A claim of deduction made in return, even if found inadmissible, does not automatically lead to misreporting of income – ITAT
In a recent judgment, ITAT deleted penalty u/s 270A holding that 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
ABCAUS Case Law Citation:
5250 (2026) (10) abacus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming confirming penalty under section 270A of the Income Tax Act, 1961 (the Act) on the ground of mis-reporting of income.
The assessee had filed the return of income for the relevant Assessment Year declaring total income after claiming deduction under Section 80GGC in respect of donation made to a political 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 thereafter levied penalty under Section 270A on the ground that the assessee had under-reported income in consequence of misreporting. One of the factor that weighed with the AO was that the assessee had accepted the addition by not filing an appeal against the disallowance.
The Tribunal observed that 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.
The Tribunal also observed that 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.
The Tribunal further observed that 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.
The Tribunal noted that 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.
The Tribunal opined that 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.
The Tribunal stated that at best, the case in hand 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. However 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. A
Accordingly, the Tribunal held that 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 was unsustainable in law.
As a result, the penalty was directed to be deleted.
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