the return of the income was filed by the assessee on 31.12.2023 and there was no period available for revising the return of income to the assessee. Therefore, he could not revise the return of total income also. The Ld. Counsel in support submitted that tax payment had already been done and no penalty u/s. 270A is liable relied on the decision of the coordinate bench of the Tribunal in the case of Merlyn Lenin Fernandes Vs. INT Tax Ward 2(3)(1), Mumbai in ITA No. 6862/MUM/2025 for assessment year 2018-19.

3.2 Thirdly, the Ld. Counsel submitted that the notice for penalty issued u/s. 270A of the Act is vague and it is not clear under which ingredient of sub-section (9) of Section 270A, the penalty was levied. The Ld. Counsel referred to the provision of Section 270A(9) which comprises of sub-clause (a) to (f).The Ld. Counsel for the assessee filed a copy of the notice u/s. 270A dated 13.03.2024, wherein the AO has mentioned that the assessee had under reported income which was in consequence of misreporting thereof as per the details given in the assessment order. The Ld. Counsel submitted that specific sub-clause of Section 270A(9) has not been specified by the AO either in the assessment order or in the notice issued u/s. 270A of the Act. The Ld. Counsel submitted even in the penalty order also the AO has not specified the relevant sub-clause of the Section 270A(9) of the Act. Therefore, the penalty being vague and unspecified of particular limb of sub-section 270A(9), is liable to be quashed. In support thereof, the Ld. Counsel relied on the decision of the Hon. Delhi High Court in the case of Prem Brothers Infrastructure LLP Vs. National Faceless Assessment Centre & Anr. reported in 288 Taxman 0768. The Ld. Counsel further relied on the decisions of the Coordinate Bench of Tribunal in the case of Manish Manohardas Asrani Vs. INT Tax, 170 Taxmann.com 792 (Mumbai) and Hi-Tech Engineers Vs. Assistant Commissioner of Income-Tax, 182 Taxmann.com 385 (Mumbai).

4. We have considered the rival submissions of the parties and perused the relevant material on record. First of all, we take up the legal issue of non-reference of particular limbof Section 270A of the Act by the AO. In this reference, we would like to reproduce the relevant provisions of Section 270A(9) as under:-

“270A Penalty for under-reporting and misreporting of income.

(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.”

4.1 Further the Hon. Delhi High Court in the case of Prem Brothers Infrastructure LLP (Supra) has held as under:-

“7. 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 sub­section (9) of section 270A is satisfied. In the absence of such particulars, the mere reference to the word “misreporting” by the Respondents in the assessment order to deny immunity from imposition of penalty and prosecution makes the impugned order manifestly arbitrary.”

4.2 Further Coordinate Bench of the Tribunal in the case of Manish Manohardas Asrani Vs. INT Tax (Supra) is held as under: –

8. Coming to the instant case, admittedly in the assessment order, the AO initiated the penalty proceedings u/s 270A of the Act without mentioning any sub clause of the section 270A of the Act or not specifying any limb of the penalty proposed to be levied. Further, in the penalty notice issued u/s 274 r.w.s 270A of the Act dated 11.11.2021 mentioned under reporting of the income. Subsequently during the penalty proceedings again issued the notice dated 20.12.2021 u/s 274 r.w.s 270A of the Act, without specifying any limb or sub clause of section 270A of the Act and ultimately vide order dated 22.02.2022 u/s 270A of the Act levied the penalty for misreporting of the income as well as underreporting of the income, as per provisions of section 270A(8) of the Act with the aid of section 270A(9)(e) of the Act. As the AO issued the vague notice without specifying any particular limb or sub clause for levying the proposed penalty. There is no whisper at all in the notice issued u/ s 270A read with section 274 of the Act about “misreporting of income” whereas the penalty has been levied ultimately for both ‘under reporting’ and ‘misreporting of income’ @ 200% in terms of section 270A(9) of the Act, for which show cause notice was never issued to the Assessee. And therefore in view of the judgment passed by the coordinate Bench of the Tribunal in the case of Jaina Marketing & Associates (supra), wherein the Co-ordinate Bench of the Tribunal not only analyzed the provisions of law but also considered the judgments of the Higher Courts and the Tribunal and deleted the identical penalty as involved in this case, hence respectfully following the decision of the Tribunal, we are inclined to delete the penalty under consideration. Thus, the penalty is deleted and appeal filed by the Assessee is allowed.

4.3 Further Coordinate Bench of the Tribunal in the case of Hi-Tech Engineers Vs. Assistant Commissioner of Income-Tax (Supra) is held as under:-

“12.2. On the other hand we find merit in the contention advanced on behalf of the Assessee that the Assessing Officer has not specified the limb of Section 270A(9) of the Act under which the Assessee can be said to have misreported income. On 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 29/ 11/ 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. Though the Assessing Officer has alleged that the Assessee has not filed any supporting evidence, the findings recorded by the Tribunal support the contention of the Assessee that the claim for deduction for purchase expenses was substantiated by some documentary evidence.

12.3. In view of the above, we hold that in the facts of the present case, the Penalty Order, dated 29/ 11/ 2023, levying penalty under Section 270A of the Act cannot be sustained. Accordingly, the order passed by the CIT(A) is set aside and the penalty of INR. 1,39,306/ – levied under Section 270A of the Act is deleted. Thus, in terms of aforesaid, Ground No. 1 raised by the Assessee is allowed, while all the other grounds raised by the Assessee are dismissed as having been rendered infructuous.”

4.4 In view of the above provisions of the law and the binding precedents, it is evident that before levy of the penalty, the AO is required to specify which particular ingredients of sub-section 9 of Section 270(A) is satisfied in the case of the assessee. We find that in the instant case the AO in the penalty order passed u/s. 270A has not specified the specific default of the assessee which could bring the assessee in the ambit of Section 270A for levy of the penalty for under reporting in consequence of the misreporting.

4.5 Therefore, respectfully following the above precedents, we hold that the penalty u/s. 270A of the Act cannot be sustained in the case of the assessee. Accordingly, we delete the same.

5. Since, we have already deleted the penalty on the legal issue, we are not adjudicating the other arguments of the Ld. Counsel for the assessee.

6. The sole ground of the appeal of the assessee is accordingly allowed.

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

Order pronounced in the open Court on 20/04/2026.