Case Law Details
Sonal Jain Vs ITO (ITAT Agra)
Summary: The ITAT Agra allowed the assessee’s appeal and deleted the penalty imposed under Section 270A of the Income-tax Act for Assessment Year 2017-18. The case arose from a difference between turnover reported in the VAT return and the audit report, which the assessee attributed to an incorrect audit report filed by the professional. The Assessing Officer estimated income at 8% of the short-declared turnover, accepted the revised turnover, and imposed a penalty at 200% of the tax payable for alleged misreporting of income. The Tribunal held that Section 270A distinguishes between under-reporting and misreporting, requiring the Assessing Officer to identify the specific default before levying penalty. It found that the addition was based purely on estimation without rejection of the books of account and that the penalty order did not specify which circumstance of misreporting under Section 270A(9) was applicable. Accordingly, the Tribunal held the penalty unsustainable and directed its deletion.
The Tribunal examined whether penalty under section 270A could be sustained where the underlying addition arose from an estimated profit rate applied to turnover differences and where the Assessing Officer had failed to clearly specify whether the penalty was for “under-reporting” of income or “misreporting” of income.
The assessee’s return had been selected for limited scrutiny. During assessment proceedings, a difference of ₹69.64 lakh was noticed between turnover disclosed in the VAT returns and turnover reflected in the tax audit report. The assessee explained that the discrepancy arose due to an incorrect audit report filed by the tax professional and accepted the turnover difference when pointed out. The Assessing Officer did not bring the entire turnover difference to tax but estimated profit thereon at 8%, resulting in an addition of ₹5.57 lakh. The assessee accepted the addition and paid the corresponding tax.
Subsequently, the Assessing Officer initiated penalty proceedings under section 270A and levied penalty at 200% of tax allegedly payable on under-reported income, treating the case as one involving misreporting of income under section 270A(9)(a). The first appellate authority dismissed the appeal as infructuous on the ground that the assessee had filed Form-1 under the Direct Tax Vivad Se Vishwas Scheme, 2024.
Before the Tribunal, the assessee contended that the addition itself was based purely on estimation and that penalty under section 270A could not be levied on estimated income. It was also argued that neither the notice nor the penalty order clearly specified whether the alleged default was “under-reporting” or “misreporting” of income, thereby vitiating the entire penalty proceeding.
The Tribunal observed that section 270A creates two distinct categories of defaults. Under-reporting of income under subsections (1) to (7) attracts penalty at 50% (earlier references in the order discuss differential consequences), whereas under-reporting resulting from misreporting under subsections (8) and (9) attracts a substantially higher penalty. Since these are separate statutory defaults carrying different consequences, the Assessing Officer must clearly identify and communicate the precise charge before imposing penalty.
The Tribunal found that the Assessing Officer himself appeared uncertain about the nature of the default. The penalty order failed to clearly establish whether the assessee was guilty of simple under-reporting or of misreporting. Such ambiguity in penal proceedings was held to be fatal.
The Tribunal further noted that the addition was not based on any finding of concealed income but merely on estimation of profit at 8% of the turnover difference. Significantly, the Assessing Officer had not rejected the books of account and had otherwise accepted the assessee’s records. Therefore, the addition rested only on an estimated basis. The Tribunal held that an estimated addition, without more, cannot provide a valid foundation for levy of penalty under section 270A.
The Bench also examined the provisions of section 270A(9), which specifically enumerate six situations constituting “misreporting of income”, namely: misrepresentation or suppression of facts, failure to record investments, unsubstantiated expenditure claims, false entries in books, omission of receipts from books, and failure to report international or specified domestic transactions. The Tribunal observed that the Assessing Officer had not identified which of these statutory situations existed in the assessee’s case. In the absence of such a finding, penalty for misreporting could not legally survive.
The Tribunal relied upon the principles emerging from the decisions in Prem Brothers Infrastructure LLP v. NFAC, Schneider Electric South East Asia (HQ) Pte Ltd. v. ACIT and Tasavver Husain v. ACIT to conclude that penalty proceedings require clear specification of the exact charge and that penalty cannot be sustained merely because an addition has been made on an estimated basis.
Accordingly, the Tribunal held that the penalty levied under section 270A was unsustainable in law. Since the addition was based on estimation and the Assessing Officer had failed to establish any specific statutory instance of misreporting or even clearly identify the precise default alleged, the penalty was directed to be deleted.
Ratio: Penalty under section 270A cannot be sustained merely because income has been assessed on an estimated basis. The Assessing Officer must clearly specify whether the charge is under-reporting or misreporting of income and, in cases of misreporting, must establish the existence of one of the specific circumstances enumerated in section 270A(9). Failure to do so renders the penalty invalid.
FULL TEXT OF THE ORDER OF ITAT AGRA
1. This appeal is filed by the assessee against the order of the Ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as `1d. CIT(A)] dated 29.10.2025 for the Assessment Year 2017-18 raising following grounds of appeal :-
“1) That the National Faceless Appeal Centre (NFAC), Delhi has erred in law and on facts by dismissing the appeal as infructuous as appellant had filed Form-1 under the Direct Tax Vivad Se Vishwas Scheme, 2024 ignoring the fact that neither the appellant had filed an application for withdrawing of the appeal and nor the complete formalities were finished under the scheme.
2) That the National Faceless Appeal Centre (NFAC),Delhi has erred in law and on facts in not considering the submissions filed before it.
3) That the penalty imposed under section 270A of Income Tax Act ,1961 amounting to Rs.2,07,818/- is unlawful and excessive in nature.
4) That the authorities below have erred in law and on facts in not considering the fact that income was assessed on estimated basis and penalty under section 270A cannot be imposed on the estimated income.
5) That the authorities below have erred in law and on facts in not considering that in the notices issued for imposition of penalty, it was not clearly disclosed that whether the penalty was being imposed for misreporting of income or of underreporting of income.
6) That the order passed by authorities below is bad in law.
2. At the time of hearing, ld. AR of the assessee brought to our notice the relevant facts of the case and her submissions as under. She submitted that the assessee is a businessman and ITR was selected under Limited Scrutiny through CASS for AY 2017-18. In the course of assessment proceedings, difference of Rs.69,64,365/- in net sales was found (As per VAT return Rs.4,14,76,332/ as per audit report Rs.3,45,11,967/-). In order to substantiate the explanation, the assessee stated that this difference is because of wrong audit report filed by the professional. She submitted that the assessee filed the correct return by declaring correct turnover as per the sales declared in VAT return. She further submitted that income on this short declared turnover was calculated on estimated basis i.e. 8% of short turnover of Rs.69,64,365/- i.e. Rs.5,57,150/- and accordingly tax was paid by the assessee which is also taken in to consideration by the AO in his assessment order. She submitted that the AO imposed penalty order under section 270A of the Income-tax Act, 1961 (for short ‘the Act’) without appreciating the facts of the case thereby imposing penalty of Rs.2,07,818/- being 200% of amount of tax payable on under-reported income which is in the consequence of misreporting of income as per provision of section 270A(9)(a) of the Act in the case of the assessee for A.Y. 2017-18 for under reporting of income.
3 She submitted that on appeal, the ld. CIT (A) dismissed the appeal as infructuous as assessee had filed Form-1 under the Direct Tax Vivad Se Vishwas Scheme, 2024 ignoring the fact that neither the assessee had filed an application for withdrawing of the appeal nor the complete formalities were finished under the scheme. Aggrieved with the above order, assessee is in appeal before us.
4. Ld. AR of the assessee submitted that assessee has not done under reporting of income instead accepted the difference in turnover once came into notice after the assessment proceedings and the assessee accepted the addition to the income and paid the tax on estimated income of Rs.5,57,150/- with another challan. Thus, the assessee had not willfully made any default.
5. Ld. AR further submitted that the AO erred by imposing the penalty as the income was assessed on estimated basis and penalty u/s 270A cannot be imposed on the estimate basis. Further, ld. AR submitted that the assessee had accepted the addition of estimated income @ 8% of short turnover which is evident from the penalty order u/s 270A of the Act. Ld. AR further submitted that estimation of addition cannot provide foundation for underreported income for the purpose of levy of penalty u/s 270A of the Act. Further, she submitted that limb of section 270A is not mentioned whether it is under-reported income or misreporting of income.
6. Ld. AR further submitted that the assessee’s case is squarely covered by the decision of the ITAT, Agra Bench in the case of Tasavver Husain vs. ACIT in ITA Nos.95 & 96/Agr/2023 order dated 19.05.2025 and Hon’ble High Court of Delhi in the cases of Prem Brothers Infrastructure LLP vs. NFAC in WP (C) 7092/2022 order dated 31st May 2022 and WP (C) 5111/2022 in Schneider Electric South East Asia (HQ) Pte Ltd. order dated 28th March, 2022.
7. On the other hand, ld. DR of the Revenue relied on the order of the Assessing Officer.
8. Considered the rival submissions and material placed on record. A perusal of the provisions of section 270A of the Act reveals that it identifies two different set of defaults for attracting penalty, both inviting different quantum of penalty. The section recognizes underreporting of income as one default and underreporting as a consequence of misreporting, as the other default, with the first default attracting penalty at the rate of 30% of the tax payable on the underreported income and the other default attracting penalty at the rate of 200% of the tax payable on such income. While subsection (1) to (7) of section 270A deal with underreporting of income, sub section (8) & (9) deal with underreporting as a consequence of misreporting. This is evident from a bare perusal of the provisions of section 270A of the Act.
9. The provisions of law identified two separate set of defaults, it was incumbent on the AO to identify the specific default committed by the assessee, the present being penal proceedings. However as noted above the AO himself was not sure of the default committed by the assessee.
10. Further, we observed that the income on the short declared turnover was calculated on estimation basis i.e. 8% of short turnover. We further observed that the estimation is not accompanied by rejection of the books of accounts of the assessee and the AO is apparently satisfied with the books of accounts of the assessee. Accordingly, we are of the considered opinion that estimation of addition cannot provide foundation for under-reported income for the purpose of levy of penalty u/s 270A of the Act.
11. As for the levy of penalty for misreporting as a consequence of under reporting of income, we find that Section 270A(9) of the Act specifically identifies the circumstances of misreporting as a consequence of underreporting in Clause (a) to (f) as under:
“(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.”
12. We observed that the AO in his order levying penalty does not point out which specific case is fulfilled in the assessee’s case. Therefore, we hold that it was not even a case fit for levy of penalty for misreporting as a consequence of under reporting also.
13. Further we find force from the decisions of ITAT Benches and Hon’ble Delhi High Court, as relied upon by the ld. AR of the assessee.
14. In the light of the above discussion, we hold that the penalty levied in the present case is not sustainable in law and direct deletion of the same.
15. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on this 16th day of June, 2026.
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