Brijesh Rameshbhai Bavarva Vs ITO (ITAT Ahmedabad)
Withdrawal of Political Donation Deduction Alone Does Not Establish Misreporting: ITAT Deletes Penalty
The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) deleted a ₹5,49,120 penalty under Section 270A after finding that the Assessing Officer had not adequately established the statutory basis for treating withdrawal of a political donation deduction as misreporting of income.
In Brijesh Rameshbhai Bavarva vs. ITO, ITA No. 179/Ahd/2026, concerning Assessment Year 2019-20, the Tribunal distinguished between under-reporting and misreporting. It held that withdrawal of a deduction and the resulting increase in income did not, by themselves, establish the ingredients necessary for the higher penalty.
The order dated 14 October 2026 was passed by Judicial Member Rahul Chaudhary and Accountant Member Gangadhar Panda.
Political Donation Deduction Withdrawn During Reassessment
The assessee filed his original return on 9 July 2019, declaring total income of ₹83,95,170 after claiming an ₹8 lakh deduction under Section 80GGC for a donation to Apna Desh Party.
Following search and post-search investigations concerning certain registered unrecognised political parties, the Department received information that the party was allegedly facilitating bogus donation entries. The alleged arrangement involved returning donations in cash after deducting commission.
Reassessment proceedings followed, and a notice under Section 148 was issued on 19 April 2023.
In response, the assessee filed a return on 18 January 2025, declaring income of ₹91,57,870 after withdrawing the deduction and paying applicable tax and interest. The Assessing Officer accepted the returned income without making any further addition but initiated penalty proceedings under Section 270A.
Assessing Officer Imposes 200% Penalty
During the penalty proceedings, the assessee submitted that he had withdrawn the deduction in good faith to avoid litigation and had discharged the resulting tax and interest liability.
He also objected that the Assessing Officer had not identified the specific clause of Section 270A(9) under which the alleged misreporting fell.
The Assessing Officer rejected the explanation, observing that the deduction had been withdrawn only after reopening. He treated ₹8 lakh as misreported income and imposed penalty of ₹5,49,120 at 200% of the relevant tax through an order dated 29 July 2025.
His reasoning relied on the increase in income upon reassessment and referred to Section 270A(2)(d) while characterising the amount as misreported income.
CIT(A) Confirms Penalty
The assessee challenged the penalty before the CIT(A), arguing that withdrawal of the deduction did not itself prove misreporting and that no specific statutory limb had been identified.
The CIT(A) rejected these submissions. It considered the timing significant because reopening had been initiated on the same donation issue before the deduction was withdrawn.
The appellate authority also held that subsequent payment of tax did not absolve the assessee from penalty. It accordingly confirmed the levy through its order dated 5 December 2025, prompting the appeal before the Tribunal.
Precise Classification Required Under Section 270A
Examining the penalty order, the Tribunal found that the specific statutory basis for misreporting had not been adequately established.
It observed that the order did not clearly distinguish whether the levy concerned under-reporting under Section 270A(2)(d) or misreporting under Section 270A(9).
This distinction mattered because the statutory consequences differed. The Tribunal explained that under-reporting attracts a 50% penalty, whereas under-reporting resulting from misreporting attracts the more severe 200% penalty.
The higher rate therefore required identification and establishment of the relevant statutory ingredients. Merely describing an increase in reassessed income as misreported income did not satisfy that requirement.
Withdrawal Alone Insufficient for Misreporting Finding
The Tribunal considered the assessee’s disclosure, explanation, payment of tax and interest, and the absence of any further variation during reassessment.
It held that an increase in income resulting from withdrawal of a deduction may provide a starting point for examining under-reporting. However, imposing a misreporting penalty required the specific ingredients contemplated by Section 270A(9) to be demonstrated.
The order reproduced the statutory categories, including misrepresentation or suppression of facts, unrecorded investments, unsupported expenditure claims, false entries, unrecorded receipts affecting income, and specified transaction-reporting failures.
The Tribunal found that the Assessing Officer had not indicated which specific offence the assessee had committed. The essential acts constituting misreporting had therefore not been demonstrated with the required clarity.
Coordinate Bench Decisions Followed
The Tribunal found support in Hiro Mulchand Tanwani vs. ITO, ITA No. 110/Ahd/2026, dated 15 May 2026, concerning an unsustainable misreporting penalty under Section 270A.
It noted that this decision had been followed in Siddharth Laxminkant Vaderkar vs. ITO, ITA No. 1072/Ahd/2026, dated 7 July 2026.
Finding no substantial difference in the factual matrix or legal proposition, the Tribunal followed these decisions, deleted the entire ₹5,49,120 penalty, and allowed the appeal.
The relief rested on the failure to establish the statutory ingredients of misreporting. The Tribunal did not hold that withdrawal of a deduction or payment of tax automatically prevents penalty; its reasoning required a clear statutory foundation for the particular penalty imposed.
Cases Discussed
- Hiro Mulchand Tanwani Vs ITO — ITA No. 110/Ahd/2026, 15 May 2026 (ITAT Ahmedabad); followed.
- Siddharth Laxminkant Vaderkar Vs ITO — ITA No. 1072/Ahd/2026, 7 July 2026 (ITAT Ahmedabad); followed.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT AHMEDABAD
The captioned appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income Tax(Appeals), (hereinafter referred to as “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi dated 05.12.2025 under Section 250 of the Income Tax Act, 1961 arising out of the Penalty Order, dated 29.07.2025 completed under Section 270A of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] for the Assessment Year 2019-20.
2. The assessee has raised the following grounds of appeal:
“1. The Ld. CIT(A) erred in laws and facts by upholding the penalty u/s 270A without appreciating that the assessee has neither misreported any income nor falls under any of the clauses specified under sub-section (9) of section 270A. Furthermore, the Ld. AO has not invoked or referred to any specific sub-clause of section 270A(9) in the penalty order under which the allegation of misreporting has been made against the assessee.
2. The Ld. CIT(A) erred in laws and facts by upholding the penalty u/s 270A(9) of the Act amounting to Rs.5,49,120/- without considering the fact that the Assessee has already withdrawn the deduction claimed earlier and paid applicable tax and interest thereon and there is no misreporting of income on the part of the assessee.
3. The Appellant reserves the right to add, alter, amend or modify any of the grounds of appeal during the course of the appellate proceedings.”
3. The brief facts of the case are that the assessee filed his original return of income on 09.07.2019 declaring total income of Rs.83,95,170/- after claiming deduction of Rs.8,00,000/- under section 80GGC of the Act towards donation to Apna Desh Party. Subsequently, following search and post-search investigations concerning certain registered unrecognised political parties, the Department received information that the said party was allegedly facilitating bogus donation entries by returning donations in cash after deducting commission. Accordingly, reassessment proceedings were initiated and notice under section 148 was issued on 19.04.2023. In response, the assessee filed a return on 18.01.2025 declaring income of Rs.91,57,870/- after withdrawing the deduction and paying the applicable tax and interest. The Assessing Officer accepted the returned income without making any further addition but initiated penalty proceedings under section 270A of the Act.
4. During the penalty proceedings, the assessee submitted that the deduction had been withdrawn in good faith to avoid litigation and that the tax and interest had been duly paid. It was further contended that the Assessing Officer had not identified the specific clause of section 270A(9) under which the alleged misreporting fell. The Assessing Officer, however, held that the deduction was withdrawn only after reopening of the assessment and treated Rs.8,00,000/- as misreported income. Accordingly, penalty of Rs.5,49,120/-, being 200% of the tax sought to be evaded, was imposed under section 270A of the Act.
5. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), contending that the penalty was unsustainable in the absence of identification of the specific limb of section 270A(9) and that withdrawal of the deduction, by itself, did not establish misreporting. The Ld. CIT(A) rejected these submissions, observing that the assessee had withdrawn the deduction only after the reopening proceedings were initiated on the very same issue and that subsequent payment of tax did not absolve the assessee from penalty. Therefore, the income amounting to Rs. 8,00,000/- which increased due to assessment under section 147 of the Act was considered as misreported income and attracted penalty as per provisions of section 270A(2)(d) of the Act in the case of the assessee. The Ld. CIT(A) accordingly confirmed the penalty.
6. Being aggrieved by the appellate order, the assessee has filed this appeal before us.
7. At the time of hearing, we have perused the material available on record and heard the arguments to proceed for disposal of the appeal.
8. On examination of the penalty order and the order of the Ld. CIT(A), we find that the penalty of Rs.5,49,120/- under section 270A of the Income Tax Act, 1961, was levied by treating the withdrawal of the deduction claimed under section 80GGC as misreporting of income. However, the penalty order is required to establish how the assessee’s case falls within the instances of misreporting specified under section 270A(9) of the Act. Considering the material available on record, we find that the specific statutory basis for treating the amount as misreported income has not been adequately established. It is not clear from the penalty order that whether the penalty have been levied for “under-reporting” of income under section 270A(2)(d) of the Act or “mis-reporting” of income under section 270A(9) of the Act. There are several judicial precedents which have held that penalty u/s.270A of the Act, requires precise classification, whether the penalty is being levied for misreporting of income or under-reporting of income.
9. In the present case , on the basis of the assessee’s own disclosure, explanation, payment of tax and interest and the fact that no further variation was made in the reassessment, the mere increase in assessed income consequent upon withdrawal of a deduction may constitute the starting point for examining the case for under-reporting under section 270A(2) of the Act, but the levy of penalty for mis-reporting under section 270A(9) of the Act requires specific statutory ingredients thereof to be established. The provisions of section 270A(2) of the Act deals with levy of penalty for under-reporting of income and this section typically involves discrepancies such as omission or inaccuracies not involving deliberate misrepresentation. In this case a lower penalty @50% of tax is levied. However, penalty u/s.270A(8)/(9) involves cases of willful suppression or misstatement or misrepresentation of facts, thereby attracting more severe penalty @200% of the amount of tax payable.
10. In the impugned penalty order, the AO has imposed penalty @200% on the amount of tax payable as per the provisions of Section 270A of the Act. It is relevant to reproduce the paragraph below that contains the conclusion made by the AO in the penalty order while imposing penalty @200% u/s 270A of the Act :-
“3.7 Conclusion drawn for imposition of Penalty:
The assessment proceedings u/s 147 of the Income Tax Act was completed in respect of the assessee for FY 2018-19 relevant to AY 2019-20 as discussed in para 3.1 above. Penalty u/s 270A of the Income Tax Act, 1961 was initiated for under reporting of income.
A show cause notice dated 02.04.2025 was issued on assessee against which the assessee submitted its detailed reply on 16.04.2025.
The assessee in his reply claimed that the AO had accepted his ROI filed u/s 148 and no variation was made and also he had voluntarily withdrawn deduction of Rs. 8,00,000/- claimed u/s 80GGC at the time of filing return u/s 148 for peace of mind and due tax has been paid on the same.
Though the returned income of Rs. 91,57,870/- filed u/s 148 of the Income Tax Act, 1961 was accepted and no addition was made, but the difference b/w the income determined u/s 143(1) and the income assessed u/s 147 of the Tax Act, 1961 is Rs. 8,00,000/-
Consequently, the income amounting to Rs. 8,00,000/- which increased due to assessment u/s 147 is being considered as mis reported income and attracts penalty as per provisions of section 270A(2)(d) in the case of the assessee. It has been verified that the assessee has not filed any appeal against the assessment order pertinent to this penalty proceedings. Considering the facts of the case and having given due opportunity to the assessee, penalty u/s 270A of the Income Tax Act, 1961 is imposed upon the assessee for mis reporting of income, to the tune of 200% of tax (being the minimum) sought to be evaded.”
11. From the above conclusion of the AO, it is observed that the AO has not indicated which specific offence under section 270A(9) of the Act has been committed by the assessee. It would be useful to reproduce the relevant extract of section 270A(9) of the Act for ready reference :-
(9) The cases of misreporting of income referred to in sub-section (8) shall be the following, namely:—
(a) misrepresentation or suppression of facts;
(b) failure to record investments in the books of account;
(c) claim of expenditure not substantiated by any evidence;
(d) recording of any false entry in the books of account;
(e) failure to record any receipt in books of account having a bearing on total income; and
(f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.
12. It is therefore evident from above that the specific acts or the essential ingredients in regard to misreporting have not been demonstrated with the requisite clarity while imposing penalty under section 270A in the present appeal. Further, we observe that the issue raised by the Assessee in the present appeal stands covered by the decision of the Ahmedabad Bench of the Tribunal in the case of “Hiro MulchandTanwani Vs. ITO [ITA No.110/AHD/2026, dated 15/05/2026”, wherein it is held that the levy of penalty under Section 270A on misreporting of income is unsustainable in law and is therefore directed to be deleted.
13. The above decisions was followed by the Co-ordinate Bench of the Tribunal in the case of “Siddharth Laxminkant Vaderkar vs. ITO, Ward 4(2)(3) Ahmedabad [ITA No. 1072/Ahd/2026, dated 07/07/2026]”.
14. In the absence of any substantial variation in factual matrix and legal proposition, following the above decisions of the Co-ordinate Benches of the Tribunal, we delete the Penalty of Rs. 5,49,120/- levied upon the Assessee under Section 270A of the Act. Hence, the grounds raised by the assessee are allowed.
15. In the result, the appeal of the assessee is allowed.
This Order pronounced in Open Court on 14/10/2026
