Reddappa Srinivasa Vs DCIT (ITAT Bangalore)
The difference between under-reporting and misreporting under section 270A is substantial. Ordinary under-reporting attracts a penalty of 50% of the tax payable on the under-reported income. If the under-reporting arises from misreporting, the rate rises to 200%. Can the higher penalty be imposed merely by using the word “misreporting” in the assessment order and penalty notice, without identifying which act of misreporting specified in section 270A(9) is alleged? The Bangalore Tribunal held that it cannot.
Capital gains assessment led to penalty proceedings
Reddappa Srinivasa, proprietor of Srinivasa Flower Trading Company, had reported capital gains arising from a property development arrangement and the sale of apartments received under it. His return included a claim for deduction under section 54. The original scrutiny assessment restricted the construction expenditure claimed for that deduction and increased his total income.
The case subsequently underwent revision under section 263. In the consequential assessment dated 23 February 2024, the AO made a further adjustment to long-term capital gains and initiated penalty proceedings for under-reporting of income arising from misreporting. The AO eventually imposed a penalty of ₹1,59,72,186, calculated at 200% of the tax stated to be payable on the under-reported income. The CIT(A) confirmed the penalty.
The assessee disputed both the characterisation of the capital gains adjustment as misreporting and the validity of the penalty procedure. His principal argument before the Tribunal was that neither the assessment order nor the show-cause notice identified the particular clause of section 270A(9) under which he was being charged.
Why the specific charge matters
Section 270A does not treat every addition to assessed income as misreporting. Sub-section (9) sets out specified categories of conduct that constitute misreporting. Where the AO seeks the enhanced penalty under sub-section (8), the assessee must be told what conduct is alleged to bring the case within one of those categories.
The Tribunal examined the assessment order and the notice issued under sections 270A and 274. The notice stated that penalty was proposed for under-reporting arising from misreporting and referred to the assessment order. But the assessment order did not identify any specific limb of section 270A(9) either. A later penalty notice and the eventual penalty order did not cure the absence of a clearly stated charge at the initiation stage.
The Tribunal reasoned that an assessee facing a 200% penalty must know the precise allegation to answer it. The relevant category could have been specified in the notice or made clear through a specific finding in the assessment order. Here, it was present in neither. Simply describing the result as “misreporting” did not explain how the assessee’s conduct satisfied section 270A(9).
Earlier penalty for under-reporting alone
The order also records that, following the original assessment, the AO had imposed a separate penalty of ₹38,90,546 at the 50% rate for under-reporting alone. The later proceedings, following the section 263 revision and consequential assessment, sought the more serious 200% misreporting penalty.
That sequence made the distinction between the two charges particularly significant. The Tribunal’s decision concerns the later penalty of ₹1,59,72,186. It should not be read as cancelling the earlier 50% penalty, which was described as part of the case history.
Delhi and Rajasthan High Courts: the Tribunal noted the tension
The assessee relied on Schneider Electric South-East Asia (HQ) Pte. Ltd. v. ACIT, in which the Delhi High Court found fault with proceedings where the applicable limb and the basis for alleging misreporting had not been identified. The Tribunal also considered the later Rajasthan High Court decision in Spun Well Tex Pvt. Ltd. v. ITO, which held that failure to mention an explicit subcategory in the notice does not, by itself, invalidate the proceedings where the assessee was already aware of the factual allegation from the assessment order.
The Bangalore Bench recognised that these decisions expressed different approaches, and that there was no jurisdictional High Court decision settling this precise issue. It also carefully noted a limitation: both High Court matters arose in the context of immunity under section 270AA, rather than directly deciding whether a final penalty order must be cancelled for an unspecified section 270A(9) charge.
Nevertheless, several Tribunal benches, including an earlier Bangalore Bench decision in DCIT v. L Jhaverchand Jwellers Pvt. Ltd., had applied the Delhi High Court’s reasoning to penalty orders. Those decisions held that penalty could not survive where the applicable limb was neither stated in the notice nor discernible from the assessment order. Following that line, the Tribunal cancelled the penalty of ₹1,59,72,186. The appeal was recorded as partly allowed.
Author’s comments
The ruling provides relief on a procedural and substantive charging defect: the AO sought the enhanced rate without telling the assessee which statutory form of misreporting was alleged. The Tribunal did not finally decide that every restriction of a section 54 claim is incapable of constituting misreporting.
Equally, the order should not be reduced to a rule that omission of a clause number from a notice always defeats a penalty. The Tribunal examined both the notice and the assessment order and found the specific charge missing from both. That distinction matters in light of the Rajasthan High Court decision discussed in the order. For a 200% penalty, the practical question is whether the assessee was informed, with sufficient clarity and at the proper stage, what exactly he was accused of misreporting.
Cases Discussed
- Schneider Electric South-East Asia (HQ) Pte. Ltd. v. Assistant Commissioner of Income Tax, 145 taxmann.com 665 (Delhi), decided on 28 March 2022
- Spun Well Tex Private Limited v. ITO, 190 taxmann.com 27 (Rajasthan), order dated 25 August 2026
- DCIT v. L Jhaverchand Jwellers Pvt. Ltd., ITA No. 1542/Bangalore/2024, dated 9 January 2025
- Iswarchand Agro Private Limited, 189 taxmann.com 222 (Delhi)
- ACIT v. Nawajuddin Siddiqui, 86 taxmann.com 876 (Mumbai)
- Deputy Commissioner of Income Tax v. Ethirajulu Vajravelu Kumaran, 180 taxmann.com 11 (Chennai)
- Manish Asrani v. International Taxation, 170 taxmann.com 792 (Mumbai)
- CIT v. Vegetable Products Ltd., (1973) 88 ITR 192 (SC)
FULL TEXT OF THE ORDER OF ITAT BANGALORE
01. Shri Reddappa Srinivasa has filed this appeal [the assessee/appellant], the proprietor of Srinivasa Flower Trading Company, against the appellate order dated 28 January 2026 passed by the National Faceless Appeal Centre (NFAC), Delhi (the learned CIT(A)), for Assessment Year 2018–19. By that order, the learned CIT(A) confirmed the penalty of ₹15,972,186 imposed under section 270A of the Income-tax Act, 1961, by the National Faceless Assessment Unit, Income Tax Department (the learned Assessing Officer/AO), vide penalty order dated 13 August 2024.
02. The Assessee has raised the following grounds of appeal:
I. The orders of the authorities below in so far as levying penalty U/s 270A of the act against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
II. The learned CIT[A]/NFAC erred in law and on facts in upholding the penalty imposed u/s. 270A of the Act of Rs. 1,59,72,186/- for the alleged underreporting of income in consequence of mis-reporting income of Long-term Capital Gains of Rs.3,37,10,820/- especially when there was no specific limb u/s. 270A (9) has been mentioned in the show-cause notice issued u/s. 270A under the facts and in the circumstances of the appellant’s case.
III. The learned CIT[A]/NFAC is not justified in upholding the penalty u/s.270A of the Act for under-reporting in consequence of misreporting without appreciating that the restriction of deduction u/s. 54 of the Act cannot be labelled as misreporting of income.
IV. Without prejudice to the above, the penalty levied is excessive and requires to be reduced substantially especially since the penalty has been computed u/s. 270A[3][i] instead of section 270A[3][ii] of the Act.
V. The learned CIT[A] ought to have appreciated that the penalty proceedings us.270A are discretionary and not mandatory and that the learned A.O. ought to have exercised his discretion not to impose penalty under the facts and in the circumstances of the appellant’s case.
VI. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.
03. Briefly, the assessee is an individual who filed his return of income for Assessment Year 2018–19 on 29 August 2018, declaring total income of ₹15,296,740. The return was selected for scrutiny, and an assessment under section 143(3) of the Income-tax Act determined total income at ₹37,203,723 after disallowing ₹21,896,983 of construction expenditure claimed under section 54. The Assessing Officer found that the assessee had offered the full consideration of ₹190,295,490 to capital gains and claimed a deduction of ₹49,220,000 under section 54. However, in the return, the assessee showed full consideration as ₹136,244,070 and computed capital gains at ₹51,236,313 instead of ₹63,050,150. Revisionary proceedings under section 263 were therefore initiated, culminating in an order dated 24 March 2023. The consequential assessment order dated 23 February 2024 recorded long-term capital gains of ₹47,540,970, as accepted by the assessee, against ₹13,830,115 declared in the return. This resulted in an addition of ₹33,710,810 to the returned income of ₹15,296,070 and assessment of total income at ₹49,007,560. The Assessing Officer initiated penalty proceedings under section 270A for under-reporting of income arising from misreporting. After considering the assessee’s explanation, the Assessing Officer held that the assessee had misrepresented and suppressed facts and had failed to substantiate the deduction claimed under section 54. A penalty equal to 200% of the tax payable on the under-reported income was therefore imposed. The under-reported income was determined at ₹7,986,093, and a penalty of ₹15,972,186 was levied by order dated 12 February 2022.
04. Aggrieved, the assessee appealed to the learned CIT(A) and reiterated the submissions made before the Assessing Officer. The CIT(A) noted that the assessee had acquired agricultural land in 2002, later converted it to non-agricultural use, and entered into a joint development agreement with BSR Constructions on 29 July 2023. Under the agreement, the assessee was entitled to 40% of the built-up area, while the developer received the remaining 60%. The assessee received 44 flats as his share and, during the relevant proceedings, sold 38 of those flats. In return, capital gains were reported under two components: (i) transfer of a 60% undivided share in the land to the developer, and (ii) sale of 38 apartments. The assessee disclosed aggregate sale consideration of ₹190,294,940, claimed indexed cost of acquisition of ₹108,188,705 and cost of improvement of ₹9,520,000, and deducted transfer-related expenditure of ₹9,537,085, resulting in taxable capital gains of ₹63,050,150. After claiming ₹49,220,000 under section 54, the assessee offered taxable long-term capital gains of ₹13,830,150. The assessee also referred to the original assessment and penalty proceedings and the proceedings under section 263. On 21 March 2024, the assessee filed a response enclosing Form No. 68, but the Assessing Officer rejected the application for immunity from penalty. The assessee contended that the return disclosed no under-reporting arising from misreporting and that the penalty imposed by the assessment unit was therefore invalid and should be cancelled. Although the CIT(A) considered these submissions, the penalty was confirmed. The assessee also relied on the coordinate bench decision in Deputy Commissioner of Income Tax v. L Jhaverchand Jwellers Private Limited, ITA No. 1542/Bangalore/2024, dated 9 January 2025, which, following the Delhi High Court, deleted a penalty because the Assessing Officer had not invoked a specific limb relating to under-reporting arising from misreporting. CIT(A) did not adjudicate that ground but relied on several judicial precedents to confirm the penalty and dismiss the appeal.
05. The learned authorized representative, Shri V. Srinivasan, Advocate, filed a 107-page paper book. His principal contention was that the notice issued under section 270A did not specify any limb under which the assessee was charged with under-reporting of income arising from misreporting. He referred extensively to section 270A and relied on several judicial precedents in support of the assessee’s case.
06. The learned Departmental Representative, Shri Pradeep S., Additional Commissioner of Income Tax and Senior Departmental Representative, strongly supported the orders of the lower authorities. He submitted that the assessee had misreported income, resulting in under-reporting, and that the penalty had therefore been correctly imposed. He also referred extensively to the facts of the case.
07. The learned authorized representative also relied extensively on the written submissions at pages 85 to 107 of the paper book, which set out the case history. He argued that the penalty was unsustainable on the merits and, in any event, could not be levied because the Assessing Officer had failed to invoke any specific limb of section 270A (9), as required by several judicial precedents.
08. We have carefully considered the rival submissions and examined the orders of the lower authorities. The first penalty order under section 270A, dated 12 February 2022, recorded in paragraph 7 that the assessee had under-reported income of ₹21,896,983 and imposed a penalty of ₹3,890,546, being 50% of the tax sought to be evaded. Those proceedings arose from the assessment order dated 11 February 2021; thus, the original penalty was for under-reporting alone, without any charge of misreporting. Revisionary proceedings under section 263 subsequently culminated in an order dated 24 March 2023 passed by the Principal Commissioner of Income Tax, Bengaluru-2. Pursuant to that order, an assessment under section 143(3), read with sections 263 and 144B, was completed on 23 February 2024, determining total income at ₹49,007,560. The Assessing Officer also initiated proceedings under section 270A for under-reporting arising from misreporting. The addition to long-term capital gains was ₹33,710,820. A show-cause notice issued on 23 February 2024 under section 270A, read with section 274, stated that penalty was leviable for under-reported income arising from misreporting, as detailed in the assessment order. We must therefore examine whether the assessment order invoked any specific limb of section 270A (9); it did not. A rectification order under section 154 was thereafter passed on 19 March 2024 to correct an error in the computation of tax. In response to the assessment order dated 23 February 2024, the assessee furnished Form No. 68. On 30 April 2024, the Assessing Officer rejected the claim for immunity by an order under section 270AA and issued a further show-cause notice on 24 May 2024 proposing penalty under section 270A. The assessee replied on 9 June 2024, raising several contentions and citing judicial precedents. Nevertheless, by order dated 13 August 2024, the Assessing Officer held that section 270A applied to under-reporting arising from misreporting and imposed a penalty equal to 200% of the tax payable on under-reported income of ₹7,986,093, amounting to ₹15,972,186.
09. Section 270A provides that, during proceedings under the Income-tax Act, the Assessing Officer may direct that a person who has under-reported income shall pay a penalty in addition to any tax due on that income. Subsection (2) identifies the circumstances constituting under-reporting, while subsection (3) prescribes how the under-reported income is to be computed. Subsection (4), subject to subsection (5), addresses additions linked to earlier years and prevents duplicate penalties on such amounts. Subsection (6) excludes specified categories of income from penalty, subject to stated conditions, even where under-reporting exists. Subsection (7) sets the penalty for under-reporting at 50% of the tax payable on the under-reported income.
10. Subsection (8) addresses under-reporting arising from misreporting and increases the penalty from 50% to 200% of the tax payable on the under-reported income. Subsection (9) specifies six categories of misreporting, subsection (10) prescribes the method for computing the penalty, and subsection (12) requires the Assessing Officer or other specified authority to impose the penalty by a written order.
11. In this case, the penalty was imposed for misreporting, attracting subsections (8) and (9). Because such a charge carries an enhanced penalty of 200% of the tax payable, the Assessing Officer was required to inform the assessee which of the six categories in subsection (9) was alleged. This could have been done by recording a specific finding in the assessment order or by specifying the applicable category in the notice issued under section 274 read with section 270A. Without that disclosure, the assessee could not know the precise nature of the alleged misreporting. The assessment order likewise had to identify the conduct as falling within section 270A (9). A penalty imposed without first specifying the relevant category of misreporting is unsustainable in law, because it subjects the assessee to the enhanced rate without clearly stating the alleged offence.
12. In Schneider Electric South-East Asia (HQ) Pte. Ltd. v. Assistant Commissioner of Income Tax, 145 taxmann.com 665, decided on 28 March 2022, the Hon’ble Delhi High Court held that a penalty notice was erroneous, arbitrary, and liable to be quashed where the Assessing Officer had failed to specify the limb of under-reporting or misreporting under which the proceedings were initiated. The decision cited before us falls within the category considered by the Hon’ble Delhi High Court.
13. We are also conscious that, at the time of passing this order of the Hon’ble Rajasthan High Court vide order dated 25 August 2026 in the case of Spun Well Tex Private Limited versus ITO, 190 taxmann.com 27 (Rajasthan), the Court has categorically held in paragraph No. 13 of the order that the absence of an explicit mention of the subcategory in the notice does not, by itself, constitute arbitrariness or violate the principle of natural justice. Although the assessment order and the penalty proceedings are separate, the petitioner was aware, before the initiation of penalty proceedings, that the assessing officer had explicitly indicated in the assessment order that the petitioner failed to produce accounting records for income derived from its solar plant unit, thereby bringing it within the scope of underreporting consequent upon misreporting. Therefore, the Hon’ble Rajasthan High Court has taken the view that mentioning the limb as specified under section 270A (9) of the Act does not invalidate the penalty proceedings.
14. There is no decision of the jurisdictional High Court on this issue. Where non-jurisdictional High Courts have expressed conflicting views, the Tribunal must resolve the conflict by applying principles of judicial precedent and statutory interpretation. If two reasonable interpretations are available, the view favourable to the assessee should ordinarily be adopted. Although both decisions are persuasive, the Tribunal may prefer the one with more comparable facts, a fuller examination of the statutory text and legislative intent, or reasoning consistent with the broader ratio of a decision of the Hon’ble Supreme Court. The issue is therefore highly debatable. The Hon’ble Delhi High Court observed in paragraph 7 that, where neither the applicable limb of section 270A nor the manner in which the requirements of section 270A (9) were satisfied was identified, a mere reference to “misreporting” in the assessment order could not justify denial of immunity from penalty and prosecution; the impugned order was therefore manifestly arbitrary. The Hon’ble Rajasthan High Court also considered an application for immunity under section 270AA and addressed the issue in paragraph 13. Thus, neither High Court directly considered whether failure to specify the relevant limb of section 270A (9) in the penalty notice renders the penalty order invalid and liable to be quashed.
15. The decision of the Hon’ble Supreme Court in CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) is also inapplicable. Neither High Court held that, in these circumstances, the penalty proceedings should be cancelled or the penalty order quashed. Both considered only whether the assessee could claim immunity under section 270AA of the Act, and they reached different conclusions.
16. However, certain coordinate benches have taken a view in which penalties were deleted in similar circumstances following the decision of the honourable Delhi High Court. In Iswarchand Agro Private Limited, 189 taxmann.com 222 [ Delhi]; ACIT v. Nawajuddin Siddiqui, 86 taxmann.com 876 (Mumbai); Deputy Commissioner of Income Tax v. Ethirajulu Vajravelu Kumaran, 180 taxmann.com 11; [ Chennai] and Manish Asrani v. International Taxation, 170 taxmann.com 792 (Mumbai), the same is the case by the Bangalore bench in DCIT L Jhaverchand Jwellers [1542/B/20225 dated 9/1/2025]. The Tribunals held that a penalty cannot be sustained where the Assessing Officer neither specifies the applicable limb of section 270A (9) in the show-cause notice nor makes it discernible from the assessment order. All the above decisions have relied upon the decision of the honourable Delhi High Court, though in that order there was no issue of cancellation of the penalty order itself in the absence of non-mentioning of any limb, but it was with respect to the rejection of immunity under section 270AA of the Act. Therefore, despite being different, the coordinate benches have taken the view stated above.
17. Accordingly, and in light of the decision of the honourable Delhi High Court, which was relied upon by several coordinate benches, we have no hesitation in cancelling the penalty of ₹15,972,186 imposed by the Assessing Officer and confirmed by the learned CIT(A).
18. Accordingly, grounds Nos. 2 to 5 are allowed. The remaining grounds are infructuous and are therefore dismissed.
19. In the result, the assessee’s appeal is partly allowed.
Order pronounced in the open court on 28th September, 2026.
