Dargabhai Bheraji Patel Vs ITO (ITAT Ahmedabad)
Non-Filing Alone Does Not Establish Misreporting: ITAT Reduces Section 270A Penalty Rate to 50%
The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) held that failure to file an original return did not automatically justify a 200% penalty for misreporting under Section 270A. However, it rejected the assessee’s request for complete cancellation and directed recomputation at 50% of the tax payable on under-reported income.
In Dargabhai Bheraji Patel vs. ITO, Ward-1, Palanpur, ITA No. 898/AHD/2026, concerning Assessment Year 2019-20, the Tribunal distinguished between under-reporting and under-reporting resulting from misreporting.
Accountant Member Narendra Prasad Sinha and Judicial Member Sanjay Kumar pronounced the order on 14 October 2026, partly allowing the appeal.
Return Filed Only After Reassessment Notice
The assessee, proprietor of M/s Maan Automobiles, operated a petrol pump and had not filed his return for AY 2019-20.
The Assessing Officer received information concerning cash deposits in the assessee’s current account. After following the procedure under Section 148A, he issued a notice under Section 148 on 23 March 2023.
In response, the assessee furnished a return declaring total income of ₹11,81,710.
The assessment was completed on 20 March 2024 under Section 147 read with Section 144B, accepting the returned income without making any addition.
Nevertheless, the Assessing Officer initiated penalty proceedings because no original return had been filed.
Assessing Officer Imposes ₹3.50 Lakh Penalty
The penalty proceedings characterised the case as under-reporting in consequence of misreporting.
Through an order dated 19 September 2024, the Assessing Officer imposed ₹3,50,508 at 200% of the tax payable.
The assessee appealed before the CIT(A)/NFAC, but the penalty was sustained through an order dated 28 January 2026.
Before the Tribunal, he challenged both the classification as misreporting and the imposition of any penalty. He also argued that his explanation brought the case within the exclusions under Section 270A(6).
The Revenue supported the orders of the lower authorities.
Accepted Return Cited Against Penalty
The assessee’s representative explained that the bank deposits represented sale proceeds of the petrol pump business, which the Assessing Officer had accepted.
He emphasised that the assessment was completed at the income disclosed in the return filed in response to Section 148.
According to him, none of the categories listed in Section 270A(9) applied, and the higher misreporting penalty was therefore unjustified.
He further sought complete relief under Section 270A(6), contending that the facts did not warrant penalty.
The Tribunal examined these submissions separately rather than treating acceptance of the return as decisive of every aspect.
First Return Under Section 148 Can Involve Under-Reporting
The Tribunal noted that Section 270A(2) identifies circumstances in which income is considered under-reported.
Where a return is furnished for the first time under Section 148, the assessed income is compared with the maximum amount not chargeable to tax.
Here, the assessee first disclosed his income after the reassessment notice, and the declared amount exceeded that threshold.
The Tribunal therefore held that the case fell within the statutory scope of under-reporting.
It explained that absence of an addition to the returned income did not settle the issue, because the provisions specifically contemplate a first return furnished under Section 148.
Misreporting Requires Additional Statutory Ingredients
The Tribunal then examined whether the 200% rate could be sustained.
It held that the enhanced rate required under-reporting to result from misreporting within the categories specified in Section 270A(9).
The Assessing Officer had not established that the assessee’s conduct fell within any such category.
The cash deposits had been explained as business sale proceeds, and no addition was made after examination.
The Tribunal consequently held that non-filing of the original return alone could not establish misreporting. Without the necessary statutory conditions, the higher penalty rate was not justified.
Complete Exclusion Under Section 270A(6) Rejected
The assessee nevertheless failed to establish a basis for total cancellation.
The Tribunal observed that he had not explained why no return was filed despite having taxable income.
The return was furnished only after proceedings under Section 148 began. Those circumstances did not, by themselves, establish eligibility for an exclusion under Section 270A(6).
Accordingly, the Tribunal held that the income remained under-reported even though the evidence did not support misreporting.
This preserved the distinction between failure to establish the enhanced charge and entitlement to complete immunity.
Recalculation at Fifty Per Cent Directed
The Assessing Officer was directed to recompute penalty at 50% of the tax payable on under-reported income, subject to verification of the statutory computation and attributable tax.
The Tribunal did not quantify the revised penalty amount itself. It held the 200% levy unsustainable while maintaining liability at the lower rate.
The appeal was partly allowed. The ruling confirms that an accepted reassessment return can still involve under-reporting, while the more severe misreporting consequence requires its own established statutory foundation.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Assessee against the order of National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] dated 28.01.2026 for the Assessment Year (A.Y.) 2019-20 in the proceeding u/s 270A of the Income Tax Act [hereinafter referred as “the Act”].
2. The brief facts of the case are that the assessee did not file his return of income for A.Y. 2019-20. The case of the assessee was reopened on the basis of the information received by the AO that the assessee had made certain cash deposits in his current account. Accordingly, a notice u/s. 148 of the Act was issued on 23.03.2023 after following the due procedure laid down u/s. 148A of the Act. In response to notice u/s. 148 of the Act, the assessee had filed his return of income disclosing total income of Rs. 11,81,710/-. The assessment was completed u/s. 147 r.w.s. 144B of the Act on 20.03.2024 at total income of Rs.11,81,710/- as per return. The AO had initiated penalty proceeding u/s. 270A of the Act for under-reporting of income in consequence to misreporting of income for the reason that no original return of income was filed by the assessee. Thereafter, a separate penalty order u/s. 270A of the Act was passed on 19.09.2024 imposing penalty of Rs. 3,50,508/- at the rate of 200% of tax payable.
3. Aggrieved with the penalty order of the AO, the assessee had filed an appeal before the first appellate authority, which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed.
4. Now, the assessee in second appeal before us. The following grounds have been taken in this appeal:
1. The Ld. CIT(A), NFAC, Delhi was grievously erred in upholding the imposition of penalty of Rs. 3,50,508- u/s. 270A for underreporting which result into misreporting, made by the Ld. A.O which is illegal and incorrect.
2. The Ld. CIT(A) was grievously erred in not considering the submission made during the appellate proceedings along with necessary documents including the submission made against the show cause notice vide which all real facts were submitted for non-filing of ITR along with legal decisions cited for non-imposition of penalty and the appellant falls under 270A(6)(a) for non imposing of penalty.
3. The appellant therefore requests that the imposition of penalty made by the Ld. AO of Assessment Unit of Rs. 3,50,508/- which was upheld by the Ld. CIT(A), should be deleted looking to the merits of the case.
4. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.
5. Shri Kunal Shangvi, the Ld. AR of the assessee explained that the assessee is proprietor of M/s Maan Automobiles and was running a petrol pump. He explained that the cash deposits in the bank accounts were part of the sale proceeds which were duly accepted by the AO. Further, the AO had completed the assessment as per the return of income only. Under the circumstances, the AO was not correct in imposing penalty for misreporting of income. He submitted that none of the conditions as stipulated in section 270A(9) of the Act were attracted to categorize the case of the assessee as misreporting of income. According to the Ld. AR, the assessee case was covered under the provision of section 270A(6) of the Act and imposition of any penalty u/s. 270A of the Act was not called for.
6. Per contra, Ms. Kalpana Singh, the Ld. SR-DR supported the order of the lower authorities.
7. We have considered the rival submissions and perused the material available on record. It is undisputed that the assessee did not file his return of income for A.Y. 2019-20 within the original return-filing process and filed the return only in response to the notice issued u/s 148 of the Act on 23.03.2023, declaring total income of Rs. 11,81,710/-. The AO accepted the returned income and completed the assessment accordingly. Section 270A(2) of the Act specifies the circumstances in which a person is considered to have under-reported his income. In particular, where a return is furnished for the first time u/s 148 of the Act, the income assessed is compared with the maximum amount not chargeable to tax. In the present case, the assessee filed his return for the first time pursuant to the notice issued u/s 148 of the Act, and the income so declared exceeded the maximum amount not chargeable to tax. The case, therefore, falls within the scope of under-reporting of income contemplated under section 270A(2) of the Act. Further, section 270A(3) of the Act provides for the determination of the amount of under-reported income in the circumstances specified therein. In the present case, the income declared in the return filed u/s 148 was accepted in the assessment. The absence of any addition to the returned income, by itself, does not conclude the issue of under-reporting, since the relevant provisions specifically contemplate a return furnished for the first time u/s 148 of the Act. However, the levy of penalty at the rate of 200% is sustainable only where the under-reporting of income is in consequence of misreporting, as specified u/s 270A(9) of the Act. On examination of the facts, we find that the AO has not established that the assessee’s case falls within any of the categories of misreporting enumerated in the said provision. The cash deposits in the bank account were explained as sale proceeds of the petrol pump business, and the AO accepted the returned income without making any addition on this account. Merely because the assessee had not filed his original return of income, the case cannot, in the absence of the requisite statutory conditions, be categorised as one involving misreporting of income under section 270A(9) of the Act. Accordingly, the levy of penalty at the rate of 200% of the tax payable on the under-reported income is not justified.
8. At the same time, the assessee’s contention that the case falls within the exclusions provided under section 270A(6) of the Act is not acceptable on the facts as discussed above. The assessee has not furnished any explanation for his failure to file the return of income despite having taxable income during the relevant previous year. The return was filed only after the AO initiated proceedings u/s 148 of the Act. These circumstances do not, by themselves, establish that the under-reported income falls within any of the exclusions specified under section 270A(6) of the Act. Had the AO not issued the notice u/s 148 of the Act, the assessee would never have filed his return of income and the income to that extent would have certainly escaped. The case of the assessee is, thus, found squarely covered under the provision of under-reported income.
9. In view of the foregoing discussion, we hold that the case is one of under-reporting of income and not under-reporting in consequence of misreporting. Accordingly, the AO is directed to re-compute the penalty under section 270A of the Act at the rate of 50% of the tax payable on the under-reported income, subject to verification of the applicable statutory computation and the amount of tax attributable thereto. The penalty imposed at the rate of 200% is not sustainable. In the result, the grounds raised by the assessee are partly allowed.
10. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 14/10/2026 at Ahmedabad.
