Ishwar Chand Agro Private Limited Vs DCIT (ITAT Delhi)
Summary : The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, concerning penalty of INR 4,63,500 imposed under Section 270A of the Income Tax Act, 1961 for Assessment Year 2017-18. An addition on account of bogus purchases had reduced the loss declared in the return. The Assessing Officer initiated penalty proceedings for “under reporting of income in consequence of mis-reporting”, but ultimately levied penalty for “under reporting of income” under Section 270A(2)(g). The assessee contended that the notice did not specify the applicable charge and that the charge was changed without confronting the assessee or recording satisfaction regarding under-reporting. The Revenue submitted that the assessee had accepted the addition, the claimed loss was reduced and the case consequently fell under Section 270A(2)(g).
The Tribunal examined Section 270A and observed that, for under-reporting, the Assessing Officer must identify the applicable circumstance under clauses (a) to (g) of Section 270A(2), while misreporting requires satisfaction of one of the circumstances under Section 270A(9). The Tribunal found that the Assessing Officer had failed to identify and communicate the specific statutory clause applicable to the assessee, either in the assessment order or notice. It further observed that the penalty notice initiated proceedings for under-reporting in consequence of mis-reporting, whereas the penalty was finally levied for under-reporting. Relying on Schneider Electric South East Asia (HQ) Pte Ltd. and the coordinate Bench decision in Grand Legacy, the Tribunal held that the failure to identify and communicate the applicable statutory limb rendered the penalty proceedings invalid. The penalty under Section 270A was therefore quashed and all grounds of appeal were allowed.
Background and Procedural History
The assessee had filed an appeal against the order dated 26.09.2023 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, in Appeal No. CIT(A), Ghaziabad/11419/2019-20 under Section 250 of the Act, arising from the penalty proceedings.
The supplied order records that an addition on account of bogus purchases resulted in reduction of the loss declared in the return of income. In the first appeal, the Ld. CIT(A) observed that the assessment order had subsequently been rectified and the addition, instead of being treated as Income from Other Sources, was treated as business income, which was admitted by the assessee. The assessment order recorded satisfaction for initiation of penalty proceedings under Section 270A for “under reporting” of income in consequence of misrepresentation.
The Assessing Officer thereafter levied penalty of INR 4,63,500 under Section 270A, invoking Section 270A(2)(g). The assessee challenged the penalty before the Ld. CIT(A), who dismissed the appeal by order dated 04.12.2025. The assessee then approached the Tribunal.
Submissions of the Assessee
The Ld. AR submitted that the notice issued for initiation of penalty proceedings under Section 270A did not specify the charge under which the proceedings were initiated. According to the submission, the proceedings were initiated for “under reporting of income in consequence of mis-reporting”, whereas the penalty was ultimately levied for “under reporting of income”.
The Ld. AR contended that the Assessing Officer had changed the charge from “mis-reporting” to “under reporting” without confronting the assessee and without recording satisfaction regarding “under-reporting”. On this basis, the Ld. AR requested deletion of the penalty.
The Ld. AR relied upon the decisions in Grand Legacy Vs. DCIT, ITAT Dehradun; Ashok Kumar Gupta, Vs. DCIT, ITAT Delhi; Jaina Marketing And Associates Vs. DCIT, ITAT Delhi; Schneider Electric SouthEast Asia (Hq) Pte Ltd. Vs ACIT, International Taxation Circle 3 (1) (2), New Delhi And Ors.; Shri Manish Manohardas Asrani Vs. INT Tax Ward 1(1) (1), Mumbai; and Snehalkumar Bhogilal Trivedi Vs. NFAC, ITAT Ahmedabad.
Submissions of the Revenue
The Ld. Sr. DR supported the orders of the lower authorities. It was submitted that the assessee had accepted the additions made and had failed in the appellate proceedings. The Revenue further submitted that since the claimed loss was reduced, the case constituted under-reporting under clause (g) of Section 270A(2), and therefore the Assessing Officer had rightly levied the penalty.
Tribunal’s Observations on Section 270A
The Tribunal reproduced the relevant provisions of Section 270A concerning penalty for under-reporting and misreporting of income. It observed that Section 270A(2)(a) to (g) specifies circumstances in which a person is considered to have under-reported income, while Section 270A(9)(a) to (f) specifies cases of misreporting of income.
The Tribunal observed that, for “under reporting of income”, the Assessing Officer should satisfy the conditions defined in clauses (a) to (g) of Section 270A(2). For “under reporting of income in consequence to misreporting of income”, the conditions specified in clauses (a) to (f) of Section 270A(9) should be satisfied.
According to the Tribunal, the Assessing Officer had failed to identify or determine and communicate, either through the assessment order or the notice, the specific circumstance or incidence under clauses (a) to (g) of Section 270A(2) within which the assessee’s case fell for treating the income as “under-reported”. The Tribunal further observed that the Assessing Officer had failed to identify or determine and disclose the specific action of the assessee falling within clauses (a) to (f) of Section 270A(9) for categorising the under-reported income as arising in consequence of misreporting.
Failure to Specify the Applicable Statutory Limb
The Tribunal held that non-identification, determination and communication of the specific clause from Section 270A(2) or Section 270A(9) would obstruct an assessee from enforcing the right to contest the charge alleged against the assessee and would result in violation of the principle of natural justice.
The Tribunal found that the notice initiating the penalty proceedings was silent on the circumstance or incidence triggering the initiation of the proceedings. It further observed that the penalty order neither mentioned the circumstance or incidence nor referred to the alleged action relied upon in reaching the final imposition of penalty.
Significantly, the Tribunal noted that the notice initiated penalty proceedings for “under reporting of income in consequence of mis-reporting”, whereas the penalty was finally levied under Section 270A for “under reporting of income”.
Reliance on Schneider Electric
The Tribunal considered the decision of the Hon’ble Delhi High Court in Schneider Electric South East Asia (HQ) Pte Ltd. The supplied order records that the Delhi High Court dealt with satisfaction recorded at the time of levying penalty under Section 270A.
The Tribunal relied on the Delhi High Court’s observation that the penalty notice had failed to specify whether the proceedings were initiated for “underreporting” or “misreporting” of income and had not indicated which limb of Section 270A was attracted or how the ingredients of Section 270A(9) were satisfied. The Tribunal also noted the High Court’s observation concerning the absence of particulars necessary to establish misreporting.
Reliance on Grand Legacy
The Tribunal also relied upon the coordinate Bench decision in Grand Legacy Vs. DCIT, ITA No.229/DDN/2025 dated 12.03.2026. As recorded in the supplied order, the coordinate Bench had deleted a penalty under Section 270A where the proceedings were for “under reporting of income as a consequence of mis-reporting” but the penalty was levied for “under-reporting of income”.
Tribunal’s Findings and Decision
Following the judgment of the Hon’ble jurisdictional High Court in Schneider Electric South East Asia (HQ) Pte Ltd and the coordinate Bench decision in Grand Legacy, the Tribunal held that the failure of the Assessing Officer to identify and communicate the specific circumstance or incidence from clauses (a) to (g) of Section 270A(2) or clauses (a) to (f) of Section 270A(9) was determinant before imposing the penalty.
The Tribunal concluded that this failure rendered the penalty proceedings invalid and untenable. Consequently, the penalty imposed under Section 270A was held to be bad in law and was quashed. All grounds of appeal raised by the assessee were allowed.
Final Decision
The appeal of the assessee was allowed. The penalty of INR 4,63,500 imposed under Section 270A was quashed. The order was pronounced in the open court on 05.08.2026.
Cases Discussed
- Grand Legacy Vs. DCIT, ITA No.229/DDN/2025 dated 12.03.2026 — ITAT Dehradun
- Ashok Kumar Gupta, Vs. DCIT – ITAT Delhi, 2026 (3) TMI 1611
- Snehalkumar Bhogilal Trivedi Vs. NFAC – ITAT Ahmedabad, 2025(8) TMI 1524
- Jaina Marketing And Associates Vs. DCIT- ITAT Delhi, 2024 (3) TMI 1007
- Schneider Electric SouthEast Asia (Hq) Pte Ltd. Vs ACIT, International Taxation Circle 3 (1) (2), New Delhi And Ors. – 2022(3) TMI 1295
- Shri Manish Manohardas Asrani Vs. INT Tax Ward 1(1) (1), Mumbai – Delhi High Court, 2024 (11) TMI 811
