No Penalty When Quantum Deleted: 270A Cannot Survive Without Addition

Rahul Saunik Vs ITO (ITAT Mumbai)

The assessee was subjected to penalty under Section 270A for alleged under-reporting of income, based on an addition of ₹62.09 lakh made in reassessment proceedings. However, in quantum appeal, the CIT(A) deleted the entire addition, holding that salary income was already disclosed and subjected to TDS, and property payment was not income.

The ITAT held that penalty proceedings are purely consequential and cannot survive once the underlying addition is deleted. Since the assessed income after appellate relief matched the returned income, the basic condition of “under-reporting” under Section 270A failed.

The Tribunal also noted that the income was already within the department’s knowledge through Form 26AS and TDS records, negating any allegation of concealment.

Accordingly, the penalty of ₹8.69 lakh was deleted, and the assessee’s appeal was allowed.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The present appeal is directed against the order passed by the Learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] dated 06.11.2025 under section 250 of the Income-tax Act, 1961[hereinafter referred to as “the Act”], arising out of the penalty order passed under section 270A of the Act dated 22.09.2022 for the Assessment Year 2017–18.The penalty proceedings emanate from the assessment order passed by the Assessing Officer under section 147 read with section 144 and section 144B of the Act dated 29.03.2022.

Facts of the Case

2. The assessee is an individual. For the year under consideration, the case of the assessee was reopened by issuance of notice under section 148 dated 23.03.2021 on the basis of information available in the Individual Transaction Statement (ITS) under the AIMS module.

3. The Assessing Officer observed that the assessee had not filed the return of income for the relevant assessment year. As per the information available with the Assessing Officer, the assessee had received salary amounting to Rs. 60,00,788/-and also had made payment towards purchase of immovable property amounting to Rs. Rs. 2,08,700/-. Accordingly, it was concluded that income chargeable to tax had escaped assessment within the meaning of section 147 of the Act. During the course of reassessment proceedings, notices under section 142(1) were issued on various dates. However, according to the Assessing Officer, the assessee failed to furnish requisite details or substantiate the claim of having filed return of income. In absence of any explanation, the Assessing Officer treated the entire receipts of Rs. 62,09,488/- as income from other sources. The assessment was thus completed under section 144 r.w.s. 147 r.w.s. 144B determining total income at Rs. 62,09,488/-, and penalty proceedings under section 270A were initiated for under­reporting of income.

4. Subsequently, the Assessing Officer passed an order under section 270A dated 22.09.2022, levying penalty of Rs. 8,69,241/-, being 50% of the tax payable on the alleged under-reported income. The Assessing Officer recorded that the assessee had not filed return of income within the prescribed time and the return filed in response to notice under section 148 was either not verifiable or not supported by details. He also recorded that the assessee failed to respond to penalty notices. Accordingly, it was held that the assessee had under-reported income within the meaning of section 270A(2) and was liable for penalty.

5. Before the Learned CIT(A), the assessee submitted that he is a salaried individual and income was already subjected to TDS by employer. He further submitted that return of income was filed in response to notice under section 148, declaring total income of approximately Rs. 54,69,890/- and taxes were duly discharged through TDS and self-assessment tax and due to lack of awareness and technical difficulties, the he could not properly respond to notices issued during assessment and penalty proceedings. The assessee also submitted that the department already had access to salary income through TDS records and thus there was no concealment or under-reporting.

6. The CIT(A) held that the assessee had not filed return under section 139(1) and filed return only after initiation of reassessment proceedings. He also held that the income was detected by the department through ITS/TDS data and would have escaped assessment but for reopening. He also noted that as per section 270A(2)(b), under-reporting is attracted where income assessed exceeds the maximum amount not chargeable to tax in cases where no return is filed and since the assessee failed to demonstrate that the case falls within exceptions provided under section 270A(6) or to claim immunity under section 270AA, the CIT(A) upheld the penalty.

7. Aggrieved by the order of CIT(A), the assessee is in appeal before us raising following grounds of appeal:

1. That the Learned Commissioner of Income-tax (Appeals) erred in law and on facts in upholding the penalty levied under section 270A of the Act, without appreciating that the very quantum assessment order on which the penalty was founded had already been set aside / deleted by the Learned CIT(A) in the quantum proceedings, thereby rendering the penalty proceedings infructuous and unsustainable. Penalty cannot survive once the assessment itself is set aside.

2. That the Learned CIT(A) failed to appreciate that once the quantum addition itself does not survive, the penalty levied under section 270A, which is purely consequential in nature, cannot independently survive, and is liable to be deleted in toto.

3. That the impugned appellate order is bad in law inasmuch as the Learned CIT(A) dismissed the penalty appeal despite being specifically informed during appellate proceedings that the quantum demand had already been deleted by the CIT(A) in appeal, thereby ignoring a vital and determinative fact on record.

4. That the Learned CIT(A) erred in mechanically upholding the penalty by relying upon section 270A(2), without appreciating that the condition precedent for “under-reporting of income” ceases to exist once the assessed income itself is deleted in appellate proceedings.

5. That the appellant craves leave to add, alter, amend or withdraw any of the above grounds of appeal at or before the time of hearing.

8. During the course of hearing before us, the Learned Authorised Representative of the assessee reiterated the submissions made before the lower authorities and the learned CIT(A) in the quantum proceedings has deleted the entire addition and accepted the returned income, and therefore, the penalty being purely consequential in nature cannot survive independently. It was further submitted that the assessee had already disclosed his income by filing the return of income in response to notice under section 148, wherein income under the head salary and other sources was duly declared and taxes thereon had already been deducted at source by the employer and reflected in Form 26AS. It was contended that the Assessing Officer has ignored the return so filed and mechanically added the entire ITS figure of Rs. 62,09,488/-.

9. The Learned AR invited our attention to the details in form 26AS to submit that the same comprised of salary income of Rs. 60,00,788/- and payment towards purchase of immovable property amounting to Rs. 2,08,700/-, which is not income but merely an application of funds. It was thus contended that the addition itself was factually incorrect. It was further submitted that there is no under-reporting of income within the meaning of section 270A(2) of the Act. According to the Learned AR, under­reporting arises only when assessed income exceeds returned income, whereas in the present case, once the relief granted by the Learned CIT(A) in quantum proceedings is considered, the assessed income is at par with the returned income and therefore the very condition precedent for invoking section 270A fails. Accordingly, the Learned AR prayed that the penalty of Rs. 8,69,241/- levied under section 270A of the Act be deleted.

10. Per contra, the Learned Departmental Representative strongly relied upon the orders of the Assessing Officer and the Learned CIT(A).The Learned DR contended that the Assessing Officer had rightly invoked the provisions of section 270A of the Act, as the assessed income was higher than the income originally declared or processed, thereby attracting the provisions relating to under-reporting of income.

11. We have carefully considered the rival submissions, perused the orders of the lower authorities and the material placed on record, including the written submissions filed by the assessee and the order passed by the Learned CIT(A) in the quantum proceedings.

12. At the outset, it is pertinent to note that the penalty under section 270A of the Act has been levied with reference to the addition of Rs. 62,09,488/- made by the Assessing Officer in the reassessment proceedings under section 147 r.w.s. 144 r.w.s. 144B of the Act. However, from the material placed before us, particularly the order of the Learned CIT(A) in the quantum appeal dated 12.09.2025, it emerges that the very addition forming the basis of penalty has been deleted in entirety. On perusal of the relevant portion of the appellate order, it is evident that the Learned CIT(A) has recorded categorical findings as under:

i. The assessee had filed return of income in response to notice under section 148, declaring total income of Rs. 54,69,890/- (and subsequently Rs. 56,79,885/- after proper computation), which included salary income and other income duly supported by Form 16 and Form 26AS.

ii. The Assessing Officer, despite having access to ITS and TDS data, ignored the return filed by the assessee and treated the same as non-est without proper justification.

iii. The addition of Rs. 60,00,788/- representing salary income was held to be erroneous, as the same was already disclosed and subjected to TDS. The Learned CIT(A) has specifically directed deletion of this addition, observing that there was no element of undisclosed income.

iv. With regard to the amount of Rs. 2,08,700/-, it was held that the same represented payment towards purchase of property and not income. Accordingly, the addition under the head “income from other sources” was also deleted.

v. The Learned CIT(A) further directed the Assessing Officer to consider the return filed by the assessee in response to notice under section 148 and allow due credit of TDS amounting to Rs. 15,05,804/-.

Thus, the Learned CIT(A), after detailed examination of the facts and evidences, has deleted the entire addition made by the Assessing Officer and allowed the quantum appeal of the assessee.

13. In light of the above factual position, the core issue which arises for our consideration is whether penalty under section 270A can survive when the very addition on the basis of which such penalty has been levied no longer exists.

14. It is a settled proposition of law that penalty proceedings are consequential in nature and cannot survive independently when the quantum addition itself is deleted. Once the foundation of the penalty is removed, the superstructure built thereon must necessarily fall. In the present case, the addition of Rs. 62,09,488/- has been deleted by the Learned CIT(A) in quantum proceedings after examining the return of income, TDS records and Form 26AS. The findings recorded by the Learned CIT(A) clearly establish that the income was already disclosed by the assessee, the major component of income was salary duly subjected to TDS, the addition was made merely on account of non-consideration of available records by the Assessing Officer and there was no unexplained or undisclosed income warranting addition. In such circumstances, the very basis for invoking section 270A, namely “under-reporting of income”, ceases to exist.

15. Section 270A(2) contemplates under-reporting of income where the income assessed exceeds the income determined in the return. However, once the returned income is accepted and the assessed income stands reduced to the returned income, the condition precedent for invoking section 270A fails. In the present case, after the relief granted by the Learned CIT(A), the assessed income stands aligned with the returned income. Therefore, there remains no under-reporting within the meaning of section 270A(2) of the Act. Further, the facts on record demonstrate that the income in question was already within the knowledge of the department through ITS and TDS mechanism. The taxes were duly deducted at source by the employer and reflected in Form 26AS. Thus, even on facts, there is no case of concealment or misreporting. When the addition itself is found to be unsustainable on account of non-consideration of relevant material, the consequential penalty cannot be sustained.

16. Accordingly, the penalty of Rs. 8,69,241/- levied under section 270A of the Act is hereby deleted.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 17.04.2026.