Reena Ayan Shah Vs The ITO (ITAT Ahmedabad)
Donation Withdrawn, Tax Restored—200% Penalty u/s 270A Cannot Ride Merely on a Failed Claim u/s 80GGC
Summary:
The Donation & the Departmental Alert
The Assessee filed her original return declaring total income of ₹7,89,410 after claiming deduction of ₹1,50,000 u/s 80GGC in respect of a political donation.
Subsequently, information available with the Department allegedly indicated that the donation was bogus. The case was classified as a “High Risk CRIU/VRU Case” under CBDT’s Risk Management Strategy through the Insight Portal.
The assessment was reopened & notice u/s 148 was issued on 20.04.2023. In response, the Assessee filed a return on 22.05.2023 declaring total income of ₹9,36,400 after withdrawing the deduction of ₹1,50,000 claimed earlier.
The AO completed reassessment on 28.11.2024. The income disclosed in the return filed pursuant to reopening was accepted without any further variation. Nevertheless, the AO concluded that the original deduction represented furnishing of inaccurate particulars, resulting in under-reporting through misreporting of income u/s 270A(9).
A ₹62,400 Penalty Despite No Further Addition
During the penalty proceedings, notices were issued on 28.02.2025 & 11.03.2025. The Assessee explained that the deduction had been claimed in good faith & without any mala fide intention.
The explanation did not find favour with the AO, who imposed penalty of ₹62,400 u/s 270A. The levy represented the enhanced penalty applicable where under-reported income is alleged to arise from misreporting.
Before the CIT(A), the Assessee failed to respond to several notices. The CIT(A), therefore, decided the matter on the available record & confirmed the penalty. It was held that the Assessee had neither substantiated the genuineness of the donation nor demonstrated compliance with the conditions governing deduction u/s 80GGC. The subsequent withdrawal, after initiation of proceedings u/s 148, was considered insufficient to neutralize the inaccurate particulars furnished in the original return.
The Assessee’s Defence
Before the ITAT, the Assessee submitted that the donation had been made through proper banking channels & the deduction was claimed under a bona fide belief that it was legally admissible. No dishonest intention or mens rea could be attributed merely because the claim was later withdrawn.
It was explained that after receiving notice u/s 148 & learning about the alleged modus operandi of certain Registered Unrecognised Political Parties, the Assessee voluntarily withdrew the deduction. The applicable tax with interest was paid & the AO ultimately made no addition over the income declared in the return filed pursuant to reopening.
The Assessee argued that a disallowed or withdrawn claim could not automatically be branded as misreporting. Reliance was placed upon several coordinate Bench decisions, particularly Hiro Mulchand Tanwani v. ITO, ITA No. 110/Ahd/2026, order dated 15.05.2026.
Revenue’s “Caught Before Confession” Argument
The Revenue maintained that the withdrawal was not voluntary because it occurred only after notice u/s 148. But for the departmental information concerning the political parties, the Assessee would not have reversed the deduction.
It was argued that only a minuscule percentage of returns are selected for scrutiny. The Assessee had consequently taken a chance by claiming an improper deduction in the hope of escaping examination. Withdrawal after detection, according to the Revenue, demonstrated that the original claim was consciously fraudulent & intended to evade tax.
Disallowance & Misreporting Are Not Synonyms
The ITAT followed the principle laid down in Hiro Mulchand Tanwani. Section 270A makes a clear distinction between under-reporting of income & the graver category of under-reporting in consequence of misreporting.
Misreporting attracts a higher penalty & is confined to the circumstances specified u/s 270A(9), including misrepresentation or suppression of facts, failure to record investments, claiming expenditure without supporting evidence, recording false entries, failure to record receipts or failure to report specified transactions.
A deduction claimed openly in the return, even if subsequently disallowed or withdrawn, does not ipso facto establish any of these ingredients. The Revenue must demonstrate through cogent evidence that the Assessee knowingly furnished false particulars, fabricated evidence or deliberately suppressed material facts.
Penalty proceedings are separate from assessment proceedings. Therefore, an adverse conclusion in assessment—or even the Assessee’s decision not to contest an addition—cannot by itself become conclusive proof of misreporting.
Coordinate Bench Decision Covers the Case
In Hiro Mulchand Tanwani, deduction u/s 80GGC was disallowed during reassessment & the quantum addition was not challenged. Even then, the Tribunal deleted the penalty because there was no evidence of deliberate misrepresentation, suppression or fabrication.
The present Assessee stood on equally strong footing because she had herself withdrawn the deduction in the return furnished after reopening & the AO accepted that returned income without making any further addition.
The Tribunal found that the issue was squarely covered by its coordinate Bench decision. It also recorded that the Assessee fulfilled the substantive requirements u/s 270AA(1) for immunity from penalty u/s 270A. Section 270AA(1) provides the relevant statutory framework for immunity.
The Final Verdict
The ITAT directed deletion of the penalty of ₹62,400 & allowed the Assessee’s appeal.
The ruling reiterates that timing may make a withdrawal look suspicious, but suspicion is not one of the statutory clauses of section 270A(9). The Department must prove a specified act of misreporting before imposing the punitive 200% levy. A claim that fails, or is withdrawn after reopening, may restore the tax—but it does not automatically create a penalty.
Section 270A penalizes established misreporting, not every deduction that develops cold feet after a notice u/s 148.
Cases Discussed
- Hiro Mulchand Tanwani Vs ITO (ITAT Ahmedabad), ITA No. 110/Ahd/2026, order dated 15.05.2026
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Assessee against the order dated 22.12.2025 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as ‘Ld. CIT (A)’ in short), under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’ in short) for Assessment Year 2019-20.
2. The Assessee has raised following grounds of Appeal:-
“1. The learned CIT(A) has erred in law and on facts of the case, in rejecting the appeal on ground than no substantive evidence like receipt of donation, registration Certificate etc. were furnished.
2. The Id CIT(A) has erred in Confirming levy of penalty of Rs.62400/- without providing opportunity of hearing to appellant.
3. The appellant craves leave to add, amend or alter the grounds of appeal at the time of hearing, if need arise.”
3. Brief facts of the case are that In this case, penalty proceedings were initiated u/s. 270A, against the assessee for the Assessment Year 2019-20. The assessee filed an original return of income declaring a total income of Rs.7,89,410, wherein a deduction of Rs. 1,50,000 was claimed u/s. 80GGC on account of a donation. Subsequently, information available with the Department indicated that the said donation was bogus, and the case was flagged as a ‘High Risk CRIU/VRU Case’ under the Risk Management Strategy of the CBDT through the Insight Portal. During the reassessment proceedings u/s. 147 read with sections 144 and 144B, a notice u/s. 148 was issued on 20.04.2023 by the AO. In response, the assessee filed an updated return of income on 22.05.2023, declaring a total income of Rs. 9,36,400, and withdrew the claim of deduction u/s. 80GGC. The AO in its order dated 28.11.2024 concluded that the assessee had furnished inaccurate particulars in the original return, leading to under-reporting of income of Rs. 1,50,000, which amounted to misreporting within the meaning of section 270A of the Act. Penalty proceedings u/s. 270A were accordingly initiated during the assessment proceedings. During the course of penalty proceedings, the AO issued notices u/s. 270A on 28.02.2025 and 11.03.2025. The assessee responded to the notice, contending that the deduction u/s. 80GGC was claimed in good faith without any malafide intention.
3.1 In appeal before the ld. CIT(A), the assessee did not respond to several notices issued by ld. CIT(A) and ld. CIT(A), therefore, decided the matter on the basis of facts available on record and dismissed the appeal of the Assessee holding that the assessee failed to substantiate the genuineness of the donation or to demonstrate the full compliance with limited conditions u/s 80GCC of the Act. It was further held that withdrawal of claim after initiation of re-assessment proceeding u/s 148 of the Act does not mitigate the furnishing of inaccurate particulars in the original return.
4. Aggrieved by the impugned order passed by the Ld. CIT(A), the Assessee is in appeal before us.
5. Ld. AR appearing for the Assessee contended that the Assessee had made the deduction through proper banking channels and the claim was made in good faith and, therefore, no mesne rea can be attributed to the Assessee. It was further submitted that pursuant to the notice received u/s 148, and further coming to know of the modus operandi of the RUPPs, the Assessee withdrew the deduction voluntarily at the time of filing ITR u/s 148 and ultimately, no variation was made in the reassessment order. It was argued that there has been no addition in the income as per ITR filed u/s 148 of the Act in the reassessment order passed by the AO and since the Assessee had paid tax as applicable along with interest, there was no need for imposition of penalty u/s 270A of the Act. He has relied upon several judgments of Co-ordinate Bench of this Tribunal including the judgment dated 15.05.2026 in the case of Hiro Mulchand Tanwani v. ITO [ITA No. 110/Ahd/2026].
6. Per contra, Ld. Senior DR has supported the order of the Ld. AO and ld. CIT(A). He has submitted that but for the search on the RUPPs and pursuant to notice u/s 148 of the Act, the Assessee was not going to reveal that he had made a wrong claim u/s 80GGC of the Act. He further submitted that keeping in view the minuscule number of returns are selected for scrutiny, the Assessee took a chance of claiming wrong deduction and getting scot-free. He further submitted that it is evident that the mere fact that the Assessee itself withdrew the claim after receipt of notice u/s 148 goes to establish that the wrong/fraudulent claim was made by the Assessee consciously with a view to evade tax and, therefore, the Assessee deserves no leniency.
7. We have heard the parties and perused the material on record. It is relevant to refer to the judgment of the Coordinate Bench of this Tribunal in the case of Hiro Mulchand Tanwani (supra). For the sake of ready reference, the relevant portion of said order is reproduced as under:
“…3. The assessee challenged the levy of penalty under Section 270A of the Income-tax Act, 1961, contending that the Assessing Officer was not justified in treating the disallowance of deduction claimed under Section 80GGC as a case of “misreporting of income.” The facts reveal that the assessee had filed the return of income for Assessment Year 2019-20 declaring total income of Rs.13,25,710 after claiming deduction of Rs.1,50,000 under Section 80GGC in respect of donation made to a political party, namely Manvadhikar National Party. Subsequently, the assessment was reopened under Section 148 to verify the genuineness of the said donation. In the reassessment completed under Section 147 read with Section 144B, the Assessing Officer disallowed the deduction and assessed the total income at Rs.14,75,710, and thereafter levied penalty of Rs.93,600 under Section 270A on the ground that the assessee had under-reported income in consequence of misreporting.
4. The contention of the Assessing Officer that the assessee had accepted the addition by not filing an appeal against the disallowance cannot, by itself, be a valid basis for concluding that there was misreporting of income. The mere fact that the assessee chose not to challenge the quantum addition due to the relatively small amount involved and in order to avoid prolonged litigation does not amount to an admission of concealment or furnishing of false particulars. It is well settled that penalty proceedings are distinct and independent from assessment proceedings, and the findings in the assessment order are not conclusive for the purpose of levy of penalty. Section 270A draws a clear distinction between “under-reporting of income” and “misreporting of income.” Misreporting is attracted only in specific circumstances enumerated in sub-section (9), such as misrepresentation or suppression of facts, failure to record investments, claiming of expenditure not substantiated by evidence, recording false entries, or failure to report receipts. In the present case, the assessee had duly disclosed the donation in the return of income and claimed deduction under Section 80GGC based on the belief that the payment qualified for deduction. The disallowance arose because the Assessing Officer was not satisfied about the genuineness or eligibility of the donation. However, there is no material on record to establish that the assessee had furnished any false evidence, suppressed any facts, or made any deliberate misrepresentation. A claim of deduction made in the return, even if ultimately found to be inadmissible, does not automatically lead to the conclusion that the assessee has misreported income. Unless the Revenue demonstrates with cogent evidence that the claim was bogus and knowingly made on the basis of false particulars, penalty for misreporting cannot be sustained. At best, the case may fall within the ambit of under-reporting of income, but even that would require the Assessing Officer to establish that the conditions prescribed under Section 270A are satisfied. In the absence of any finding that the assessee deliberately furnished inaccurate particulars or fabricated documents, the higher penalty prescribed for misreporting is not legally tenable. Accordingly, considering that the deduction was claimed transparently in the return of income and that the disallowance was based solely on the Assessing Officer’s adverse view regarding its admissibility, the levy of penalty under Section 270A on misreporting of income is unsustainable in law. The penalty of Rs.93,600 is therefore directed to be deleted…”
7.1 It is not in dispute that the issue raised by the Assessee is covered by the aforesaid judgment of the Coordinate Bench of this Tribunal.
Therefore, respectfully following the judgment of the Coordinate Bench, the appeal needs to be allowed.
8. In view of the aforesaid, respectfully following the decision of the Coordinate Bench of this Tribunal in the case of Hiru Molchand Tanwani (supra) as well as the fact that the Assessee fulfils the substantive obligation u/s 270AA(1) of the Act for grant of immunity from imposition of penalty u/s 270A, we are of the considered opinion that the penalty imposed by the impugned order needs to be deleted.
9. In the result, the appeal filed by the Assessee is allowed.
The order pronounced on 03.09.2026.
