Soheb Malik Vs DCIT (Delhi ITAT)
u/s 270A – Addition May Survive, But “Misreporting” Cannot Be Whispered Into a Penalty Order: ITAT Deletes Penalty for Failure to Identify Limb u/s 270A(9)
Summary:
The Delhi ITAT dealt with an important issue concerning levy of penalty for misreporting of income u/s 270A(8). The Tribunal held that merely because an addition has been made in assessment, the AO cannot mechanically characterize it as “misreporting of income”. Where the penalty order does not identify which specific clause of u/s 270A(9) is attracted & contains no reasoning explaining how the addition constitutes misreporting, penalty u/s 270A(8) cannot survive.
Facts
The assessee filed his return for AY 2023-24 declaring total income of ₹83,810. A search u/s 132 was conducted on the ALM Group on 03.01.2023, with which the assessee was associated. Subsequently, the assessee’s case was centralized & assessment was completed u/s 143(3) on 25.03.2025, wherein the AO made an addition of ₹13,12,997 u/s 45 towards capital gains.
Consequent to the addition, penalty proceedings u/s 270A were initiated for under-reporting of income. However, while passing the penalty order dated 25.08.2025, the AO invoked u/s 270A(8) & imposed penalty of ₹4,80,532, thereby treating the case as one involving misreporting of income. The CIT(A) confirmed the penalty.
The assessee challenged the penalty before the ITAT.
Notice said “under-reporting”; penalty became “misreporting”
One of the assessee’s principal objections was that the penalty proceedings had originally been initiated for under-reporting of income, whereas the final penalty order was passed by invoking the harsher provisions applicable to under-reporting consequent upon misreporting.
This distinction is substantial. Penalty for ordinary under-reporting is governed by u/s 270A(7), whereas where such under-reporting is in consequence of misreporting, u/s 270A(8) prescribes a substantially higher penalty.
The assessee therefore argued that the AO could not simply move from under-reporting to misreporting without identifying & establishing the statutory ingredients required for misreporting.
ITAT – Where is the misreporting?
On examining the penalty order, the Tribunal noticed that the AO had levied penalty solely because an addition of ₹13,12,997 u/s 45 had been made in the assessment.
Crucially, the penalty order contained no discussion or reasoning whatsoever explaining why the capital-gains addition amounted to misreporting.
The Tribunal specifically observed that there was “no whisper” in the penalty order identifying which of the six situations prescribed u/s 270A(9) was attracted.
Misreporting u/s 270A(9) contemplates specified situations such as misrepresentation or suppression of facts, failure to record investments, claim of expenditure unsupported by evidence, recording of false entries, failure to record receipts having a bearing on total income or failure to report an international transaction.
The AO had not identified even one of these statutory limbs. He had merely invoked u/s 270A(8) & levied penalty.
Schneider Electric comes to the rescue
The ITAT followed the Delhi HC judgment in Schneider Electric South East Asia (HQ) Pte. Ltd. [2022] 443 ITR 186 (Delhi).
The Delhi HC had held that where there is not even a whisper regarding which limb of u/s 270A is attracted & how the ingredients of u/s 270A(9) are satisfied, merely referring to “misreporting” cannot justify the consequences flowing from such characterization.
Applying the ratio, the ITAT held that in the present case also there was no explanation as to how the addition made during assessment manifested itself as “misreporting of income.” The penalty order was therefore held to be manifestly arbitrary & unsustainable in law.
Addition does not automatically mean misreporting
The decision brings out an important distinction inherent in u/s 270A. An addition in assessment & penalty for misreporting are two different stages requiring separate satisfaction.
The existence of an addition may provide the occasion for examining whether penalty proceedings are warranted, but it cannot by itself establish misrepresentation, suppression, false entry or any of the other ingredients specifically enumerated u/s 270A(9).
Thus, an AO intending to levy the enhanced penalty for misreporting must go beyond saying that an addition was made. The penalty order must disclose what exactly the assessee did, which clause of u/s 270A(9) covers that conduct & why the facts satisfy that statutory clause.
Decision
The ITAT held that there was no whisper in the penalty order explaining how the capital-gains addition constituted misreporting of income. Following the jurisdictional Delhi HC decision in Schneider Electric, the penalty order u/s 270A(8) was held unsustainable in the eyes of law & directed to be deleted.
Accordingly, the assessee’s appeal was allowed.
Author’s Comment
This decision is particularly important because u/s 270A does not treat every addition as misreporting. Misreporting is a statutorily defined aggravated category & the AO must bring the case specifically within one of the limbs of u/s 270A(9) before invoking the 200% penalty regime.
The order also highlights a useful procedural defence: where the penalty notice starts with “under-reporting” but the final order ends with “misreporting,” the AO cannot bridge that gap merely by changing the terminology. The statutory ingredients of misreporting must actually be identified, discussed & established.
In short, an assessment addition may be automatic arithmetic; a misreporting penalty cannot be automatic punishment.
Cases Discussed
- Schneider Electric South East Asia (HQ) Pte. Ltd. v. ACIT (Delhi High Court)
FULL TEXT OF THE ORDER OF ITAT DELHI
2. The grounds of appeal raised by the assessee which reads as under:
“1. The Ld. AO and Ld. CIT(A) both the officers have erred in not appreciating either the facts & circumstances of the case or the submissions of appellant and has further erred in passing respective orders which is not correct in law & on facts.
2. That the appellate order dated 05/02/2025 is not a speaking order which is bad in law.
3. That mere addition of income during the assessment proceedings does not necessitate the levy of penalty u/s 270A of the Act and the element of mens-rea is necessary for the imposition of penalty under the act. The Ld. CIT(A) has took no notice of the same and has erred in confirming penalty of Rs. 4,80,582/- which is non-est in law.
4. The Ld. AO and Ld. CIT(A) both the officers have erred in law that penalty cannot be imposed only on the ground that appeal has not been preferred against the assessment order.
5. The Ld. CIT(A) has omitted the fact that the penalty order was passed without giving sufficient opportunity of being heard.
6. The Ld. CIT(A) has erred in fact and circumstances of the case that the notice of penalty u/s 270A of the Act was issued for under reporting of income however penalty order u/s 270A of the Act was passed for under reporting and misreporting of income which is not as per the law.
7. The appellant craves leave to add, alter or amend any of the grounds before or at the time of hearing.”
3. Brief facts of the case are that the assessee has filed his original return of income for the A.Y 2023-24 declaring total income of Rs.83,810/- on 31.12.2023. A search and seizure operation was conducted on the ALM Group under section 132 of the Act on 03.01.2023 and the assessee was associated with the group covered under this search. Thereafter, the case of assessee was centralized in pursuance of order passed under section 127 of the Act dated 13.06.2023 by the PCIT, Dehradun. Consequently, the case of the assessee for the A.Y. 2023-24 was selected for scrutiny assessment u/s 143(3) of the Act and the same was completed by the Ld. AO by passing order u/s 143(3) dated 25/03/2025. The Ld. AO was made addition of Rs.13,12,997/- u/s 45 of the Act on account of Capital Gains. Subsequently penalty proceedings u/s 270A of the Act was initiated for under-reporting of income. Thereafter, the Ld. AO passed penalty order u/s 270A(8) of the Act vide penalty order dated 25.08.2025 and imposed the penalty of Rs.4,80,532/-.
4. Being aggrieved by the aforesaid penalty order supra, the assessee filed an appeal before Hon’ble Commissioner of Income Tax (Appeals), who dismissed the appeal vide order dated 05.02.2026.
5. Being aggrieved by the aforesaid appellate order dated 05.02.2026, the assessee is in appeal before us.
6. Before us, ld. Counsel for the assessee stated that this is the case of penalty under section 270A of the Act on account of capital gains computed by the Assessing Officer and the ld. CIT(A) has erred in fact and circumstances of the case that the notice of penalty under section 270A of the Act was issued for under reporting of income however penalty order under section 270A of the Act was passed for under reporting and misreporting of income which is not as per the law.
7. On the other hand ld. DR relied on the order of the AO and CIT(A).
8. We have heard the rival submissions and perused the material available on record. A careful perusal of the penalty order u/s 270A(8) shows that the AO has levied penalty solely on account of addition made in the assessment order of Rs. 13,12,997/- under Section 45 of the Income Tax Act, 1961. We find no discussion or mention of any reasons for levying of penalty u/s 270A(8). There is no whisper in the penalty order as to which clause of section 270A(9) of the Act is attracted to treat the addition as misreporting of income, 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 total income; and (f) failure to report any international transaction. The AO has simply invoked the provision of section 270(8) to levy penalty.
9. In such facts and circumstances, we follow the decision of the Hon’ble Delhi High Court in the case of Schneider Electric South East Asia (HQ) Pte. Ltd. ([2022] 443 ITR 186) which has held the penalty order arbitrary when limbs of section 270A(9) of the Act is not identified for levying penalty, as under:
7. This Court also finds that there is not even a whisper as to which limb of Section 270A of the Act is attracted and how the ingredient of sub-section (9) of Section 270A is satisfied. In the absence of such particulars, the mere reference to the word “misreporting” by the Respondents in the assessment order to deny immunity from imposition of penalty and prosecution makes the impugned order manifestly arbitrary.
In the instant case, there is no whisper as to how the addition, during the assessment proceedings, has manifested itself as ‘misreporting of income’, rendering the penalty order manifestly arbitrary. We are of the considered view therefore, the penalty order u/s 270A(8) is unsustainable in the eyes of law and accordingly, the same is directed to be deleted.
10. In the result, appeal filed by the assessee in ITA No.3565/Del/2026 is allowed.
Order pronounced in the open court on 02.09.2026.
