Nishant Agrawal Vs The ITO (ITAT, Ahmedabad)
Donation Claim Withdrawn, Tax Paid &; No Addition Made—Penalty u/s 270A Cannot Survive on Suspicion Alone
Summary:
The Political Donation That Invited Reassessment
The Assessee filed his original return for AY 2019-20 after claiming deduction of ₹3 lakh u/s 80GGC towards a donation made to Apna Dal Party, a Registered Unrecognised Political Party. The donation was made through banking channels & was supported by the documents available with the Assessee.
A search & seizure operation was subsequently conducted on 07.09.2022 in the cases of 23 Registered Unrecognised Political Parties in Ahmedabad. The investigation allegedly revealed that certain political parties were accepting donations, facilitating deduction u/s 80GGC or 80GGB & thereafter rerouting the money to donors through cash, RTGS, NEFT or other channels after retaining commission.
Based on information emerging from the search, the Assessee’s case was reopened u/s 147. In response to the notice u/s 148, he filed a return on 18.05.2023, declaring income of ₹23,28,990 after withdrawing the deduction of ₹3 lakh. He also paid self-assessment tax of ₹1,40,500.
No Addition, Yet a 200% Penalty
The AO accepted the income disclosed in the return filed u/s 148 without making any further addition. Nevertheless, the AO observed that the deduction had not been withdrawn voluntarily but only after the Assessee was cornered by the information uncovered during the search on the political parties.
According to the AO, the Assessee had consciously claimed a bogus deduction in the original return & surrendered it only after reassessment proceedings commenced. The AO treated the matter as under-reporting in consequence of misreporting of income & initiated proceedings u/s 270A(9).
By order dated 23.05.2025, the AO levied penalty of ₹1,87,000, being 200% of the tax of ₹93,600 computed on the alleged misreported income. The CIT(A)/NFAC confirmed the penalty, reasoning that a withdrawal made only after receipt of notice u/s 148 could not be regarded as voluntary.
The Assessee’s Defence: A Claim Is Not Automatically a Crime
Before the ITAT, the Assessee contended that the donation had been made through proper banking channels & the deduction was claimed in good faith on the strength of valid documents. When he subsequently came to know about the alleged modus operandi of the political parties, he withdrew the claim in the return filed u/s 148 & paid the applicable tax with interest.
Importantly, the reassessment order did not make any addition over & above the returned income. There was no outstanding demand. The AO had also failed to identify which particular clause of section 270A(9)(a) to (f) was allegedly attracted.
The Assessee argued that penalty proceedings were distinct from assessment proceedings. A withdrawn or disallowed claim could not, without supporting evidence of deliberate falsity, be elevated to “misreporting.” He also relied upon section 270A(6)(a), which protects a bona fide explanation where all material facts have been disclosed.
Revenue’s Case: The Withdrawal Came Only After Detection
The Revenue contended that but for the search on the political parties & the consequent notice u/s 148, the Assessee would not have withdrawn the deduction. Since only a small percentage of returns are selected for scrutiny, it was argued that the Assessee had taken a calculated chance of obtaining an improper tax benefit.
The Revenue maintained that withdrawal after detection itself demonstrated that the original claim was consciously false. Therefore, the Assessee did not deserve leniency merely because he later paid the tax.
Misreporting Requires More Than an Unsuccessful Claim
The ITAT followed its coordinate Bench decision in Hiro Mulchand Tanwani v. ITO, ITA No. 110/Ahd/2026, order dated 15.05.2026. That decision explained the distinction between ordinary under-reporting & the more serious charge of misreporting u/s 270A(9).
Misreporting applies only to the specifically enumerated circumstances, such as misrepresentation or suppression of facts, failure to record investments or receipts, claiming expenditure without evidence, recording false entries or failing to report international transactions.
A deduction claimed transparently in the return, even if subsequently found inadmissible, does not by itself establish misreporting. The Revenue must produce cogent evidence showing that the assessee knowingly furnished false particulars, fabricated documents or deliberately suppressed material facts.
Penalty proceedings remain separate from assessment proceedings. Even acceptance of a quantum addition, or failure to contest it, cannot automatically be treated as an admission of concealment. In the present case, the Assessee stood on an even stronger footing because the AO had accepted the return filed u/s 148 without making any addition whatsoever.
Coordinate Bench Precedents Seal the Issue
Apart from Hiro Mulchand Tanwani, the Assessee relied upon similar Ahmedabad ITAT decisions in Niket Maheshbhai Shah, Siddharth Vaderkar, Nisha Darji & Sunny Varyani. The Tribunal found that the controversy was squarely covered in favour of the Assessee.
It further recorded that the Assessee fulfilled the substantive requirements u/s 270AA(1) for immunity from penalty u/s 270A. Consequently, the penalty of ₹1.87 lakh was directed to be deleted in full & the appeal was allowed.
The Final Word
Section 270A does not authorize a 200% penalty merely because the Assessee withdrew a deduction after reassessment commenced. Detection may explain the timing of withdrawal, but it cannot substitute proof of misreporting.
Where the revised stand is accepted, the entire tax with interest is paid & no addition is made in reassessment, penalty cannot be sustained solely on the theory that the Assessee would otherwise have escaped scrutiny. A doubtful deduction may invite examination—but suspicion cannot be promoted into misreporting without evidence.
Cases Discussed
- Hiro Mulchand Tanwani v. ITO, ITA No. 110/Ahd/2026, order dated 15.05.2026.
- Niket Maheshbhai Shah v. ITO, ITA No. 2341/Ahd/2025, order dated 15.05.2026.
- Siddharth Vaderkar v. ITO, ITA No. 1072/Ahd/2026, order dated 07.07.2026.
- Nisha Darji v. ITO, ITA No. 759/Ahd/2026, order dated 30.07.2026.
- Sunny Varyani v. ITO, ITA No. 76/Ahd/2026, order dated 30.07.2026.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Assessee against the order dated 15.10.2025 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as ‘Ld. CIT (A)’ in short), under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’ in short) for Assessment Year 2019-20.
2. The Assessee has raised following grounds of Appeal: –
“1. The learned CIT(A)/NFAC erred in law and on facts in upholding the penalty order passed under Section 270A of the Act, which is vitiated by a fundamental procedural defect in as much as the show cause notices dated 11/11/2024 and 02/04/2025 failed to specify which specific sub-clause of Section 270A(9) [clauses (a) to (f)) was being invoked against the Appellant.
2. That the learned CIT(A) has failed to consider binding judicial precedents holding that penalty is not leviable where additions are not made in the assessment order.
3. The learned CIT(A)/NFAC failed to appreciate that there has been no loss to the Revenue in as much as: (a) The Appellant paid the entire tax liability along with interest before the assessment was completed; (b) The assessment order made no addition, accepting the income as declared; (c) There is no outstanding demand against the Appellant.
4. That the levy of penalty under section 270A is bad in law as the Appellant had voluntarily withdrawn the claim and paid due taxes before completion of assessment, and such voluntary withdrawal cannot, by itself, constitute under-reporting or misreporting of income.
5. The learned CIT(A)/NFAC erred in holding that the Appellant had ‘misreported’ his income, when in fact the Appellant made the claim under Section 80GGC under a bona fide belief that the donation was genuine, supported by all valid & genuine documents as statutorily required.
6. That the learned CIT(A) has erred in upholding the penalty solely on the basis of third-party search material and statements recorded in the cases of alleged RUPPs, without any incriminating material, evidence or admission found or recorded against the Appellant.
7. The learned CIT(A)/NFAC failed to apply Section 270A(6)(a) of the Act, which provides immunity from penalty where the assessee offers an explanation which is bona fide and all material facts relating to the same have been disclosed.
8. The learned CIT(A)/NFAC failed to appreciate that Section 270A(1) uses the word ‘may’ and not ‘shall’, indicating that levy of penalty is discretionary and not mandatory.
9. That the penalty proceedings are vitiated in law since the assessment order does not record any satisfaction or finding that the claim of deduction under section 80GGC was false, non-genuine or bogus in the hands of the Appellant.
10. That the impugned penalty is excessive, arbitrary and unjustified and is liable to be deleted in full.
11. That the Appellant craves leave to add, alter, amend, or withdraw any ground of appeal at the time of hearing.”
3. Brief facts of the case are that the case of the Assessee was reopened u/s 147 of the Act based on the information with regard to search and seizure operation on 23 Registered Unrecognised Political Parties (RUPP) of Ahmedabad on 07.09.2022, including Apna Dal Party (PAN No. AADAA 0672J), which was recovered in the search action. The information related to a scheme going on in the form of donations to political parties for claiming bogus deduction u/s 80GGC / 80GGB of the Act, which were then rerouted back to the donors in cash / RTGS / NEFT or other banking channels. Discreet inquiries revealed that such political parties were engaged in a tax evasion racket and those were formed for the sole purpose of abetting tax-evasion and earning commission in the process. The Assessee, being one of the beneficiaries, claimed a bogus claim of deduction u/s 80GGC of the Act in the original return filed by it. Subsequently, on receipt of notice u/s 148 of the Act, the Assessee, in the return filed u/s 148 dated 18.05.2023, declared an income of Rs. 23,28,990/- withdrawing the claim of Rs. 3,00,000/- u/s 80GGC of the Act and also paid self-assessment tax of Rs. 1,40,500/-. The AO passed the Assessment Order dated 11.11.2024, wherein it was held that the Assessee had claimed bogus deduction u/s 80GGC and the said claim was not forfeited by the Assessee voluntarily, but only after the proceedings u/s 148 of the Act were initiated. The AO thus held that it was a case of misreporting of income as the Assessee had surrendered his income of deduction u/s 80GGC made by it in the original return u/s 139(1) after he found himself cornered following the search action against 23 RUPPs, wherein the modus operandi of these political parties was uncovered. Accordingly, the AO accepted the ITR of the Assessee filed u/s 148 without making any further addition; however, the AO was of the opinion that the Assessee has misreported his income in his original ITR and hence he initiated penalty proceedings u/s 270A(9) of the Act for under-reporting income in consequence of misreporting of income on the issue.
3.2 The AO, in the penalty proceeding vide order dated 23.05.2025 u/s 270A of the Act, imposed a penalty of Rs. 1,87,000/- being 200% of the tax on misreported income amounting to Rs. 93,600/-.
3.3 Aggrieved by the penalty order, the Assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) vide the impugned order dated 15.10.2025 held that the claim was withdrawn by the Assessee only after receipt of notice u/s 148 of the Act and, therefore, such withdrawal cannot be categorized as voluntary in nature as the Assessee had deliberately chosen to claim deduction u/s 80GGC of the Act in the original return of income. The AO was imposing the penalty u/s 270A of the Act. The observation of the Assessee was accordingly dismissed by the Ld. CIT(A).
4. Aggrieved by the impugned order passed by the Ld. CIT(A), the Assessee is in appeal before us.
5. Ld. AR appearing for the Assessee contended that the Assessee had made the deduction through proper banking channels and the claim was made in good faith and, therefore, no mesne rea can be attributed to the Assessee. It was further submitted that pursuant to the notice received u/s 148, and further coming to know of the modus operandi of the RUPPs, the Assessee withdrew the deduction voluntarily at the time of filing ITR u/s 148 and ultimately, no variation was made in the reassessment order. It was argued that there has been no addition in the income as per ITR filed u/s 148 of the Act in the reassessment order passed by the AO and since the Assessee had paid tax as applicable along with interest, there was no need for imposition of penalty u/s 270A of the Act.
5.1 The Assessee has relied on the judgment of the Co-ordinate Bench of this Tribunal, as under:
“(i) Hiro Mulchand Tanwani v. ITO, ITA No. 110/Ahd/2026 dated 15.05.2026.
(ii) Niket Maheshbhai Shah v. ITO, ITA No. 2341/Ahd/2025 dated 15.05.2026.
(iii) Siddharth Vaderkar v. ITO, ITA No. 1072/Ahd/2026 dated 07.07.2026
(iv) Nisha Darji v. ITO, ITA No. 759/Ahd/2026 dated 30.07.2026.
(v) Sunny Varyani v. ITO, ITA No. 76/Ahd/2026 dated 30.07.2026.”
6. Per contra, Ld. Senior DR has supported the order of the Ld. AO and Ld. CIT(A). He has submitted that but for the search on the RUPPs and pursuant to notice u/s 148 of the Act, the Assessee was not going to reveal that he had made a wrong claim u/s 80GGC of the Act. He further submitted that keeping in view the minuscule number of returns are selected for scrutiny, the Assessee took a chance of claiming wrong deduction and getting scot-free. He further submitted that it is evident that the mere fact that the Assessee itself withdrew the claim after receipt of notice u/s 148 goes to establish that the wrong/fraudulent claim was made by the Assessee consciously with a view to evade tax and, therefore, the Assessee deserves no leniency.
7. We have heard the parties and perused the material on record. It is relevant to refer to the judgment of the Coordinate Bench of this Tribunal in the case of Hiro Mulchand Tanwani (supra). For the sake of ready reference, the relevant portion of said order is reproduced as under:
“…3. The assessee challenged the levy of penalty under Section 270A of the Income-tax Act, 1961, contending that the Assessing Officer was not justified in treating the disallowance of deduction claimed under Section 80GGC as a case of “misreporting of income.” The facts reveal that the assessee had filed the return of income for Assessment Year 2019-20 declaring total income of Rs.13,25,710 after claiming deduction of Rs.1,50,000 under Section 80GGC in respect of donation made to a political party, namely Manvadhikar National Party. Subsequently, the assessment was reopened under Section 148 to verify the genuineness of the said donation. In the reassessment completed under Section 147 read with Section 144B, the Assessing Officer disallowed the deduction and assessed the total income at Rs.14,75,710, and thereafter levied penalty of Rs.93,600 under Section 270A on the ground that the assessee had under-reported income in consequence of misreporting.
4. The contention of the Assessing Officer that the assessee had accepted the addition by not filing an appeal against the disallowance cannot, by itself, be a valid basis for concluding that there was misreporting of income. The mere fact that the assessee chose not to challenge the quantum addition due to the relatively small amount involved and in order to avoid prolonged litigation does not amount to an admission of concealment or furnishing of false particulars. It is well settled that penalty proceedings are distinct and independent from assessment proceedings, and the findings in the assessment order are not conclusive for the purpose of levy of penalty. Section 270A draws a clear distinction between “under-reporting of income” and “misreporting of income.” Misreporting is attracted only in specific circumstances enumerated in sub-section (9), such as misrepresentation or suppression of facts, failure to record investments, claiming of expenditure not substantiated by evidence, recording false entries, or failure to report receipts. In the present case, the assessee had duly disclosed the donation in the return of income and claimed deduction under Section 80GGC based on the belief that the payment qualified for deduction. The disallowance arose because the Assessing Officer was not satisfied about the genuineness or eligibility of the donation. However, there is no material on record to establish that the assessee had furnished any false evidence, suppressed any facts, or made any deliberate misrepresentation. A claim of deduction made in the return, even if ultimately found to be inadmissible, does not automatically lead to the conclusion that the assessee has misreported income. Unless the Revenue demonstrates with cogent evidence that the claim was bogus and knowingly made on the basis of false particulars, penalty for misreporting cannot be sustained. At best, the case may fall within the ambit of under-reporting of income, but even that would require the Assessing Officer to establish that the conditions prescribed under Section 270A are satisfied. In the absence of any finding that the assessee deliberately furnished inaccurate particulars or fabricated documents, the higher penalty prescribed for misreporting is not legally tenable. Accordingly, considering that the deduction was claimed transparently in the return of income and that the disallowance was based solely on the Assessing Officer’s adverse view regarding its admissibility, the levy of penalty under Section 270A on misreporting of income is unsustainable in law. The penalty of Rs.93,600 is therefore directed to be deleted…”
7.1 It is not in dispute that the issue raised by the Assessee is covered by the aforesaid judgment of the Coordinate Bench of this Tribunal. Therefore, respectfully following the judgment of the Coordinate Bench, the appeal needs to be allowed.
8. In view of the aforesaid, respectfully following the decision of the Coordinate Bench of this Tribunal in the case of Hiru Molchand Tanwani (supra) as well as the fact that the Assessee fulfils the substantive obligation u/s 270AA(1) of the Act for grant of immunity from imposition of penalty u/s 270A, we are of the considered opinion that the penalty imposed by the impugned order needs to be deleted.
9. In the result, the appeal filed by the Assessee is allowed.
The order pronounced on 03.09.2026.
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