Tasneem Feroz Nalwalla Vs ITO (ITAT Mumbai)
Summary: The Mumbai Bench of the Income Tax Appellate Tribunal partly allowed the assessee’s appeal concerning penalty under section 270A of the Income-tax Act, 1961 for Assessment Year 2020-21. The assessee had filed her return under section 139(1), declaring total income of ₹43,796. Information received through the Insight Portal showed interest income of ₹14,46,321, whereas interest income of ₹14,02,525 had not been offered to tax. Reassessment proceedings followed, and after third-party verification from ICICI Bank, ICICI Securities and Kotak Mahindra Bank under section 133(6), the Assessing Officer added ₹14,02,525 as income from other sources and assessed total income at ₹14,46,321.
Penalty proceedings were initiated on the footing that the under-reported income was in consequence of misreporting. The Assessing Officer levied penalty of ₹4,85,178 at 200% of the tax payable, and the CIT(A) confirmed the penalty by treating the omission as misreporting under section 270A(8) read with section 270A(9). Before the Tribunal, the assessee did not dispute that the interest income had remained unoffered but contended that the omission resulted from the manner in which her tax affairs were handled by her accountant. She was a Non-Resident residing outside India, had limited technological knowledge and stated that she remained unaware of electronic notices. After becoming aware of the liability, she paid tax of ₹2,42,589 and interest of ₹3,06,821, aggregating to ₹5,49,410, on 23.01.2025. The Tribunal held that section 270A draws a clear distinction between ordinary under-reporting, attracting penalty at 50%, and under-reporting in consequence of misreporting, attracting penalty at 200%.
Every difference between returned and assessed income cannot automatically constitute misreporting; the factual ingredients contemplated under section 270A(9) must be established before the substantially higher penalty can be imposed. The Tribunal held that entrusting tax matters to an accountant or being a Non-Resident did not absolve the assessee from correctly reporting taxable income, and subsequent payment did not erase the original under-reporting. Nevertheless, these were relevant surrounding circumstances when deciding whether the enhanced 200% penalty was warranted. The assessee’s failure to respond to electronic notices, in the peculiar circumstances, was also held insufficient by itself to establish deliberate misreporting. Relying on the principle in Nateshan Sampath v. DCIT that penalty cannot be routinely imposed merely because an addition has been made and that the Revenue must establish the particular statutory limb, the Tribunal concluded that the material was insufficient to sustain the finding of misreporting. It therefore upheld penalty for under-reporting but directed the Assessing Officer to restrict it to 50% of the tax payable under section 270A(7) and recompute the penalty. The separate ground alleging denial of opportunity was dismissed because the record showed that several statutory notices and show-cause notices had been issued; failure to avail those opportunities could not be equated with denial of opportunity. The appeal was consequently partly allowed.
Cases Discussed
- Nateshan Sampath v. DCIT, ITA No. 1779/Bang/2024, order dated 22.01.2025 — relied upon for the principle that penalty cannot be imposed routinely merely because an addition has been made and that the Revenue must establish the particular statutory limb under which the case falls.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is filed by the Assessee against the order of Ld. NFAC vide DIN: ITBA/NFAC/S/250/2025-26/1083937565(1) dated 22-Dec-2025 for the Assessment Year 2020-21. The Assessee has raised the following grounds of appeal:
1. You are Honor I do not agree to order passed by NFAC for imposing penalty under section 270A.
2. You are Honor I do not agree with 200% penalty demand raised on the basis of under-reported consequence of misreporting income amounting to Rs. 4,85,178/-.
3. Your Honor the assesse Mrs. Tasneem Firoz Nalwalla is a 57yrs old lady with close to No Technological know-how, and was a Non-Resident up until 01/04/2025 and had entrusted an accountant with all her Income tax related compliance hence she was not made aware off the notices issued. She was only informed about the additional tax liability generating of Rs. 242589/- plus Interest amounting to Rs. 306821/- being total of Rs. 549410/- for A.Y 2020-21 which was paid by the assesse on 23.01.2025, as the said Tax plus Interest liability had risen out due to the accountant’s mistake.
4. Your Honor here we would implore that Mrs. Tasneem Firoz Nalwalla has never intentionally under reported her income, she has been an ideal citizen of India living abroad who has tried to uphold her responsibility and filed all her Income Tax returns on time and with utmost diligence. We understand there has been a mistake and said was rectified by paying the tax liability with appropriate Interest.
5. Your Honor I do not agree with the Penalty levied of 200%. As the rule for Penalty under section 270A raised on the basis of under-reported as to be charged at 50% of the Tax liability that shall amount to Rs. 121295/- rather than misreporting as deemed by the AO by levying penalty of 200%.
6. Your honor I would like to rely on the judgment of ITA No.1779/Bang/2024 of Mr. Nateshan Sampath, Bangalore, where the judgment was passed by the opinion that penalty is not at par with the tax and interest and therefore, penalty should not be levied in a light hearted manner or in routine manner and not every additions/disallowances are liable for penalty. The primary onus is on the revenue to prove that assessee falls under particular limb of default.
7. Penalty calculated by the A.O. is prejudicial and unreasonable, and if appeal is not allowed to be proceeded it amounting to against the law.
8. During the assessment proceedings with the learned assessing officer opportunity of being heard was not given.
9. I have valid reason behind filed appeal within the time.
10. I am genuine in the eye of law and have taken all reasonable steps produce the parties.
11. Grounds of appeal will be alterable (assumptions will be add or delete in future).
2. The brief facts of the case are that the assessee, Smt. Tasneem Feroz Nalwalla, is an individual who filed her return of income for Assessment Year 2020-21 under section 139(1) of the Income-tax Act, 1961 (“the Act”), declaring total income of ₹43,796/-. The Assessing Officer received information through the Insight Portal that the assessee had received interest income amounting to ₹14,46,321/-, whereas the assessee had not offered interest income of ₹14,02,525/- to tax in her return of income. On the basis of this information, the Assessing Officer formed a view that income chargeable to tax had escaped assessment and initiated reassessment proceedings.
3. During the reassessment proceedings, the Assessing Officer issued various notices to the assessee. According to the Assessing Officer, the assessee did not comply with these notices and did not furnish any explanation regarding the interest income which she had not disclosed in the return. The Assessing Officer thereafter issued notices under section 133(6) of the Act to ICICI Bank, ICICI Securities and Kotak Mahindra Bank for independent verification of the information. After considering the information received from the third parties, the Assessing Officer held that the assessee had received interest income which she had not fully disclosed in the return. Since the assessee did not participate in the reassessment proceedings or explain the difference, the Assessing Officer added ₹14,02,525/- as income from other sources. Accordingly, as against the returned income of ₹43,796/-, the Assessing Officer assessed the total income at ₹14,46,321/- and initiated penalty proceedings under section 270A on the ground that the assessee had under-reported income in consequence of misreporting.
4. During the penalty proceedings, the Assessing Officer considered the replies furnished by the assessee but held that the assessee had not produced any material which could negate the finding regarding under-reporting of income in consequence of misreporting. The Assessing Officer observed that there was a clear difference between the income disclosed by the assessee in her return and the interest receipts established from third-party information. The Assessing Officer therefore treated the case as one of misreporting and levied penalty under section 270A at 200% of the tax payable on the under-reported income, amounting to ₹4,85,178/-.
5. Aggrieved by the penalty order, the assessee preferred an appeal before the learned CIT(A). The learned CIT(A) examined whether the omission of interest income constituted ordinary under-reporting attracting penalty at 50% or under-reporting in consequence of misreporting attracting penalty at 200%. The learned CIT(A) observed that the assessee had completely omitted interest income of ₹14,02,525/- from the return and that the Department detected the omitted income through third-party information. The learned CIT(A) further observed that the assessee did not voluntarily disclose the omitted income before its detection and that the assessee did not furnish an explanation or documentary evidence during the reassessment proceedings despite the Assessing Officer issuing several notices.
6. The learned CIT(A) further examined section 270A(9) and held that the omission fell within the statutory meaning of misreporting since the assessee had failed to report a receipt having a bearing on her total income. The learned CIT(A) also rejected the assessee’s contention regarding denial of opportunity after observing that the Assessing Officer had issued several statutory notices and show-cause notices. The learned CIT(A), therefore, upheld the action of the Assessing Officer in invoking section 270A(8) read with section 270A(9) and confirmed the penalty of ₹4,85,178/- levied at 200% of the tax payable on the under-reported income.
7. The assessee is in appeal before us against the order passed by the learned CIT(A).
8. Before us, the learned Counsel for the assessee submitted that the assessee does not dispute that the interest income remained to be offered to tax but strongly objected to the action of the Assessing Officer in treating the omission as “misreporting” and levying penalty at the higher rate of 200%. The learned Counsel submitted that the assessee was a Non-Resident during the relevant period and continued to remain a Non-Resident up to 01.04.2025. She was living outside India and had entrusted her income-tax compliance to an accountant. The learned Counsel submitted that the assessee was about 57 years of age and had very limited technological knowledge and, therefore, remained unaware of the electronic notices issued by the Department. According to the learned Counsel, the omission occurred because of the mistake of the accountant and there was no deliberate intention on the part of the assessee to conceal or misreport her income.
9. The learned Counsel further submitted that when the assessee became aware of the additional liability, she paid tax of ₹2,42,589/- together with interest of ₹3,06,821/-, aggregating to ₹5,49,410/-, on 23.01.2025. He submitted that the assessee accepted the tax consequence of the omission and discharged the tax together with applicable interest. The learned Counsel accordingly submitted that, at the highest, the case could be regarded as one of under-reporting attracting penalty at 50% under section 270A(7) and not as a case of misreporting attracting penalty at 200% under section 270A(8).
10. The learned Counsel also relied upon the decision of the Bangalore Bench of the Tribunal in Nateshan Sampath v. DCIT, ITA No. 1779/Bang/2024, order dated 22.01.2025. He submitted that penalty proceedings stand on a different footing from assessment proceedings and that the Assessing Officer cannot levy penalty mechanically merely because he has made an addition. According to the learned Counsel, the Revenue must establish that the facts of the case fall within the particular statutory limb of misreporting before it can levy penalty at 200%. He therefore prayed that the penalty may be restricted to 50% of the tax payable on the under-reported income.
11. The learned Departmental Representative, on the other hand, supported the orders of the authorities below. He submitted that the assessee had not disclosed substantial interest income in the original return and that the Department detected the omission from information available with it and subsequently verified the same through independent third-party enquiries. He further submitted that despite several opportunities during the reassessment proceedings, the assessee did not furnish any explanation regarding the omitted interest income. He therefore submitted that the Assessing Officer had correctly treated the case as one of misreporting and levied penalty at 200%.
12. We have heard the rival submissions and perused the material available on record. The issue for our consideration is whether the omission of interest income of ₹14,02,525/- by the assessee should be treated as under-reporting simpliciter attracting penalty at 50% under section 270A(7), or as under-reporting in consequence of misreporting attracting penalty at 200% under section 270A(8) read with section 270A(9).
13. Section 270A makes a clear distinction between under-reporting of income and under-reporting of income in consequence of misreporting. Section 270A(7) provides that the penalty payable in respect of under-reported income shall be a sum equal to 50% of the amount of tax payable on such under-reported income. Section 270A(8), on the other hand, enhances the penalty to 200% where the under-reported income is in consequence of misreporting. Section 270A(9) specifies the circumstances which constitute misreporting. Therefore, every case where the assessed income exceeds the returned income cannot automatically be treated as a case of misreporting. Before levying the substantially higher penalty of 200%, the facts must justify the conclusion that the under-reporting falls within the specific circumstances contemplated under section 270A(9).
14. In the present case, there is no dispute that the assessee did not offer interest income of ₹14,02,525/- to tax in her return. The Assessing Officer detected the difference from information available with the Department and thereafter verified the interest receipts through enquiries made under section 133(6). Thus, the difference between the returned income and the assessed income clearly results in under-reporting of income. The limited question, however, is whether the facts are sufficient to impose the more stringent penalty applicable to “misreporting”.
15. In this regard, we find it necessary to consider the explanation furnished by the assessee in its entirety. The assessee was a Non-Resident during the relevant period and was residing outside India. She had entrusted her income-tax matters to an accountant. The assessee has explained that she had limited technological knowledge and remained unaware of the electronic notices issued by the Department. She has attributed the omission of the interest income and the non-compliance with the notices to the manner in which her tax affairs were being handled by the accountant. The assessee has further stated that she never intended to under-report her income. These circumstances, in our view, cannot altogether be ignored while determining whether the omission constituted ordinary under-reporting or the more serious default of misreporting contemplated under section 270A(9).
16. We are conscious that entrusting income-tax matters to an accountant does not absolve an assessee from the responsibility of correctly reporting taxable income. Similarly, the assessee’s status as a Non-Resident, by itself, cannot provide immunity from the consequences prescribed under the Act. However, these circumstances assume relevance while examining the nature and surrounding circumstances of the default and, particularly, whether the material on record warrants the enhanced penalty of 200%. Penalty at 200% represents a materially more stringent consequence and, therefore, the Revenue must establish the factual ingredients necessary to bring the case within the specific category of misreporting contemplated under section 270A(9).
17. We also take note of the subsequent conduct of the assessee. After becoming aware of the liability, the assessee paid tax of ₹2,42,589/- together with interest of ₹3,06,821/-, aggregating to ₹5,49,410/-, on 23.01.2025. We agree that subsequent payment of tax and interest does not erase the original under-reporting and cannot, by itself, provide immunity from penalty. Nevertheless, such payment is a relevant surrounding circumstance while examining whether the facts warrant the enhanced penalty applicable to misreporting.
18. We have also considered the fact that the assessee did not respond to the notices issued during the reassessment proceedings and that the Assessing Officer had to obtain information independently from the banks and other third parties. The record shows that the Assessing Officer issued notices under section 142(1) dated 30.09.2024 and 17.10.2024 and thereafter issued show-cause notices, which remained unanswered. However, the assessee has explained that she was residing outside India as a Non-Resident, had entrusted her tax compliance to an accountant and had limited technological knowledge. In our considered view, non-compliance with electronic notices in these peculiar circumstances, though relevant, cannot by itself establish that the original omission of interest income represented deliberate misreporting warranting penalty at 200%.
19. The assessee has relied upon the decision of the Bangalore Bench of the Tribunal in Nateshan Sampath v. DCIT, ITA No. 1779/Bang/2024, order dated 22.01.2025. In that case, the Tribunal emphasised that penalty cannot be imposed routinely merely because an addition has been made and that the Revenue must establish the particular statutory limb under which the case falls. We find the principle relevant to the present controversy to the limited extent that the higher penalty prescribed for misreporting cannot follow automatically from every instance of under-reporting. The Assessing Officer must independently establish the necessary factual foundation for invoking the more stringent provisions of section 270A(8) read with section 270A(9).
20. Considering the totality of the facts and circumstances, we are of the view that the assessee’s failure to offer the interest income constitutes under-reporting of income and the assessee cannot escape the consequences prescribed under section 270A merely because she had entrusted her tax affairs to an accountant. At the same time, having regard to the fact that the assessee was a Non-Resident residing outside India during the relevant period, had entrusted her income-tax compliance to an accountant, had limited technological knowledge and subsequently discharged the entire tax liability together with applicable interest after becoming aware of the same, we are not persuaded that the material on record is sufficient to sustain the more stringent finding of misreporting attracting penalty at 200%.
21. In our considered view, the facts are more appropriately covered by the provisions relating to under-reporting of income under section 270A(7). The distinction drawn by the Legislature between penalty at 50% for under-reporting and penalty at 200% for under-reporting in consequence of misreporting must be given due effect. The higher rate cannot be applied merely because the Department detected the omitted income or because the assessee did not respond to notices, unless the facts sufficiently establish the statutory ingredients of misreporting under section 270A(9).
22. Accordingly, while we uphold the levy of penalty under section 270A on account of under-reporting of income, we are unable to sustain the penalty at the rate of 200% by treating the case as one of under-reporting in consequence of misreporting. We therefore modify the order of the learned CIT(A) and direct the Assessing Officer to restrict the penalty to 50% of the tax payable on the under-reported income in terms of section 270A(7) and recompute the penalty accordingly. The grounds raised by the assessee are, therefore, partly allowed.
23. Insofar as the assessee’s ground alleging denial of opportunity during the assessment proceedings is concerned, the record shows that the Assessing Officer issued notice under section 148 on 28.03.2024, notices under section 142(1) dated 30.09.2024 and 17.10.2024, show-cause notice dated 10.12.2024, further communication dated 23.12.2024 and final show-cause notice dated 02.01.2025. The assessee did not respond to these notices. The Assessing Officer also granted opportunities during the penalty proceedings and the assessee furnished replies therein. Therefore, we find no merit in the contention that the Assessing Officer did not provide opportunity of hearing. Failure on the part of the assessee to avail herself of the opportunities granted cannot be equated with denial of opportunity. Accordingly, this ground is dismissed.
24. The remaining grounds are either general or consequential in nature and require no separate adjudication.
25. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 2008.2026.
