ACIT Vs New India Assurance Co Limited (ITAT Mumbai)
Summary: ITAT Mumbai dismissed the Revenue’s appeal and upheld deletion of penalty of ₹2,02,96,664 levied under section 270A of the Income-tax Act, 1961. The penalty had been computed with reference to three additions aggregating to ₹11,61,93,472. The first addition of ₹6,72,95,652 related to payments made to auto dealers. Since the Tribunal had already deleted that disallowance in the assessee’s quantum proceedings, it held that the penalty attributable to the deleted addition could not survive.
The second addition of ₹4,78,06,210 related to grandfathering benefit claimed on bonus shares of GAIL India Ltd. The Tribunal found that the assessee had inadvertently adopted an incorrect date of acquisition and consequently treated the gain as long-term capital gain. The acquisition and sale of shares had been disclosed and no material fact was suppressed. The assessee’s explanation was supported by the material on record and had not been demonstrated by the Assessing Officer to be false. Applying section 270A(6)(a), the Tribunal held that the bona fide explanation coupled with disclosure of all material facts justified deletion of penalty.
The third addition of ₹10,91,610 related to foreign taxes on dividend income. Since the CIT(A) in the quantum proceedings had restored the issue to the Assessing Officer for verification, the very basis and quantum of the addition had not attained finality when the penalty was imposed. The Tribunal held that penalty could not be sustained on an addition that remained subject to verification and fresh determination.
The Tribunal also noticed an inconsistency in the penalty order. Although the Assessing Officer alleged a default falling under section 270A(9), the penalty was computed at 50% of tax payable, which is the rate applicable to under-reporting under section 270A(7), whereas misreporting under section 270A(8) read with section 270A(9) attracts penalty at 200%. Further, the Assessing Officer had not identified any specific circumstance under clauses (a) to (f) of section 270A(9). The allegation of misreporting was therefore unsupported by a definite finding and inconsistent with the penalty computation itself. Accordingly, the Tribunal upheld deletion of the entire penalty of ₹2,02,96,664 and dismissed the Revenue’s appeal.
Cases Discussed
- HDFC ERGO General Insurance Company Ltd. Vs Assistant Commissioner of Income Tax, ITA Nos. 2836 to 2841/Mum/2025 & ITA Nos. 3277 to 3281/Mum/2025, Assessment Years 2010-11, 2011-12, 2013-14, 2015-16 & 2016-17 — Followed in the assessee’s quantum proceedings. The earlier Tribunal order deleting the disallowance of payments made to auto dealers under section 37(1) read with Explanation 1 followed this decision.
- DCIT Vs Sasan Power Ltd, (2023) 157 taxmann.com 763 (ITAT Mumbai) — Applied. The Tribunal referred to this decision while holding that a bona fide mistake, where relevant particulars were disclosed, would not warrant penalty under section 270A.
- CIT Vs Somany Evergreen Knits Ltd., (2013) 352 ITR 592 (Bombay High Court) — Principle applied through Sasan Power Ltd. The decision supports the proposition that an excess claim resulting from a bona fide mistake would not warrant levy of penalty.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Present appeal filed by the revenue is directed against the order dated 31/03/2026 passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter the “Ld.CIT(A)”] arising out of the penalty order dated 27/03/2025 passed by the Ld. Assessing Officer u/s. 270A of the Income-tax Act, 1961 (“the Act”), for the Assessment Year 2019–20, on the following grounds of appeal:-
“1) (i) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty levied u/s 270A of the Act of Rs. 2,02,96,664/- by merely following the order of the Hon’ble ITAT, however, the said ITAT order has not attained finality, as the said decision has not been accepted by the department and is in process to file appeal before the Hon’ble High Court on the same issue.
2) (ii) The appellant craves leave to add, amend, alter, OR withdraw any of the above grounds of appeal at the time of hearing.”
2. Brief facts of the case are as under:-
Assessee is a Public Sector Undertaking engaged in the business of general insurance in India and abroad. The assessee filed its return of income for the year under consideration on 15/01/2020, declaring a loss of Rs.2,176,47,73,306/- and computing book profit u/s. 115JB of the Act at Rs.305,28,70,004/-. The assessment was completed u/s. 143(3) r.w.s. 144B of the Act vide order dated 28/02/2022, determining the total income at Rs.2,856,41,19,743/-, after making various additions/disallowances.
Aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A).
2.1. The Ld.CIT(A), vide order dated 20/03/2024, partly allowed the appeal of the assessee. Pursuant thereto, the Ld.AO passed the order giving effect dated 21/11/2024. Consequent to the appellate proceedings, the following additions aggregating to Rs. 11,61,93,472/- remained for consideration:-
| Particulars | Amount |
|---|---|
| Disallowance of payment made to auto dealers | Rs. 6,72,95,652/- |
| Denial of grandfathering benefit in respect of shares of GAIL India Ltd. | Rs. 4,78,06,210/- |
| Addition on account of foreign taxes on dividend income | Rs. 10,91,610/- |
| Total | Rs. 11,61,93,472/- |
2.2. The Ld.AO initiated penalty proceedings u/s.270A of the Act in respect of the aforesaid additions. The assessee filed detailed submissions contending, inter alia, that all the material particulars had been duly disclosed; that the claim relating to grandfathering benefit arose from an inadvertent error in adopting the date of acquisition of bonus shares; that the issue relating to foreign taxes on dividend income had been restored by the Ld.CIT(A) to the Ld.AO for verification; and that the disallowance of payments made to auto dealers was pending in quantum appeal before this Tribunal.
2.3. The Ld.AO did not accept the explanation furnished by the assessee. The Ld.AO treated the aforesaid sum of Rs.11,61,93,472/- as under-reported income and levied penalty of Rs.2,02,96,664/-, being 50% of the tax payable thereon, vide order dated 27/03/2025 passed u/s. 270A of the Act.
Aggrieved by the penalty order, the assessee preferred an appeal before the Ld.CIT(A).
3. Before the Ld.CIT(A), the assessee submitted that this Tribunal, in the assessee’s own case for the year under consideration in ITA No. 2623/Mum/2024, vide order dated 21/11/2025, had deleted the disallowance of Rs.6,72,95,652/- relating to payments made to auto dealers. It was further submitted that the Revenue’s appeal challenging the relief granted in respect of the grandfathering benefit had also been dismissed by this Tribunal.
3.1. In respect of the balance amount of Rs.4,78,06,210/-, it was submitted that the claim arose on account of an inadvertent error in adopting the date of acquisition of bonus shares of GAIL India Ltd. The assessee had inadvertently treated the gain arising from the sale of such bonus shares as long-term capital gain and claimed the benefit of the grandfathering provisions. It was submitted that the mistake was bona fide, all the material particulars were available on record, and there was neither suppression nor misrepresentation of facts.
3.2. As regards the addition of Rs.10,91,610/- on account of foreign taxes on dividend income, the assessee submitted that the issue had been restored by the Ld.CIT(A) to the Ld.AO for verification and, therefore, the quantum of addition itself had not attained finality when the penalty was levied.
3.2.1. The Ld.CIT(A), after considering the submissions and the material available on record, deleted the penalty. The Ld.CIT(A) observed that the disallowance relating to payments made to auto dealers stood deleted by this Tribunal in the quantum proceedings. As regards the grandfathering benefit, the Ld.CIT(A) held that the claim resulted from a bona fide and inadvertent error in adopting the date of acquisition of the bonus shares. The Ld.CIT(A) further observed that the Revenue’s ground challenging the relief granted in respect of the grandfathering benefit had been dismissed by this Tribunal. In respect of the foreign taxes on dividend income, the Ld.CIT(A) held that the issue had been restored to the Ld.AO for verification and, therefore, penalty could not be sustained when the quantum itself had not attained finality.
3.3. The Ld.CIT(A) also noted that the Ld.AO had not specified the precise clause of section 270A(2) under which the assessee’s case fell. It was further observed that all the material facts had been disclosed by the assessee and no finding had been recorded by the Ld.AO that the explanation furnished by the assessee was false. The Ld.CIT(A), accordingly, held that the case did not fall within the ambit of misreporting of income contemplated u/s. 270A(9) of the Act and directed the deletion of penalty amounting to Rs.2,02,96,664/-.
Aggrieved by the order of the Ld.CIT(A), the Revenue is in appeal before this Tribunal.
4. The Ld.DR relied upon the penalty order and submitted that the Ld.CIT(A) erred in deleting the penalty despite the additions having resulted in under-reporting of income. The Ld.DR thus prayed that the penalty levied by the Ld.AO be restored.
4.1. On the contrary, the Ld.AR relied upon the impugned order and submitted that two of the additions forming the basis of penalty stood deleted in the quantum proceedings by this Tribunal. It was further submitted that the remaining issue concerning foreign taxes on dividend income had been restored to the Ld.AO for verification and had not attained finality. The Ld.AR accordingly prayed for dismissal of the appeal filed by the Revenue.
We have perused the submissions advanced by both sides in light of the record placed before us.
5. Admittedly, the penalty of Rs.2,02,96,664/- was computed with reference to three additions aggregating to Rs.11,61,93,472/-. The first addition of Rs.6,72,95,652/- pertained to payments made by the assessee to auto dealers. We note that this Tribunal, in assessee’s own case for the year under consideration in ITA No. 2623/Mum/2024, vide order dated 21/11/2025, deleted the aforesaid disallowance by observing as under:
“206. During the course of hearing both the sides had agreed that our finding/adjudication on the Ground No. 3 to 6 raised in appeal preferred by the Assessee for the Assessment Year 2012-2013 shall apply mutatis mutandis to corresponding grounds (Ground No. 1 to 4) raised in the present appeal for the Assessment Year 2019-2020. Thus, keeping in view the parity in the facts and circumstances, and adopting the reasoning given while adjudicating identical grounds raised in appeal preferred by the Assessee for the Assessment Year 2012-2013 [ITA No. 2616/Mum/2024] hereinabove, we delete the disallowance of INR 6,72,95,652/- made in respect of payments made to auto dealers under Section 37(1) of the Act read with Explanation 1 thereto by following the decision of the Co-ordinate Bench of the Tribunal in the case of HDFC ERGO General Insurance Company Ltd. Vs. Assistant Commissioner of Income Tax [ITA Nos. 2836 to 2841/Mum/2025 & ITA Nos. 3277 to 3281/Mum/2025 for the Assessment Years 2010-2011, 2011-2012, 2013-2014, 2015-2016 & 2016-2017]. Accordingly, Ground No. 1 to 4 raised by the Assessee are allowed. Thus, Appeal preferred by the Assessee is allowed.”
5.1. Once the addition forming the basis of the penalty stands deleted in the quantum proceedings, the penalty attributable to such addition cannot survive. We, therefore, find no infirmity in the conclusion of the Ld.CIT(A) in deleting the penalty attributable to the disallowance of Rs.6,72,95,652/-.
5.2. The second addition of Rs.4,78,06,210/- pertained to the grandfathering benefit claimed by the assessee in respect of bonus shares of GAIL India Ltd. The material on record reveals that the assessee had inadvertently adopted an incorrect date of acquisition of the bonus shares and, consequently, treated the gain arising from their sale as long-term capital gain. It is not the case of the Revenue that the acquisition or sale of shares was not disclosed or that any material fact relating thereto had been suppressed by the assessee.
5.3. Further, the principal claim of the assessee concerning the grandfathering benefit was substantially accepted in the quantum proceedings, and the Revenue’s challenge in respect of the relief granted on this issue was dismissed by this Tribunal. In any event, the explanation furnished by the assessee regarding the inadvertent error in adopting the date of acquisition was supported by the material available on record and was not demonstrated by the Ld.AO to be false.
5.4. Section 270A(6)(a) specifically excludes from the ambit of under-reported income an amount in respect of which the assessee offers a bona fide explanation and discloses all the material facts necessary to substantiate such explanation. The Co-ordinate Bench of this Tribunal in DCIT v. Sasan Power Ltd. reported in (2023) 157 taxmann.com 763, while considering penalty u/s. 270A of the Act, applied the principle laid down by the Hon’ble Bombay High Court in CIT v. Somany Evergreen Knits Ltd. reported in (2013) 352 ITR 592, that an excess claim resulting from a bona fide mistake would not warrant levy of penalty.
5.5. Considering the totality of the facts, we find that the assessee’s explanation was bona fide and all the relevant particulars were disclosed. The Ld. AO has not brought on record any material demonstrating misrepresentation, suppression of facts or any other circumstance specified u/s. 270A(9) of the Act. We, therefore, find no reason to interfere with the deletion of penalty attributable to the amount of Rs. 4,78,06,210/-.
5.6. The third addition of Rs. 10,91,610/- pertained to foreign taxes on dividend income. It is an admitted position that the Ld. CIT(A), in the quantum proceedings, restored this issue to the file of the Ld. AO for verification. Thus, on the date on which the penalty was levied, the very basis and quantum of the addition had not attained finality. Penalty cannot be sustained on an addition that remained subject to verification and fresh determination by the Ld. AO. We, therefore, uphold the conclusion of the Ld. CIT(A) on this issue as well.
6. We also note an apparent inconsistency in the penalty order. While the Ld. AO alleged that the assessee had committed a default falling u/s. 270A(9) of the Act, the penalty was ultimately computed at 50% of the tax payable, which is the rate prescribed u/s. 270A(7) for under-reporting of income. In case of misreporting contemplated u/s. 270A(9) r.w.s. 270A(8), the prescribed penalty is 200% of the tax payable on the misreported income. The penalty order does not identify any specific circumstance enumerated in clauses (a) to (f) of section 270A(9) that is attracted to the facts of the present case. The allegation of misreporting is, therefore, unsupported by any definite finding and is also inconsistent with the computation of penalty made by the Ld. AO.
In view of the foregoing, we find that the Ld. CIT(A) has rightly deleted the penalty of Rs. 2,02,96,664/- levied u/s. 270A of the Act.
Accordingly, the grounds raised by the Revenue stand dismissed.
In the result, the appeal filed by the Revenue stands dismissed.
Order pronounced in the open court on 27/08/2026.
