Abhishek Jayraj Karnani Vs ITO (ITAT Ahmedabad)
Section 270A: Withdrawing a Political Donation Deduction Does Not Prove Misreporting—₹3.12 Lakh Penalty Deleted
Withdrawal of Deduction Did Not Automatically Justify 200% Penalty
The Ahmedabad ITAT has deleted a ₹3,12,000 penalty under Section 270A, holding that withdrawal of a deduction claimed for a political donation does not, by itself, establish under-reporting resulting from misreporting.
The assessee had claimed ₹5 lakh under Section 80GGC in his original return. Following reopening, he withdrew the deduction, offered the amount to tax, and paid the consequential tax and interest.
The Assessing Officer accepted the income returned in response to the Section 148 notice without further variation. Nevertheless, penalty was imposed by treating the withdrawn deduction as misreporting.
The Tribunal held that the specific statutory ingredients of Section 270A(9)(c) had not been demonstrated with the required clarity. It consequently deleted the entire penalty and allowed the appeal.
Political Donation Disclosed in the Original Return
The assessee, a salaried individual, filed his original return on 31 August 2019, declaring total income of ₹13,29,300.
He claimed deduction of ₹5,00,000 under Section 80GGC for a donation to Yuva Jan Jagruti Party.
Information arising from search and seizure proceedings concerning the political party led to proceedings under Section 148A and subsequent issuance of a notice under Section 148.
In response, the assessee filed a return declaring income of ₹18,29,300, withdrawing the donation deduction. He also discharged the resulting tax and interest liability.
The reassessment was completed on 10 December 2024 under Section 147 read with Section 144B, accepting the returned income without any further addition.
Penalty Required Examination Beyond the Withdrawal
The Tribunal noted that the deduction had been openly disclosed in the original return. During reassessment, the assessee withdrew it and furnished explanations and supporting documents.
The penalty was imposed by treating that withdrawal as under-reporting consequent upon misreporting.
However, the Tribunal held that withdrawal alone could not conclusively establish that the assessee had furnished inaccurate particulars or committed the specific default contemplated by Section 270A(9)(c).
It also found that there was no finding of a false entry or fabrication of particulars by the assessee. The material facts concerning the claim were available to the Department.
These circumstances required an independent examination of the penalty conditions rather than an automatic inference from the increase in taxable income.
Good-Faith Explanation Had to Be Considered
The assessee maintained that the donation had been made in good faith and that he was unaware of alleged non-compliance by the recipient political party.
He had responded to the penalty notices and placed his explanation on record.
The Tribunal emphasised that penalty provisions, being penal in nature, require strict application of the statutory conditions.
Withdrawal of the deduction during reassessment could not automatically attract the 200% penalty without a specific finding establishing the ingredients of misreporting under Section 270A(9).
The good-faith explanation was part of the factual assessment supporting the decision; the Tribunal did not hold that merely asserting good faith provides immunity in every donation case.
Under-Reporting and Misreporting Were Distinct Questions
The Tribunal expressly distinguished an increase in assessed income from proof of misreporting.
It observed that withdrawal of a deduction may provide the starting point for examining under-reporting under Section 270A(2). However, penalty for misreporting under Section 270A(9)(c) requires the relevant statutory ingredients to be established.
On the record before it, those ingredients had not been demonstrated adequately.
The lower authorities’ reliance on Gunmala Jain v. ITO, ITA No. 1262/JPR/2025, was distinguished on facts. The present case had to be examined through the assessee’s disclosure, explanation, payment of tax and interest, and acceptance of the reassessment return.
Earlier Ahmedabad Decisions Followed
Both sides submitted that the issue was covered by Hiro Mulchand Tanwani v. ITO, ITA No. 110/AHD/2026, dated 15 May 2026.
That decision explained that penalty proceedings are independent of assessment proceedings. Acceptance of a disallowance does not itself amount to admission of misreporting, and an inadmissible deduction does not automatically establish a false claim.
The Tribunal also referred to Siddharth Laxminkant Vaderkar v. ITO, ITA No. 1072/Ahd/2026, dated 7 July 2026, which followed the same reasoning.
Applying those decisions, it deleted the ₹3,12,000 penalty. It did not substitute a lower penalty for under-reporting or restore the withdrawn Section 80GGC deduction.
Author’s Comments
The significant point is that a withdrawn deduction and a proved misreporting default are separate matters. The withdrawal resolves the quantum position adopted by the assessee; it does not automatically establish the statutory basis for enhanced penalty.
Equally, disclosure in the return or payment of tax after reopening should not be read as an unconditional protection. The Tribunal considered these facts together with the explanations, supporting documents, and absence of findings establishing fabrication or the relevant misreporting ingredients.
This decision is also different from a case turning solely on a vague notice. Here, Section 270A(9)(c) was invoked, but its substantive application was not sufficiently established.
For practitioners, the useful enquiry is therefore both procedural and factual: what precise default was charged, and what evidence establishes that default?
Cases Discussed
- Hiro Mulchand Tanwani Vs ITO, ITA No. 110/AHD/2026, ITAT Ahmedabad, dated 15.05.2026 — followed; the Tribunal held that acceptance of a Section 80GGC disallowance does not by itself establish misreporting and that penalty proceedings are distinct from assessment proceedings.
- Siddharth Laxminkant Vaderkar Vs ITO, Ward 4(2)(3), Ahmedabad, ITA No. 1072/Ahd/2026, ITAT Ahmedabad, dated 07.07.2026 — referred to as having followed the reasoning adopted in Hiro Mulchand Tanwani.
- Gunmala Jain Vs ITO, ITA No. 1262/JPR/2025, ITAT Jaipur — relied upon by the lower authorities; distinguished on facts by the Tribunal.
FULL TEXT OF THE 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 26.02.2026 under Section 250 of the Income Tax Act, 1961 arising out of the Penalty Order, dated 18.06.2023 passed 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. That the learned National Faceless Appeal Centre, Delhi has erred in law and facts by confirming the penalty levied under section 270A(9)(c) of the Act of Rs.3,12,000/-, for under reporting income in consequence of mis-reporting of income for the claim of deduction in the return of income filed under section 139(1) of the Act, though not claimed as deduction or expenditure, in the return of income filed, in pursuance to the notice issued under section 148 of the Act, accordingly, in particular, section 270(9)(c) is for levy of penalty claim of expenditure not substantiated by any evidence, and therefore by Assessing Officer is to be direct to delete the penalty.
2. That your appellant craves a leave to add, alter or amend any grounds at the time of hearing.”
3. The assessee, a salaried individual, had originally filed his return of income on 31.08.2019 declaring total income of Rs.13,29,300/- and claimed deduction of Rs.5,00,000/- under section 80GGC in respect of donation made to Yuva Jan Jagruti Party. Pursuant to information arising from search and seizure proceedings conducted in the case of the said political party, proceedings under section 148A were initiated and thereafter notice under section 148 was issued. In response thereto, the assessee filed return declaring income of Rs.18,29,300/- after withdrawing the deduction under section 80GGC and paid the consequential tax and interest. The reassessment was thereafter completed under section 147 read with section 144B on 10.12.2024 accepting the returned income without making any further addition.
4. We have considered the rival submissions and perused the material available on record.
5. It is undisputed that the assessee had disclosed the claim of deduction under section 80GGC in the original return itself and that, during the reassessment proceedings, he withdrew the claim and offered the corresponding amount of Rs.5,00,000/- to tax. The assessee also paid the due tax and interest and the income so declared in response to notice under section 148 was accepted by the Assessing Officer without any further variation. The assessee had also furnished explanations and supporting documents during the proceedings.
6. The penalty has been imposed by treating the withdrawal of the deduction as under-reporting in consequence of misreporting. However, the mere fact that the assessee subsequently withdrew a claim of deduction, by itself, cannot conclusively establish that the assessee had furnished inaccurate particulars or that the case falls within the specific circumstances contemplated by section 270A(9)(c). In the present case, the claim was openly made in the original return and was not concealed. Further, upon reopening, the assessee did not persist with the claim but voluntarily offered the amount for taxation and discharged the resultant tax and interest. The reassessment order accepted the returned income without making any independent addition. Thus, the material facts relating to the claim were available to the Department and there is no finding of any false entry or fabrication of particulars by the assessee.
7. We also note that the assessee specifically contended that the donation was made in good faith and that he was unaware of any alleged non-compliance by the recipient political party. The assessee had duly responded to the penalty notices and placed his explanation on record. In these circumstances, the penalty provision, being penal in nature, requires strict application of the statutory conditions. Merely because the deduction was subsequently withdrawn pursuant to reassessment proceedings, the same cannot, without a specific finding establishing the ingredients of misreporting contemplated by section 270A(9), automatically result in levy of penalty at 200%.
8. The reliance placed by the lower authorities on the decision in Gunmala Jain, Ajmer vs. ITO, Ward-2(2), Ajmet (ITA No. 1262/JPR/2025) is distinguishable on the facts as the present case has to be examined 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 under-reporting under section 270A(2), but the levy of penalty for misreporting under section 270A(9)(c) requires the statutory ingredients thereof to be established. On the facts available on record, such ingredients have not been demonstrated with the requisite clarity.
9. When the appeal was taken up for hearing, at the outset, both the sides fairly submitted 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 Mulchand Tanwani Vs. ITO [ITA No.110/AHD/2026, dated 15/05/2026] the relevant extract of which reads as under:
“3. 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.”
10. 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]”.
11. In the absence of any significant change in factual matrix and legal proposition, following the above decisions of the Co-ordinate Benches of the Tribunal, we delete the Penalty of Rs. 3,12,000/- levied upon the Assessee under Section 270A of the Act. Ground No. 1 raised by the assessee is allowed.
12. In the result, the appeal filed by the assessee is allowed.
This Order pronounced in Open Court on 30/09/2026
