“Misreporting” Is Not Enough: AO Must Tell the Assessee What Was Misreported

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.