Case Law Details
Sree Tharakarama Constructions Vs ACIT (ITAT Hyderabad)
The Hyderabad ITAT deleted penalty of ₹11.03 lakh levied u/s 270A(9), holding that the case involved under-reporting and not misreporting of income. The Tribunal first condoned a 10-day delay considering the assessee’s serious health condition as a sufficient cause.
On merits, the assessee had not filed a return originally, but filed it later in response to notice u/s 148, declaring income which was accepted in toto by the AO without any additions. Despite this, the AO levied penalty treating the case as misreporting of income.
The ITAT held that mere non-filing of return followed by filing in response to reopening does not amount to misrepresentation or suppression of facts. Since the AO had not recorded any specific finding of misreporting, the case squarely falls under section 270A(2) (under-reporting) and not section 270A(9) (misreporting).
Accordingly, the Tribunal ruled that penalty for misreporting is unsustainable when returned income is accepted without variation, and directed deletion of the entire penalty
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal is filed by Sree Tharakarama Constructions (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals)-12, Hyderabad (“Ld. CIT(A)”) dated 27.06.2025 for the A.Y.2017-18.
2. At the outset, it is observed that there is a delay of 10 days in filing the present appeal before the Tribunal. The assessee has filed a petition for condonation of delay along with an affidavit explaining the reasons for such delay.
It has been stated that the assessee is a senior citizen aged about 74 years and was suffering from severe age-related health ailments. The assessee had undergone surgery for a gland exposed from the heart and during the relevant period he was under continuous medical treatment at Nalgonda. Due to his fragile health condition, he was not in a position to travel without the assistance of an attendant. In support of the said contention, the assessee has also filed a medical certificate issued by the treating doctor. Therefore, the Ld. AR submitted that the delay caused in the present appeal was beyond the control of the assessee. Accordingly, the Ld. AR prayed before the Bench to condone the delay and admit the appeal for adjudication on merit.
3. The Learned Departmental Representative (“Ld. DR”) did not raise any serious objection to the condonation of delay in filing the appeal.
4. We have carefully considered the rival submissions and perused the material available on record. The Ld. AR submitted that the delay of 10 days in filing the appeal occurred due to the serious health condition of the assessee, who, being a senior citizen, had undergone surgery and was under continuous medical treatment, and therefore was unable to attend to his tax matters in time. The Ld. AR further submitted that the delay was neither deliberate nor intentional and was caused due to circumstances beyond the control of the assessee. We have gone through the affidavit and the medical certificate placed on record and on perusal of the same, we find that the reasons explained for the delay constitute a reasonable and sufficient cause. Considering the totality of the facts and circumstances of the case, and in view of the settled legal position that matters should be decided on merits rather than on technicalities, we are satisfied that the assessee was prevented by sufficient cause from filing the appeal within the prescribed time. Accordingly, we condone the delay of 10 days in filing the appeal and admit the same for adjudication on merits.
5. The assessee has raised the following grounds of appeal:
“1. The Appellate order of the Hon’ble CIT (Appeals) -12, Hyderabad is bad and erroneous, both on facts and in law.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) has erred in sustaining the penalty order of the Assessing Officer issued u/s 270A of the IT Act, 1961, in a case where the Assessing Officer lacks jurisdiction even to issue notice u/s 148 of the Act and to make assessment order as such assumption of jurisdiction is contrary to the CBDT Instruction No. 1 of 2011. He ought to have considered the fact that lack of jurisdiction to initiate and assess will result in invalid proceedings and as such penalty u/s 270A of the Act is invalid.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) has erred in sustaining the penalty order of the Assessing Officer issued u/s 270A of the IT Act, 1961, in a case where there is neither underreporting of income nor there any misreporting of income in consequence of any misreporting thereof by the appellant. He ought to have considered the fact that the delay in filing income tax return by the Appellant is not covered by the provisions of section 270A (2) 0R (9) of the Act.
4. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) has erred in sustaining the penalty order of the Assessing Officer issued u/s 270A of the IT Act, 1961, in a case where the return filed by the Appellant in response to the notice u/s 148 was accepted in toto and without any adjustments to the total amount of income declared in the IT return. He ought to have considered the fact that the income declared in the return was accepted in the assessment in toto and coupled with the fact that the taxes and interest thereon is paid while filing the IT return and WHARE delay in filing do not result in understatement 0R misstatement.
5. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) has erred in sustaining the penalty order of the Assessing Officer issued u/s 270A of the IT Act, 1961, in a case where the amount of income declared in the IT return filed in response to notice u/s 148 of the Act is made on the basis of estimation by the Appellant and no material leading to concealment was found by the Income Tax Authorities during the survey operations. He ought to have considered that the income declared by the Appellant and accepted in toto on the basis of estimation made by the appellant do not lead to any underreporting of income 0R misreporting of income in terms of Section 270A of the Act.
6. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) has erred in sustaining the penalty order of the Assessing Officer issued u/s 270A of the IT Act, 1961, contending that misreporting of income envisaged u/s 270A (9) of the Act includes failure to file return despite having taxable income. He ought to have considered the fact that there is no failure to file the return of income by the Appellant and in fact the return is filed with some delay due to circumstances beyond the control of the Appellant and there is no intention to evade payment of taxes.
7. Such other ground 0R grounds of appeal that may be urged during the hearing of the appeal.
8. On the facts and in the circumstances of the case and in law, the Assessment Order as well as the Impugned Penalty Order are made by the Ld. Assessing Officer without jurisdiction and there is no proper order of transfer of jurisdiction u/s 127 of the Act and the levy of penalty of is made without jurisdiction.”
6. The brief facts of the case are that a survey was carried out at the premises of the assessee on 15.06.2016. During the course of survey proceedings, the assessee agreed to offer an income of Rs.20.20 lakhs against a sales turnover of Rs.127.39 lakhs for Assessment Year 2017–18. Subsequently, the Learned Assessing Officer (“Ld. AO”) observed that no return of income had been filed by the assessee for the said assessment year. Accordingly, the case of the assessee was reopened by the Ld. AO under section 147 of the Income Tax Act, 1961 (“the Act”) and notice under section 148 of the Act was issued on 30.03.2021. In response thereto, the assessee filed the return of income on 26.10.2021 declaring total income of Rs.17,86,200/-. The Ld. AO completed the assessment under section 143(3) r.w.s. 147 of the Act vide order dated 27.01.2022 by accepting the returned income. However, in the said assessment order, the Ld. AO initiated penalty proceedings under section 270A of the Act for under-reporting of income in consequence of misreporting. Thereafter, the Ld. AO levied penalty of Rs.11,03,872/- under section 270A(9) of the Act vide order dated 29.07.2022.
7. Aggrieved with the penalty order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT (A) confirmed the action of the Ld. AO.
8. Aggrieved with the order of the Ld. CIT (A), the assessee is in appeal before the Tribunal. The Ld. AR submitted that the only issue involved in the present appeal is with regard to levy of penalty of Rs.11,03,872/- under section 270A(9) of the Act. He further submitted that the objections raised by the assessee under the grounds of the appeal are manifold. With regards to the first objection of the assessee, the Ld. AR submitted that section 270A(9) of the Act deals with cases of under-reporting of income in consequence of misreporting. Inviting our attention to para no. 4 of the assessment order, the Ld. AR submitted that the Ld. AO had initiated penalty proceedings for under-reporting of income in consequence of misreporting and finally levied penalty also under section 270A(9) of the Act. The Ld. AR further submitted that the case of the assessee does not fall under any of the clauses specified in section 270A(9) of the Act. It was contended that the Ld. AO has accepted the returned income filed by the assessee in response to notice under section 148 of the Act. Therefore, when the returned income has been accepted in toto, there cannot be any allegation of misreporting of income. He further submitted that the Ld. AO has not pointed out in its’ assessment order any instances of misrepresentation or suppression of facts on the part of the assessee. It was further submitted that the provisions of section 270A(2) of the Act specifically deal with cases where the return of income is furnished for the first time under section 148 of the Act, and such cases fall within the ambit of “under-reporting” and not “misreporting”. Accordingly, it was prayed that the penalty levied under section 270A(9) of the Act be deleted.
9. Per contra, the Ld. DR submitted that a survey operation was conducted at the premises of the assessee, during which the assessee had admitted additional income of Rs.20.20 lakhs. However, despite such admission, the assessee did not voluntarily file any return of income under section 139 of the Act. It was submitted that the assessee filed the return of income only after the case was reopened under section 147 of the Act. Had the case not been reopened, the assessee would not have disclosed the income admitted during the survey proceedings. Therefore, according to the Ld. DR, the case of the assessee is clearly covered under clause (a) of section 270A(9) of the Act, being a case of misrepresentation or suppression of facts. Accordingly, the Ld. DR submitted that there is no infirmity in the order of the lower authorities in levying penalty under section 270A(9) of the Act.
10. We have carefully considered the rival submissions and perused the material available on record including the case laws relied upon. There is no dispute about the fact that a survey operation was conducted at the premises of the assessee on 15.06.2016, during which the assessee had admitted an income of Rs.20.20 lakhs. It is also an admitted position that the assessee did not file any return of income voluntarily under section 139 of the Act and filed the return of income for the first time only in response to notice issued under section 148 of the Act. In this regard, we have gone through the provisions of section 270A of the Act, which is to the following effect :
“Penalty for under-reporting and misreporting of income.
270A. (1) The Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the course of any proceedings under this Act, direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income.
(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;
(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 filed;
(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 has been furnished,—
(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 under reported 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 subsection (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.
(4) Subject to the provisions of sub-section (6), where the source of any receipt, deposit or investment in any assessment year is claimed to be an amount added to income or deducted while computing loss, as the case may be, in the assessment of such person in any year prior to the assessment year in which such receipt, deposit or investment appears (hereinafter referred to as “preceding year”) and no penalty was levied for such preceding year, then, the under reported income shall include such amount as is sufficient to cover such receipt, deposit or investment.
(5) The amount referred to in sub-section (4) shall be deemed to be amount of income under-reported for the preceding year in the following order—
(a) the preceding year immediately before the year in which the receipt, deposit or investment appears, being the first preceding year; and
(b) where the amount added or deducted in the first preceding year is not sufficient to cover the receipt, deposit or investment, the year immediately preceding the first preceding year and so on.
(6) The under-reported income, for the purposes of this section, shall not include the following, namely:
(a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered;
(b) the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom;
(c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or disallowance;
(d) the amount of under-reported income represented by any addition made in conformity with the arm’s length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X, and, disclosed all the material facts relating to the transaction; and
(e) the amount of undisclosed income referred to in section 271AAB.
(7) The penalty referred to in sub-section (1) shall be a sum equal to fifty per cent of the amount of tax payable on underreported income.
(8) Notwithstanding anything contained in sub-section (6) or sub-section (7), where under-reported income is in consequence of any misreporting thereof by any person, the penalty referred to in sub-section (1) shall be equal to two hundred per cent of the amount of tax payable on underreported income.
(9) The cases of misreporting of income referred to in subsection (8) shall be the following, 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 on total income; and
(f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.
(10) The tax payable in respect of the under-reported income shall be—
(a) where no return of income has been furnished and the income has been assessed for the first time, the amount of tax calculated on the under-reported income as increased by the maximum amount not chargeable to tax as if it were the total income;
(b) where the total income determined under clause (a) of subsection (1) of section 143 or assessed, reassessed or recomputed in a preceding order is a loss, the amount of tax calculated on the under-reported income as if it were the total income;
(c) in any other case, determined in accordance with the formula—
(X—Y)
where,
X = the amount of tax calculated on the under-reported income as increased by the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order as if it were the total income; and
Y = the amount of tax calculated on the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order.
(12) No addition or disallowance of an amount shall form the basis for imposition of penalty, if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year.
(13) The penalty referred to in sub-section (1) shall be imposed, by an order in writing, by the Assessing Officer, the Commissioner (Appeals), the Commissioner or the Principal Commissioner, as the case may be”
11. On perusal of the provisions of the Section 270A(2) of the Act, we find that it specifically deals with cases of under-reported income, including cases where no return has been furnished and income is subsequently assessed. We find that clause (b) of section 270A(2) of the Act squarely covers the case of the assessee, as the return of income has been furnished for the first time in response to notice under section 148 of the Act. We have also carefully examined the provisions of section 270A(9) of the Act, which deals with cases of misreporting of income. The reliance placed by the Revenue on clause (a) of section 270A(9) of the Act, in our considered opinion, is misplaced. Clause (a) of section 270A(9) of the Act is attracted only in cases involving misrepresentation or suppression of facts. In the present case, we have gone through the assessment order and find that the Ld. AO has accepted the returned income of the assessee in toto. There is no specific finding recorded by the Ld. AO in the assessment order to demonstrate that there was any misrepresentation or suppression of facts on the part of the assessee. Mere non-filing of return under section 139 of the Act, followed by filing of return in response to notice under section 148 of the Act, by itself does not constitute misreporting within the meaning of section 270A(9) of the Act. Therefore, in our considered view, the case of the assessee falls within the ambit of under-reporting of income as contemplated under section 270A(2) of the Act and not under misreporting as envisaged under section 270A(9) of the Act. Accordingly, we hold that the penalty levied under section 270A(9) of the Act in the case of the assessee is not sustainable. We, therefore, direct the Ld. AO to delete the penalty of Rs.11,03,872/- levied under section 270A(9) of the Act.
12. Since we have allowed the appeal of the assessee on the ground of non-application of section 270A(9) of the Act, we do not propose to adjudicate on the other objections raised by the assessee which are kept open.
13. In the result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 17th April, 2026.
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