Sharad Shishir Kabra Vs ITO (ITAT Ahmedabad)
Misreporting Needs a Specific Charge: ITAT Deletes ₹4.99 Lakh Penalty
General Allegation of Misreporting Was Insufficient
The Ahmedabad ITAT deleted a ₹4,99,200 penalty under Section 270A because the Assessing Officer had failed to identify the specific category of misreporting under Section 270A(9) applicable to the assessee.
The Tribunal held that, before imposing the higher penalty for under-reporting consequent to misreporting, the Assessing Officer must establish both the existence of misreporting and its connection with a specified statutory category.
The applicable limb must either be expressly stated in the penalty order or be unambiguously discernible from the order read as a whole. A general invocation of Section 270A(9), without identifying the particular charge, was insufficient in this case.
Political Donation Deduction Triggered the Penalty
The dispute arose from a reassessment for AY 2019-20, completed on 15 February 2025 under Section 147 read with Section 144B.
The Assessing Officer rejected the assessee’s claim for a deduction of ₹8 lakh under Section 80GGC, relating to an alleged donation to Manvadhikar National Party. The disallowance resulted in an addition to the assessee’s income.
Thereafter, by a penalty order dated 20 August 2025, the officer imposed a penalty of ₹4,99,200, treating the matter as under-reporting of income consequent to misreporting.
The CIT(A) confirmed the penalty, prompting the assessee to approach the Tribunal. All three grounds of appeal challenged the levy of the misreporting penalty.
The issue before the Tribunal concerned the validity of that penalty. The order did not adjudicate the assessee’s entitlement to the political donation deduction.
Under-Reporting and Misreporting Require Different Examination
The Tribunal explained the statutory distinction between under-reporting of income and under-reporting resulting from misreporting.
Where an instance of under-reporting arises under Section 270A(2), the assessee’s explanation must be considered, including whether it satisfies the requirements of Section 270A(6)(a) for exclusion from under-reported income.
If the explanation does not meet those requirements, the Assessing Officer may levy the ordinary penalty under Section 270A(7), at 50% of the tax payable on under-reported income.
However, the higher penalty involves an additional requirement. Where the officer concludes that under-reporting occurred because of misreporting, he must demonstrate that the conduct falls within a specified category under Section 270A(9) before invoking the 200% penalty under Section 270A(8).
Thus, an addition to income and a finding of statutory misreporting are distinct steps in the penalty examination.
Specific Limb Must Be Clear From the Order
The Tribunal held that the penalty order must disclose which particular limb of Section 270A(9) applies to the assessee’s conduct.
Its reasoning allows two ways of satisfying this requirement. The officer may expressly identify the relevant provision, or the particular statutory charge may emerge clearly and unambiguously from the reasoning in the order.
This qualification is significant. The ruling does not make the mechanical reproduction of a clause number the sole test. It requires the actual basis of the misreporting charge to be identifiable.
In the present case, the Assessing Officer had imposed the penalty by referring generally to under-reporting consequent to misreporting under Section 270A(9), without specifying the applicable sub-limb.
The Tribunal therefore concluded that the levy could not be sustained.
Earlier Ahmedabad Decisions Supported Deletion
The Tribunal also referred to the coordinate Bench decision in Hiro Mulchand Tanwani v. ITO, ITA No. 110/AHD/2026, dated 15 May 2026, in which a penalty had been deleted in similar circumstances.
It noted that this decision had subsequently been followed in Nisha Yogeshkumar Darji v. ITO, Ward-7(2)(1), Ahmedabad, ITA No. 759/AHD/2026, dated 30 July 2026.
These decisions provided additional support for deleting the penalty in the assessee’s case.
Accordingly, the Tribunal deleted the entire ₹4,99,200 penalty, allowed all grounds and allowed the appeal. The relief was final at the Tribunal level; the penalty issue was not remanded for reconsideration.
Author’s Comments
The decision highlights the importance of examining the reasoning in the penalty order, rather than stopping at the fact that a deduction was disallowed.
For a higher misreporting penalty, the order must connect the assessee’s conduct with an identifiable statutory category. A broad description of a claim as improper does not, by itself, explain which category of misreporting has been established.
At the same time, the Tribunal expressly recognised that the applicable limb may be apparent from the order as a whole. Therefore, an objection based only on the absence of a clause number should be evaluated alongside the substantive reasoning.
The ruling is particularly useful where the authority has moved from a disallowance to a 200% penalty without clearly identifying and establishing the misreporting charge.
The precise takeaway is that the higher penalty requires a clear statutory foundation. Its deletion here does not establish that the political donation was genuine or that the Section 80GGC deduction was allowable; those questions were outside the issue decided in this appeal.
Cases Discussed
- Hiro Mulchand Tanwani Vs ITO, ITA No.110/AHD/2026, ITAT Ahmedabad, dated 15/05/2026 — followed; penalty under Section 270A was deleted in similar circumstances.
- Nisha Yogeshkumar Darji Vs Income Tax Officer, Ward-7(2)(1), Ahmedabad, ITA No.759/AHD/2026, ITAT Ahmedabad, dated 30/07/2026 — noted as having followed Hiro Mulchand Tanwani Vs ITO.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
1. The present appeal has been preferred by the Assessee against the Order, dated 23/01/2026, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the ‘CIT(A)’] whereby the Learned CIT(A) had dismissed the appeal against the Penalty Order, dated 20/08/2015, passed under Section 270A of the Income Act, 1961 [hereinafter referred to as ‘the Act’] for the Assessment Year 2019-2020.
2. The Assessee has raised three grounds. All the grounds raised by the Assessee are directed against the levy of penalty under Section 270A(9) of the Act which was confirmed by the Learned CIT(A).
3. The relevant facts in brief are that Assessment was framed on the Assessee for the Assessment Year 2019-2020 vide Assessment Order, dated 15/02/2025, passed under Section 147 read with Section 144B of the Act. The Assessing Officer made addition of INR.8,00,000/- by rejecting the deduction claimed by the Assessee under Section 80GGC of the Act in respect of an alleged donation made to Manvadhikar National Party. The Assessing Officer also levied penalty of INR.4,99,200/- under Section 270A(9) of the Act vide Penalty Order, dated 20/08/2025. The appeal preferred by the Assessee against the Penalty Order was dismissed by the Learned CIT(A) vide Order, dated 21/03/2026, which has been impugned by way of the present appeal.
4. We have heard the rival submissions and have perused the material on record.
5. The solitary issue that arises for consideration is whether the penalty levied under section 270A(9) of the Act can be sustained where the Assessing Officer has not specified particular sub-limb of Section 270A(9) of the Act under which penalty has been levied.
6. 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, the Assessee is required to provide explanation, inter alia, in terms of Section 270A(6)(a) of the Act and make out a case for non-levy of penalty. In case the explanation does not meet the requirements of Section 270A(6)(a) of the Act, the Assessing Officer can levy penalty under Section 270A(7) of the Act at a rate of 50% of the amount of tax on under-reported income.
However, in case Assessing Officer arrives at a conclusion that 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.
Therefore, we conclude that 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. Thus, we hold that while passing the penalty order the Assessing Officer is required to specify the specific limb of Section 270A(9) of the Act under which the Assessee 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.
In the present case, the Assessing Officer has levied penalty for underreporting of income in consequence of misreporting under Section 270A(9) of the Act without specifying the specific sub-limb and therefore, the aforesaid levy of penalty cannot be sustained.
7. Even otherwise, we find that Co-ordinate Bench of the Tribunal has, in the case of Hiro Mulchand Tanwani Vs. ITO [ITA No.110/AHD/2026, dated 15/05/2026], deleted penalty levied upon the Assessee in similar circumstances.
The above decision of the Tribunal has since been followed in the case of Nisha Yogeshkumar Darji Vs. Income Tax Officer, Vs. Ward-7 (2)(1), Ahmedabad [ITA No.759/AHD/2026, Dated 30/07/2026].
8. In view of the above, penalty of INR.4,99,200/- levied upon the Assessee vide Penalty Order, dated 20/08/2025, is deleted. Accordingly, all the grounds raised by the Assessee are allowed.
9. In result, present appeal preferred by the Assessee is allowed.
Order pronounced on 28.09.2026
