Angira Diamonds And Jewellery Private Limited Vs ITO (ITAT Bangalore)
200% Penalty under Section 270A Invalid Unless Specific Limb of Misreporting Is Identified: Bangalore ITAT
The assessee, engaged in the gems and jewellery business, was selected for scrutiny due to its large turnover and comparatively low returned income. The AO disallowed part of the rent and other expenses and the entire salary expenditure because complete supporting details were allegedly not furnished.
Consequently, the AO initiated proceedings for under-reporting of income resulting from misreporting and imposed penalty under section 270A at 200% of the tax payable. The CIT(A) confirmed the penalty.
The ITAT examined the assessment order, notice under section 274 read with section 270A and the final penalty order. It found that the AO had merely used the general expression “under-reporting of income in consequence of misreporting” without specifying the particular clause or limb of section 270A(9) allegedly attracted.
The Tribunal held that section 270A(9) identifies different categories of misreporting. Unless the AO clearly specifies the precise charge, the assessee is deprived of a meaningful opportunity to defend itself. Failure to identify the relevant limb is therefore fatal to the penalty proceedings.
Following its earlier decisions and the Delhi High Court rulings in GE Capital US Holdings Inc. and Schneider Electric South East Asia (HQ) Pte. Ltd., the ITAT deleted the entire penalty under section 270A. As relief was granted on the legal issue, the grounds on merits were treated as infructuous.
List of Cases Discussed / Relied Upon
- Sermadevi Yegnaswamy Ramakrishnan vs. ITO — ITA No. 20/Bang/2026 dated 20/07/2026.
- Essae Suhagraja (P.) Ltd. vs. DCIT — (2025) 181 taxmann.com 302 (Bangalore).
- GE Capital US Holdings Inc. vs. DCIT — (2024) 163 taxmann.com 146 (Delhi).
- Shri Chiguruvada Dileep Kumar — ITA No. 832/Bang/2023 dated 27/05/2024.
- Schneider Electric South East Asia (HQ) Pte. Ltd. vs. ACIT — (2022) 145 taxmann.com 665 (Delhi).
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 18/11/2025 in respect of the A.Y. 2023-24.
2. The brief facts of the case are that the assessee filed its return of income on 17/10/2023. The case was selected for scrutiny under CASS to verify the large turnover from the Gems and Jewellery business and low returned income. The AO sought for the details about the rent expenses, salary expenses and other expenses. The assessee had not fully furnished the details and therefore the AO had disallowed part of the rent and other expenses and the entire salary expenses and assessment has been completed u/s. 147 r.w.s. 144 r.w.s 144B of the Act. The AO subsequently initiated penalty proceedings u/s. 270A of the Act for underreporting of income in consequence of misreporting. The assessee replied to the said notice but the AO not satisfied with the reply had confirmed the penalty u/s. 270A of the Act at 200% of the tax dues.
3. As against the said order, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) not accepted the explanations and confirmed the penalty order.
4. As against the said order, the assessee is in appeal before this Tribunal.
5. At the time of hearing, the Ld.AR submitted that the AO had not mentioned in the notice as well as in the order about the limb under which the AO intended to impose penalty u/s. 270A of the Act and therefore the entire proceedings are ab-initio-void and illegal. The Ld.AR further submitted that all the details were furnished before the AO while the assessment proceedings were conducted and therefore there is no underreporting or misreporting warranting penalty.
6. The Ld.DR relied on the lower authorities order and submitted that there is an underreporting of income and misreporting since the assessee had not furnished the details for the expenses and therefore the appeal is liable to be dismissed.
7. We have heard the arguments of both sides and perused the materials available on record.
8. Before going into the merits of the case, we will first decide about the submission that the penalty notice and the consequential penalty order are bad in law, since the same does not indicate under which limb, the underreporting of income in consequence of misreporting was done.
9. We have perused the assessment order, penalty notice u/s. 274 r.w. section 270A of the Act and the penalty order u/s. 270A of the Act. In the assessment order, the AO had simply stated that penalty proceedings u/s. 270A of the Act is initiated for underreporting of income in consequence of misreporting thereof. Subsequently, penalty notice was issued wherein the AO had not mentioned about the limb under which the underreporting in consequence of misreporting was done by the assessee. Therefore, the assessee was not provided under which limb the income was underreported in order to submit their reply. Later on, the AO had confirmed the penalty vide the impugned order. Even while confirming the penalty, the AO had not mentioned the limb under which the penalty has been imposed.
10. This Tribunal, in its earlier order had deleted the penalty levied u/s. 270A of the Act since the AO had not mentioned under which limb the penalty has been imposed. A Coordinated Bench of this Tribunal, in its order in ITA No. 20/Bang/2026 dated 20/07/2026 in the case of Sermadevi Yegnaswamy Ramakrishnan vs. ITO, had considered the penalty levied u/s. 270A of the Act and deleted the same as not sustainable since the AO had not mentioned under which limb the penalty has been imposed. The relevant extract of the said order is as follows:
“10. We have also considered the orders of the Coordinate Bench of this Tribunal which was filed in the case law compilation, in which the Tribunal had taken a view that the non mentioning of the limb under which the penalty has been imposed is fatal to the proceedings. In one of the orders of the Coordinate Bench of this Tribunal reported in (2025) 181 taxmann.com 302 (Bangalore) in the case of Essae Suhagraja (P.) Ltd. vs. DCIT which was relied on by the assessee, it was held that,
“penalty can be levied on six types of acts on behalf of the assessee. The Ld.AO neither in the assessment order nor even otherwise has stated that under which sub-clause of section 270A of the Act, penalty is levied.”
11. The Tribunal relied on the judgment of the Hon’ble Delhi High Court reported in (2024) 163 taxmann.com 146 (Delhi) in the case of GE Capital US Holdings Inc. to arrive the above said conclusion and deleted the penalty.
12. In another order of this Tribunal in ITA No. 1148/Bang/2024 dated 28/08/2024, the Tribunal had relied on the order of the Coordinate Bench of this Tribunal in the case of Shri Chiguruvada Dileep Kumar in ITA No. 832/Bang/2023 dated 27/05/2024 and deleted the penalty levied u/s. 270A(9) of the Act since the proceedings does not mention about the limb under which the penalty has been proposed and levied.
13. We have also considered the judgment of the Hon’ble Delhi High Court reported in (2024) 468 ITR 746 (Delhi) in the case of GE Capital US Holdings Inc. vs. DCIT (IT) wherein it was held that the failure to specify under which limb, the assessee is being tried on an allegation of underreporting or misreporting of income is bad in law and therefore the assessee is entitled for immunity u/s. 270AA of the Act. A similar view was taken by the very same Hon’ble Delhi High Court in the judgment reported in (2022) 145 taxmann.com 665 (Delhi) in the case of Schneider Electric South East Asia (HQ) Pte. Ltd. vs. ACIT.
14. Considering the facts of the case and also the principles laid down by the various Hon’ble High Courts and the Coordinate Bench of this Tribunal, we are also inclined to delete the penalty levied u/s. 270A of the Act since the notice as well as the order has not pointed out under which limb the mischief has been committed by the assessee to levy penalty under the said provision. Therefore, we are setting aside the order of the lower authorities and allow the appeal filed by the assessee.”
11. As already narrated, the penalty notice and order does not specify under which limb, the penalty was imposed. Therefore, respectfully following the Coordinate Bench order of this Tribunal, we are also deleting the penalty imposed u/s. 270A of the Act. We are deleting the penalty based on the legal issue and therefore we are dismissing the grounds raised on merits as infructuous.
12. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 20th August, 2026.
