Bhavesh Rameshbhai Patel Vs Asst. Unit Income Tax Department (ITAT Ahmedabad)
Political Donation Withdrawn, But 200% Penalty Cannot Follow Automatically
₹1.87 Lakh Misreporting Penalty Deleted
The Ahmedabad Tribunal has deleted a ₹1,87,200 penalty under Section 270A imposed after the assessee withdrew a ₹3 lakh deduction under Section 80GGC in the return filed in response to a reopening notice.
The Tribunal held that the penalty for under-reporting in consequence of misreporting was unsustainable, following its earlier decision in Hiro Mulchand Tanwani v. ITO.
The ruling reinforces the distinction between an inadmissible deduction and misreporting of income. Withdrawal or disallowance of a claim does not, by itself, establish the circumstances necessary for the higher penalty.
Donation Claim Triggered Reopening
Information flagged under the Board’s High-Risk Management Strategy indicated that the assessee had donated ₹3 lakh to Rashtriya Samajawadi Party (Secular) during FY 2018-19 and claimed deduction under Section 80GGC.
The assessment was reopened, and a notice under Section 148 was issued.
In response, the assessee filed a return withdrawing the ₹3 lakh deduction. The Assessing Officer completed reassessment on 11 August 2023, determining total income in accordance with that return.
Thus, the assessee did not pursue the deduction in the reassessment return. The dispute before the Tribunal concerned the penalty subsequently imposed, rather than allowance of the donation deduction.
Withdrawal Was Followed by a 200% Penalty
The Assessing Officer initiated proceedings under Section 270A for under-reporting of income in consequence of misreporting.
The assessee explained that, being insufficiently conversant with income-tax assessment proceedings, he had been unable to respond to the penalty show-cause notice.
On 22 March 2024, the Assessing Officer imposed a penalty of ₹1,87,200, calculated at 200% of ₹93,600, being the tax computed on the ₹3 lakh deduction withdrawn.
The CIT(A) confirmed the penalty. The assessee then appealed to the Tribunal, disputing both the finding of misreporting and the statutory basis for applying the higher rate.
Specific Misreporting Default Was Disputed
The assessee argued that his case did not fall within any of the circumstances enumerated in Section 270A(9).
He also contended that the lower authorities had not explained which particular clause was attracted or how his conduct satisfied it.
This objection went beyond disputing the deduction. It questioned whether the Revenue had established the separate requirements for classifying the difference in income as misreporting, rather than merely relying on the reassessment outcome.
Earlier Tribunal Decision Covered the Issue
At the hearing, both parties fairly submitted that the issue was covered by Hiro Mulchand Tanwani v. ITO, ITA No. 110/Ahd/2026, dated 15 May 2026, concerning AY 2019-20.
In that case, a deduction of ₹1.50 lakh for a donation to Manvadhikar National Party had been disallowed during reassessment. A penalty of ₹93,600 was then imposed for misreporting.
The Tribunal had held that accepting an addition by not appealing against it could not, by itself, establish misreporting. An assessee may choose to avoid prolonged litigation because of the amount involved, without admitting that false particulars were furnished.
The present Bench reproduced and followed that reasoning.
Assessment Findings Are Not Conclusive for Penalty
The earlier decision emphasised that penalty proceedings are distinct and independent from assessment proceedings.
Section 270A differentiates under-reporting from misreporting, with the latter linked to specified circumstances under sub-section (9), such as misrepresentation or suppression of facts, false entries and failure to report receipts.
In the precedent followed, the donation had been disclosed in the return. There was no material establishing false evidence, suppression of facts or deliberate misrepresentation.
The Tribunal therefore held that a deduction ultimately found inadmissible did not automatically become a misreported claim. The Revenue had to demonstrate, through cogent evidence, the factual basis for invoking the misreporting provisions.
Entire Penalty Deleted
Finding no contrary decision or distinguishing facts, the Tribunal followed the coordinate Bench and deleted the ₹1,87,200 penalty. The assessee’s appeal was allowed.
The Tribunal did not substitute a lower penalty for under-reporting. The reasoning reproduced from the earlier decision recognised that even such a penalty would require satisfaction of the applicable statutory conditions.
The relief therefore concerns the penalty imposed, and does not restore the withdrawn Section 80GGC deduction.
Author’s Comments
This decision is useful where a political-donation deduction is withdrawn during reassessment and the withdrawal is then treated as sufficient proof of misreporting.
The explanation for withdrawal, original disclosure and evidence relating to the transaction remain relevant. Acceptance of tax liability does not dispense with examination of the separate penalty conditions.
Equally, the order does not protect claims proved to involve fabricated documents or false particulars. Its reasoning requires the Revenue to establish the applicable misreporting circumstance rather than infer it automatically from an adverse assessment result.
The deduction may fail. The 200% penalty must still stand on its own statutory and evidentiary foundation.
Cases Discussed
- Hiro Mulchand Tanwani Vs ITO, ITA No. 110/Ahd/2026, ITAT Ahmedabad, dated 15/05/2026, AY 2019-20 — Followed. The Coordinate Bench held that mere acceptance of an addition or failure to challenge disallowance of a Section 80GGC deduction does not by itself establish misreporting under Section 270A. The Revenue must establish the statutory circumstances constituting misreporting.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Assessee against the order dated 11.12.2025 passed by the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, 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 2019-2020.
2. The Assessee has raised the following grounds of Appeal:-
1. The Learned CIT (Appeals) has erred in confirming the penalty levied u/s. 270A of the Income Tax Act of Rs. 1,87,200/- on the ground that the assessee has under under-reported income in consequence of misreporting. On the facts and circumstances of the case, the assessee has neither under-reported nor misreported of any income and thus penalty levied is completely incorrect and illegal. The same be held accordingly.
2. The Learned CIT (Appeals) has erred in facts and on law in confirming the penalty levied of Rs. 1,87,200/- on aground that the appellant’s case is directly covered by provisions of Section 270A(9) of the Act. It is submitted that the Appellant’s case is not at all falling under clause (a) to clause (f) of Sub section 9 of Section 270A and thus there is no question of mis-reporting of income. On facts and circumstances of the case, the provisions u/s 270A(9) of the Act are just not attracted in case of Appellant and accordingly the penalty levied on account of mis-reporting of income Rs. 1.87.200/- be deleted in the interest of justice.
3. The lower authorities have erred in not mentioning anything in their orders that how the case of Appellant is falling under Section 270A(9) of the Act and under which clause. It is therefore submitted that the penalty levied on account of misreporting of income without mentioning specific default on part of Appellant is completely illegal and unjustifiable and same be deleted.
4. The Order passed by the learned CIT(A) is bad in law and contrary to the provisions of law and facts. it is submitted that the same be held so now.
5. Your appellant craves leave to add, alter and/or to amend all or any of the grounds before the final hearing of appeal.
3. The brief facts of the case are that the assessment was reopened on the basis of information flagged under the High-Risk Management Strategy formulated by the Board, indicating that the assessee had made a donation of Rs.3,00,000/- to Rashtriya Samajawadi Party (Secular) during F.Y. 2018-19 and had claimed deduction under Section 80GGC of the Income-tax Act, 1961. Accordingly, the case was reopened and notice under Section 148 of the Act was issued. In response thereto, the assessee filed a return of income withdrawing the claim of deduction of Rs.3,00,000/- under Section 80GGC of the Act. The Assessing Officer completed the assessment vide order dated 11.08.2023, determining the total income as per the return filed by the assessee in response to the notice issued under Section 148 of the Act. As per the notice of demand issued under Section 156 of the Act, a total demand of Rs.1,42,866/- was raised, which was paid by the assessee as under:
| No. | Amount | Date |
|---|---|---|
| 1 | 41,850.00 | 16.10.2023 |
| 2 | 83,830.00 | 10.10.2023 |
Thereafter, the Assessing Officer initiated penalty proceedings under Section 270A of the Act for “under-reporting of income in consequence of misreporting of income.” The assessee submitted that, being not fully conversant with the income-tax assessment proceedings, he could not furnish a reply to the show-cause notice issued during the penalty proceedings. The Assessing Officer thereafter levied a penalty of Rs.1,87,200/- under Section 270A of the Act, being 200% of the tax of Rs.93,600/- computed on the disallowance of the deduction of Rs.3,00,000/- claimed under Section 80GGC of the Act. The penalty was levied on 22.03.2024 on the ground of under-reporting of income in consequence of misreporting of income under Section 270A(2) of the Act.
4. Heard the argument of both the parties and perused the material available on record.
5. At the outset, both the parties fairly submitted that the issue raised by the assessee in the present appeal stands covered by the order of the Tribunal in the case of Hiro Mulchand Tanwani Vs Income Tax Officer Vs. ITO for A.Y 2019-20 in ITA No.110/Ahd/2026 dated 15.05.2026. For the sake of ready reference, the operative portion of said order is reproduced as under:
“…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…”
6. Respectfully following the aforesaid decision of the Co-ordinate Bench, and in the absence of any contrary decision or distinguishing facts, we hold that the penalty levied under Section 270A for misreporting of income is not sustainable. Accordingly, the penalty levied by the Assessing Officer and confirmed by the Ld. CIT(A) is hereby deleted.
7. In the result, the appeal filed by the assessee is allowed.
The order pronounced in the open Court on 30.09.2026.
