Case Law Details
Gollahalli Sreeramaiah Manjunath Vs DCIT (ITAT Bangalore)
The ITAT Bangalore considered an appeal against the order of the National Faceless Appeal Centre (NFAC) confirming a penalty of ₹11,02,098 levied under Section 270A of the Income-tax Act, 1961 for Assessment Year 2022-23. The assessee challenged the penalty on the ground that neither the assessment order nor the penalty proceedings specified the relevant limb of misreporting under Section 270A(9).
The assessee, engaged in the wholesale trade of rice, dals, pulses and similar commodities, had claimed loading and unloading charges of ₹42,85,636. During scrutiny, the Assessing Officer disallowed 80% of payments aggregating to ₹18,06,394 made to two persons on an ad hoc basis, amounting to ₹14,45,115, citing lack of corroborative documents regarding the recipients. The Assessing Officer also disallowed ₹1,60,509 under Section 40(a)(ia), being 30% of transportation charges of ₹5,35,031, for alleged non-deduction of tax at source. The total addition of ₹16,05,624 was not challenged in the quantum proceedings, and penalty proceedings under Section 270A(9) for alleged misreporting of income were initiated.
Before the Tribunal, the assessee contended that the ad hoc disallowance under Section 37(1) lacked any finding that the expenditure was non-business in nature and that the disallowance under Section 40(a)(ia) for non-deduction of tax on transportation charges did not constitute under-reporting through misreporting. It was further submitted that penalty under Section 270A is not automatic and requires identification of the applicable clause under Section 270A(9).
The Tribunal observed that the Assessing Officer had merely made an ad hoc disallowance of loading and unloading expenses for want of corroborative documents, such as Aadhaar details of recipients, and a disallowance under Section 40(a)(ia) for alleged non-deduction of tax at source on transportation charges. The penalty order did not specify which clause of Section 270A(9) was attracted or explain how the assessee’s conduct constituted misreporting of income. The Tribunal held that these disallowances, by themselves, did not establish misreporting of income and that, in the absence of a clear finding satisfying Section 270A(9), the penalty could not be sustained.
The Tribunal also noted that the assessee had opted not to receive notices by email, yet the CIT(A) issued notices only through email. It observed that no adverse inference could be drawn from the assessee’s non-appearance before the CIT(A). The orders of the lower authorities were set aside, and the Assessing Officer was directed to delete the penalty under Section 270A. The appeal was allowed.
Cases Discussed
- Schneider Electric South East Asia (HQ) Pte. Ltd. vs. Asst. Commissioner of Income-tax [2022] 145 taxmann.com 665 (Delhi) [28-03-2022]
- Chambal Fertilizers and Chemicals Ltd. vs. Office of the Principal Commissioner of Income-tax [2024] 158 taxmann.com 184 (Rajasthan) / [2024] 297 Taxman 168 (Rajasthan) / [2024] 462 ITR 4 (Rajasthan) [04-01-2024]
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. This appeal by Sri Gollahalli Sreeramaiah Manjunath [ the Assessee/ Appellant ] relates to Assessment Year 2022-23 and is directed against the appellate order dated 25/11/2025 passed by the National Faceless Appeal Centre, [ the ld CIT A ] whereby the appeal against the penalty order under section 270A of the Income Tax Act, 1961 [ the Act ] was dismissed. The penalty order dated 19/09/2024, passed by the Assessment Unit, Income Tax Department [ the Ld AO ] , levied a penalty of Rs.11,02,098. Aggrieved, the assessee has preferred this appeal challenging the penalty as confirmed by the NFAC, contending that the levy under section 270A is invalid because the notice and order of assessment as well as penalty order both did not specify the relevant limb of misreporting of income.
2. The Appellant is engaged in the wholesale trade of rice, dals, pulses and similar commodities and operates from a godown at APMC Yard, Yeshwanthpur, Bangalore. He purchases goods from vendors within and outside the State and sells them to customers. Given the nature of this business, substantial expenses are incurred towards transportation, loading and unloading, involving labourers and coolies at both the godown and customer locations.The Appellant filed his return of income on 07/11/2022 vide challan No. 792925211071122, declaring total income of Rs.68,76,170. The return was selected for scrutiny andnotice under section 143(2) of the Act was issued. During the relevant year, the Appellant claimed loading and unloading charges of Rs.42,85,636. Of this, the Assessing Officer disregarded payments of Rs.13,50,805 to Mr. Krishnappa and Rs.4,55,589 to Mr. Jogappa, aggregating to Rs.18,06,394, and disallowed 80% thereof, amounting to Rs.14,45,115, on an ad hoc basis. The Assessing Officer further held that tax ought to have been deducted at source on transportation charges of Rs.5,35,031 and, under section 40(a)(ia) of the Act, disallowed 30% thereof, amounting to Rs.1,60,509. Accordingly, the assessment order made total disallowances of Rs.16,05,624 and added the same to the Appellant’s declared income. Penalty proceedings under section 270A(9) for misreporting of the Act were also initiated.
3. As assessee did not contest the disallowance, The learned Assessing Officer passed an order under section 270A of the Act holding that the Appellant had under-reported income in consequence of misreporting. On that basis, a penalty of Rs.11,02,098 was levied, being 200% of the tax payable on the income added in the assessment proceedings.
4. Aggrieved by the penalty order passed by the learned Assessing Officer under section 270A of the Act, the Appellant filed an appeal before the learned Commissioner of Income Tax (Appeals) [CIT(A)”] on 20/10/2024. The learned CIT(A) dismissed the appeal on the ground that the Appellant had not filed written submissions.
5. In appeal before us, The learned AR submits that the learned CIT(A) issued notices to the Appellant by email, despite the Appellant’s specific request in Form 35 that communications be sent by a mode other than email. In response to the question, “Whether notices/communication may be sent on email?”, the Appellant had answered “No”.
6. On merits, the learned AR submits that disallowance under section 37(1) can arise only where the expenditure is capital, personal, not wholly and exclusively for business, or hit by Explanation 1 for being prohibited by law. The Assessing Officer recorded no such finding, did not reject the books under section 145(2), and relied only on alleged lack of corroboration of recipient identity. He could not make an ad hoc disallowance without showing that any part of the expenditure was non-business. Out of total loading and unloading charges of Rs.42,85,636, the Assessing Officer disputed only Rs.18,06,394 and disallowed 80%, i.e., Rs.14,45,115, without reasons, while allowing 20% and thereby accepting the business purpose. No defect was found in the books or supporting evidence, nor was any positive material brought to show that the expenditure was personal or not for business. Once business nexus is established, the Revenue cannot decide the reasonableness of expenditure from the businessman’s standpoint. The addition is therefore unsupported.
7. Further, disallowance of Rs.1,60,509 under section 40(a)(ia) for non-deduction of TDS on transportation charges of Rs.5,35,031 does not amount to under-reporting due to misreporting under section 270A.
8. On penalty he submits that Penalty under section 270A is discretionary and cannot follow automatically from an addition. The Assessing Officer gave no finding why section 270A(6)(a) was inapplicable or how the case fell within any clause of section 270A(9), as required for penalty at 200% under section 270A(8). The penalty is therefore unsustainable.
9. The learned Departmental Representative supported the orders of the lower authorities and submitted that the Appellant had not challenged the additions nmade by the Assessing Officer, thereby accepting the disallowances. It was therefore contended that the Assessing Officer was justified in initiating and levying penalty for misreporting of income under section 270A of the Act.
10. We have considered the rival submissions and perused the orders of the lower authorities. In the assessment order, the Assessing Officer disallowed Rs.14,45,115, being 80% of Rs.18,06,394 claimed towards loading and unloading charges paid to two persons for not providing aadhar card of those labours. Though the assessee had claimed total loading and unloading charges of Rs.42,85,636, the Assessing Officer treated the above payments as not genuine on the ground that the assessee failed to furnish corroborative documents, such as Aadhaar cards or other evidence, to establish the recipients’ identity. The Assessing Officer also disallowed Rs.1,60,509, being 30% of transportation charges of Rs.5,35,031, under section 40(a)(ia) for non-deduction of tax at source. These additions were not challenged by the assessee in quantum proceedings. Thereafter, the Assessing Officer passed the penalty order dated 19/09/2024 under section 270A of the Act and levied penalty of Rs.11,02,098, holding that the assessee had under-reported income in consequence of misreporting. The CIT(A) confirmed the penalty.However, the penalty order does not specify which clause of section 270A (9) is attracted.
11. Section 270A(9) specifies distinct categories of misreporting, and levy of penalty at the higher rate requires a clear finding identifying the applicable clause. In the present case, the penalty cannot be sustained because the Assessing Officer merely made a disallowance of expenditure of labour charges on estimate adhoc basis and transport for non-deduction of taxes, without explaining how such disallowance resulted in misreporting of income.
11. Courts have held that, where misreporting is alleged, the assessee must be informed of the specific default falling within clauses (a) to (f) of section 270A(9). In Schneider Electric South East Asia (HQ) Pte. Ltd. vs. Asst. Commissioner of Income-tax [2022] 145 com 665 (Delhi) [28-032022] and Chambal Fertilizers and Chemicals Ltd. vs. Office of the Principal Commissioner of Income-tax [2024] 158 taxmann.com 184 (Rajasthan)/[2024] 297 Taxman 168 (Rajasthan)/[2024] 462 ITR 4 (Rajasthan) [04-01-2024], it was held that:
21. The Delhi High Court in Schneider Electric South East Asia (HQ) PTE Ltd. (supra), inter alia, observed and directed as under:
“6. Having perused the impugned order dated 9th March, 2022, this Court is of the view that the Respondents’ action of denying the benefit of immunity on the ground that the penalty was initiated under section 270A of the Act for misreporting of income is not only erroneous but also arbitrary and bereft of any reason as in the penalty notice the Respondents have failed to specify the limb – “under reporting” or “misreporting” of income, under which the penalty proceedings had been initiated.
7. This Court also finds that there is not even a whisper as to which limb of section 270A of the Act is attracted and how the ingredient of sub-section (9) of section 270A is satisfied. In the absence of such particulars, the mere reference to the word “misreporting” by the Respondents in the assessment order to deny immunity from imposition of penalty and prosecution makes the impugned order manifestly arbitrary
8. This Court is of the opinion that the entire edifice of the assessment order framed by Respondent No. 1 was actually voluntary computation of income filed by the Petitioner to buy peace and avoid litigation, which fact has been duly noted and accepted in the assessment order as well and consequently, there is no question of any misreporting.
9. This Court is further of the view that the impugned action of Respondent No. 1 is contrary to the avowed Legislative intent of section 270AA of the Act to encourage/incentivize a taxpayer to (i) fast-track settlement of issue, (ii) recover tax demand; and (iii) reduce protracted litigation.
10. Consequently, the impugned order dated 9th March, 2022 passed by Respondent No. 1 under section 270AA(4) of the Act is set aside and Respondent No. 1 is directed to grant immunity under section 270AA of the Act to the Petitioner.
11. With the aforesaid directions, the present writ petition along with pending applications stand disposed of.”
22. The finding recorded by the revisional authority is apparently contrary to the facts and essentially based on assumptions only on account of the fact that the petitioner on its own disclosed the income in question. As noticed hereinbefore, though several notices were issued under section 142 of the Act, during the course of scrutiny proceedings and as many as ten issues were raised, on which the authority could not make any additions, the aspect of merging GST Input Credit with expenses was not pointed out/detected and the same was only pointed out voluntarily by the petitioner and, therefore, apparently sub-clauses (a) and (c) of section 270A(9) of the Act are not attracted.
23. In view of above, it is apparent that the Deputy Commissioner violated the provisions of proviso to section 270AA(4) of the Act by not providing any opportunity of hearing, the order passed was wholly laconic, the same did not indicate as to under which part of section 270A(9), the case of the petitioner was covered and the revisional authority without giving any cogent reasons, has in a wholly cursory manner indicated the case of the petitioner, was within the ambit of clauses (a) and (c) of section 270A(9) of the Act and, therefore, the order passed by the assessing authority rejecting application under section 270AA and the order passed by the revisional authority rejecting revision petition, cannot be sustained.
13. In the present case also, we find no reason to sustain the penalty. While invoking misreporting of income, the Assessing Officer did not specify which clause of section 270A (9) was attracted or how the assessee’s case fell within it. The disallowance of loading and unloading expenses was made mainly for want of corroborative documents, such as Aadhaar details of the recipients, and the disallowance under section 40(a)(ia) was made for alleged non-deduction of tax at source on transportation charges. These disallowances, by themselves, do not establish misreporting of income. In the absence of a clear finding satisfying section 270A (9), the penalty levied under section 270A cannot be sustained.
14. As regards the appellate proceedings before the CIT(A), it is evident that the assessee had opted not to receive notices by email. Despite this, notices were issued only through email. Consequently, the assessee did not receive proper intimation of the hearing, and no adverse inference can be drawn from his non-appearance before the CIT(A).
15.In view of the above, and since the penalty under section 270A is otherwise unsustainable on merits, we set aside the orders of the lower authorities and direct the Assessing Officer to delete the penalty levied on the assessee.
16. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 25th June, 2026.
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