ITAT Orders Recalculation of Section 270A Penalty Due to Wrong Under-Reported Income Computation

Arjun Green Power Private Limited Vs ACIT (ITAT Ahmedabad)

Summary: The ITAT Ahmedabad partly allowed the assessee’s appeal concerning penalty imposed under Section 270A of the Income Tax Act for A.Y. 2020-21. The assessee had claimed deduction under Section 80IA for a 5MW solar power plant, which was disallowed during processing of return under Section 143(1)(a) and later confirmed in assessment under Sections 144/144B. The Assessing Officer imposed a penalty of Rs.79.64 lakh at 200% of tax payable on alleged misreported income. Before the Tribunal, the assessee did not dispute the penalty on merits but challenged the computation of under-reported income. The Tribunal noted that under Sections 270A(2) and 270A(3), under-reported income must be computed as the difference between assessed income and income determined under Section 143(1)(a). Since the income determined under Section 143(1)(a) was already Rs.1.02 crore, the AO was incorrect in treating it as nil while computing penalty. The Tribunal directed the AO to recompute the under-reported income and penalty after allowing set-off of income already determined under Section 143(1)(a).

Issue: Whether penalty under section 270A for under-reporting/misreporting of income could be computed without giving credit for the income already determined under section 143(1)(a), and whether the assessed income alone could be treated as under-reported income.

Facts: The assessee claimed deduction under section 80IA in respect of a solar power plant while filing its return for AY 2020-21. During processing under section 143(1)(a), the deduction was disallowed and the income was determined at Rs. 1,02,94,250. Subsequently, in scrutiny assessment completed under section 144 read with section 144B, the same disallowance was reiterated and total income was assessed at Rs. 1,22,96,427. The AO initiated penalty proceedings under section 270A for misreporting of income and levied penalty at 200% of tax payable on alleged under-reported income amounting to Rs. 79,64,350, while incorrectly taking income determined under section 143(1)(a) at nil for purposes of computation.

AO and CIT(A) Findings: The AO held that the assessee had wrongly claimed deduction under section 80IA despite allegedly being ineligible and treated the same as a case of misreporting of income under section 270A(9). Penalty was accordingly levied at 200% of tax payable on under-reported income. The CIT(A) upheld the levy of penalty on merits while directing verification only regarding arithmetical mistakes in computation.

ITAT Findings: The Tribunal held that under sections 270A(2)(a) and 270A(3)(i)(a), in a case where income is assessed for the first time after processing under section 143(1)(a), under-reported income must necessarily be computed as the difference between the income assessed and the income already determined under section 143(1)(a). Since the intimation under section 143(1)(a) had already determined income at Rs. 1,02,94,250, the AO was not justified in treating such figure as nil while computing under-reported income in the assessment as well as in the penalty order. The Tribunal observed that the statutory mechanism specifically requires adjustment or set-off of income determined under section 143(1)(a) against the assessed income. Accordingly, while upholding the applicability of penalty proceedings on merits, the Tribunal directed the AO to recompute the under-reported/misreported income and consequential penalty after giving proper credit for income already determined under section 143(1)(a).

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This appeal is filed by the assessee against the order of National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘CIT(A)’] dated 05.03.2026 for the Assessment Year (A.Y.) 2020-21 in the proceeding u/s 270A of the Income Tax Act.

2. The brief facts of the case are that the assessee had filed its return of income for A.Y. 2020-21 on 15.02.2021 declaring total income of Rs.1,02,94,246/- before claiming deduction u/s. 80IA of the Act. The assessee had claimed deduction of Rs.1,22,96,427/- u/s. 80IA of the Act in respect of 5MW Solar Power Plant at village Bhadla in Jodhpur district of Rajasthan, which had commenced production in the month of May 2018. The return was processed u/s. 143(1)(a) of the Act and the deduction claimed u/s. 80IA of the Act was disallowed. Thereafter, the case was selected for complete scrutiny wherein the disallowance claimed u/s. 80IA was again denied and the assessment was completed u/s. 144 r.w.s. 144B of the Act on 22.09.2022 at total income of Rs. 1,22,96,427/-. The AO has initiated penalty proceeding u/s. 270A of the Act for misreporting of income. Thereafter, a separate penalty order u/s. 270A of the Act was passed on 20.03.2023 imposing penalty of Rs. 79,64,350/- at the rate of 200% of the tax payable on under-reported income.

3. Aggrieved with the penalty order, the assessee had filed an appeal before the first appellate authority which was decided by the learned CIT(A) vide the impugned order and the appeal of the assessee was partly allowed for verification of arithmetical mistake in computation while upholding the levy of penalty at the rate of 200%.

4. Now the assessee is in second appeal before us. The following grounds have been taken in this appeal:

1. That the Ld. CIT(A) erred in not cancelling penalty levied by AO invoking provision of section 270A r.w.s. 270A(9) of Act of Rs. 79,64,350/-.

2. That the Ld. CIT(A) erred in confirming penalty at the rate of 200% when alleged unreported income of Rs. 1,02,94,250/- was included in intimation u/s. 143(1) as prima-facie disallowance and no further addition was made in assessment framed u/s. 144 of Act.

3. That the Ld. CIT(A) erred in not determining underreported income at NIL in accordance with provisions of section 270A(3)(i)(a).

4. That the Ld. AO erred in not determining tax payable at NIL in respect of under reported income in accordance with formula prescribed u/s. 270A(10) of Act.

5. Shri Anil Khabya, the Ld. AR of the assessee submitted that the claim for deduction u/s. 80IA was disallowed while processing the return u/s. 143(1)(a) of the Act. Thus, the income as determined in the intimation u/s. 143(1)(a) of the Act was accepted by the AO while completing the assessment u/s. 144 of the Act. In essence, no addition was made in the assessment order as completed by the AO. The Ld. AR submitted that the AO had wrongly taken “income as computed u/s. 143(1)(a)” at Rs. Nil, while working out the penalty, whereas income as per intimation u/s. 143(1) was Rs.1,02,94,250/-. The Ld. AR has drawn our attention to provision of section 270A(3) of the Act, as per which the amount of underreported income is computed as the difference between the amount of income assessed and the amount of income determined u/s. 143(1)(a) of the Act. The Ld. AR submitted that the computation of penalty as worked out by the AO was not correct. According to the Ld. AR no penalty u/s. 270A of the Act could have been levied, since the adjustment for disallowance u/s. 80IA of the Act was made while processing the return u/s. 143(1)(a) of the Act.

6. Per contra, Shri Rajeev Garg the Ld. SR-DR, supported the order of the lower authorities. He submitted that this was a clear-cut case of misreporting of income as the assessee did not file any appeal against the disallowance of deduction claimed u/s. 80IA of the Act. According to the Ld. SR-DR, the assessee had wrongly claimed the deduction in this year fully aware of the fact that the production did not commence in this year and it was not eligible for any such deduction.

7. We have carefully considered the rival submissions. There is no dispute to the fact that the disallowance of deduction claimed u/s. 80IA of the Act was not contested by the assessee. The AO had initiated penalty proceeding u/s 270A of the Act for the reason that the assessee had wrongly claimed deduction u/s 80IA of the Act, in spite of the fact that the production did not commence in this year. The assessee has not disputed levy of penalty u/s 270A of the Act on the merits of the case. The only objection of the assessee is regarding the computation of under-reported/mis-reported income and levy of penalty thereon. As per provision of section 270A(8) of the act, the quantum of penalty in respect of mis-reporting of income is 200% of amount of tax payable on under­reported income. As regarding working out the under-reported income, the provision of section 270A(2) and (3) are relevant, which are reproduced below:

(2) A person shall be considered to have under-reported his income, if—

(a) the income assessed is greater than the income determined in the return processed under clause (a) of sub-section (1) of section 143;

(b) the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished or where return has been furnished for the first time under section 148;

(c) the income reassessed is greater than the income assessed or reassessed immediately before such reassessment;

(d) the amount of deemed total income assessed or reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income determined in the return processed under clause (a) of sub-section (1) of section 143;

(e) the amount of deemed total income assessed as per the provisions of section 115JB or section 115JC is greater than the maximum amount not chargeable to tax, where no return of income has been furnished or where return has been furnished for the first time under section 148;

(f) the amount of deemed total income reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income assessed or reassessed immediately before such reassessment;

(g) the income assessed or reassessed has the effect of reducing the loss or converting such loss into income.

(3) The amount of under-reported income shall be,—

(i) in a case where income has been assessed for the first time,—

(a) if return has been furnished, the difference between the amount of income assessed and the amount of income determined under clause (a) of sub-section (1) of section 143;

(b) in a case where no return of income has been furnished or where return has been furnished for the first time under section 148,—

(A) the amount of income assessed, in the case of a company, firm or local authority; and

(B) the difference between the amount of income assessed and the maximum amount not chargeable to tax, in a case not covered in item (A);

(ii) in any other case, the difference between the amount of income reassessed or recomputed and the amount of income assessed, reassessed or recomputed in a preceding order:

Provided that where under-reported income arises out of determination of deemed total income in accordance with the provisions of section 115JB or section 115JC, the amount of total under-reported income shall be determined in accordance with the following formula—

(A — B) + (C — D)

where,

A = the total income assessed as per the provisions other than the provisions contained in section 115JB or section 115JC (herein called general provisions);

B = the total income that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of under­reported income;

C = the total income assessed as per the provisions contained in section 115JB or section 115JC;

D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC been reduced by the amount of under-reported income:

Provided further that where the amount of under-reported income on any issue is considered both under the provisions contained in section 115JB or section  115JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D.

Explanation.—For the purposes of this section,—

(a) “preceding order” means an order immediately preceding the order during the course of which the penalty under sub-section (1) has been initiated;

(b) in a case where an assessment or reassessment has the effect of reducing the loss declared in the return or converting that loss into income, the amount of under-reported income shall be the difference between the loss claimed and the income or loss, as the case may be, assessed or reassessed.

8. As per clause (a) of section 270A(2) of the Act, a person is considered to have under-reported his income if the income assessed is greater than the income determined in the return processed u/s. 143(1)(a) of the Act. Similarly, the provision of section 270A(3) stipulates that the under-reported income shall be the difference between the amount of income assessed and the amount of income determined u/s. 143(1)(a) of the Act. Thus, the amount of under-reported income in the present case was to be determined on the basis of income as assessed u/s. 144 r.w.s. 144B of the Act dated 22.09.2022 (Rs. 1,22,96,427/-) and the income determined u/s. 143(1)(a) of the Act (Rs. 1,02,94,250/-). There is no dispute to the fact that the income determined as per the intimation u/s. 143(1)(a) of the Act dated 23/12/2021 was Rs.1,02,94,250/-. Therefore, the AO was not correct in taking the total income as determined u/s. 143(1)(a) of the Act at Rs. Nil, in the assessment as well in the penalty order. The mechanism of working out the under-reported income clearly stipulates that the income determined u/s. 143(1)(a) has to be reduced from the assessed income. Accordingly, the AO is directed to re-compute the amount of under-reported/mis-reported income by allowing set-off of the income determined u/s. 143(1)(a) of the Act with the assessed income and thereafter re-compute the penalty imposable u/s. 270A of the Act.

9. In the result, the appeal of the assessee is partly allowed for statistical purpose.

Order pronounced in the Court on 20/05/2026 at Ahmedabad.