Penalty u/s 270A deleted as assessee relied upon SC judgments to claim income exempt

Penalty u/s 270A on account under reporting of income deleted as assessee relied upon Supreme Court judgments to claim income exempt

In a recent judgment, ITAT Delhi has deleted penalty u/s 270A on account under reporting of income as assessee relied upon judgment of Hon’ble Supreme Court to claim income exempt and when law was changed in view of the subsequent judgment of Supreme Court, the assessee immediately included such income in the total income in the return filed in response to notice u/s 148 of the Act and paid due tax.

ABCAUS Case Law Citation:
4448 (2025) (03) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A)/NFAC in affirming the penalty u/s 270A imposed by the Assessing Officer (AO).

the appellant assessee was an individual and originally filed his return of income u/s 139(1) of the Income Tax Act, 1961 (the Act). Thereafter, the return was revised u/s 139(5) wherein the assessee withdrew the income declared on account of interest on enhanced compensation by claiming it exempt u/s 10(37) of the Act by placing reliance on the judgment of the Hon’ble Supreme Court. The revised returned so filed by the assessee and was processed and the revision claimed by the assessee was allowed to him.

Thereafter, a notice u/s 148 of the Act was issued after the subsequent judgment of Hon’ble Supreme Court on the issue of taxability of interest on enhanced compensation. In compliance of the said notice u/s 148, the assessee filed return of income including within the total income, the income earlier claimed exempt and paid taxes along with interest.

The reassessment order was passed u/s 147 r.w.s 144B of the Act accepting the income declared by the assessee in the return filed in response to notice u/s 148 of the Act. The Assessing Officer also initiated the penalty proceedings u/s 270A of the Act after observing that the assessee had declared income only after notice u/s 148 of the Act issued to him.

As no appeal was filed by the assessee against the reassessment order thus the AO completed the pending penalty proceedings and vide impugned order levied the penalty u/s 270A of the Act by holding that the assessee had under reported his income. 

Before the Tribunal it was submitted that the assessee was an illiterate agriculturist and his agricultural land was acquired by the State Government under compulsory acquisition way back. During the year under appeal, assessee had received interest as enhanced the compensation which was offered for tax in the return of income filed u/s 139(1) of the Act after claiming deduction for expenses @ 50% as provided u/s 57(iv) of the Act. Thereafter, on the advice of some counsel, and relying upon the judgment of the Hon’ble Supreme Court and ITATs, the assessee claimed the interest income on enhanced compensation as exempted in the revised return filed.

It was submitted that when the assessee received the notice u/s 148 of the Act, it was advised to the assessee that the law had now been settled against the assessee in view of the recent judgment of Hon’ble Supreme Court, therefore, assessee being a law abiding citizen of the country had declared the interest of enhanced of compensation after claiming deduction u/s 57 of the Act and paid the due taxes along with interest thereon. It was further submitted that the claim of the assessee made in the revised return was bonafide and purely based on the judgments of Hon’ble Supreme Court.

It was submitted that the assesse had paid the due taxes along with interest and no appeal was preferred against the reassessment order passed and, therefore, assessee was also eligible for immunity granted u/s 270AA of the Act, however, being an illiterate person the assessee could not avail this opportunities but since all the conditions of section 270AA of the Act for granting the immunity are fulfilled and looking to the present age of the assessee being 94 years of age, no penalty should be levied on the income so declared in the return filed u/s 148.

It was further argued that neither in the assessment order while initiating penalty proceedings u/s 270A nor in the penalty order, AO had specified which clause (a) to (g) of sub-section 2 of section 270A is invoked nor communicated to the assessee by virtue of which the income of the appellant could be held as under reporting of income. He thus contended that such failure on the part of the AO to show cause under which clause of 270A(2) of the Act he proceeded to levy penalty u/s 270A would render the entire penalty proceedings invalid and untenable in the eyes of law. He thus prayed that the penalty order passed u/s 270A was bad in law and deserves to be quashed.

On the contraty, the Revenue opposed the assessee and submitted that in the instant case, assessee had revised the return of income and claimed the refund of the tax paid on the interest on enhanced compensation in the return filed u/s 139(1). If the re-assessment proceeding u/s 148 of the Act were not be initiated, assessee would not declare such interest and paid tax thereon. It was only after the notice u/s 148 of the Act, the assessee had offered such interest income for tax and paid the taxes and, therefore, the AO had rightly levied the penalty u/s 270A of the Act. With regard the immunity u/s 270AA, it was submitted that the assessee had not filed the application as envisaged u/s 270AA of the Act, therefore, the assessee was not entitled for immunity. 

The Tribunal observed that based on some legal advise and by placing reliance upon the judgment of the Hon’ble Supreme Court, the assessee claimed interest as exempt u/s 10(37) of the Act. The assessee also placed reliance upon certain judgments of various benches of the Tribunal wherein it was held that interest received on enhanced compensation is exempt u/s 10(37) of the Act. When the assessee received the notices u/s 148 of the Act and also after obtaining legal advise, it was came to his notice that law has been changed in view of the judgment of Hon’ble Supreme Court. Thus, as a law abiding citizen, assessee immediately included such interest in the total income in the return filed in response to notice u/s 148 of the Act and paid due tax alongwith interest.

The Tribunal opined that all the series of events clearly established that assessee had acted bonafidely and never attempted to under report any income. Here, the immunity granted u/s 270AA of the Act was also available to the assessee as assessee had satisfied all the conditions of section 270AA as due taxes have been paid and no appeal is preferred against the re-assessment order so passed. Merely because assessee has failed to file the petition as prescribed u/s 270AA, he was denied to such immunity. However, in view of the looking age of the assessee i.e. 94 years and also looking to the facts that he had no intention to ended tax and acted bonafidely, the assessee should be granted immunity u/s 270AA of the Act and no penalty should be levied in the case of the assessee for under reporting of income u/s 270A of the Act.

The Tribunal further observed that neither in the assessment order nor in the penalty order, the AO had recorded the satisfaction that as to which specific circumstances or instances as provided in clause (a) to (g) of sub-section 2 of section 270A by virtue of which, the income of the assessee could be held as under reported is invoked. Nor the same was not communicated to the assessee so as to allow him an opportunity to explain his case. Under these circumstances, the entire penalty proceedings were invalid and, thus, untenable in the eye of law.

Consequently, the Tribunal held that the penalty imposed u/s 270A of the Act was bad in law and quashed it.

On merits also, the Tribunal observed that the assessee had acted bonafidely and followed the judgments of the Hon’ble Supreme Court which was directly applicable and was in his favour, therefore, where the issue was highly debatable and assessee had opted to choose one of the possible views, it cannot be said that assessee was having any intention to evade any tax by under reporting income. Under these circumstances, the assessee would succeed on the merits also. 

Accordingly, the penalty levied u/s 270A was deleted. 

Download Full Judgment Click Here >>

• Where proceedings u/s 153C barred by limitation, AO can’t invoke section 148 & 148A
• Corporate guarantees executed by corporate debtor constitute “financial debt” under IBC
• Canara Bank Online Concurrent Auditors Empanelment 2026-27. Last Date 09.05.2026
• CIT(E) should have provided opportunity to assessee to produce documents – ITAT
• ITAT condemns callous approach of ITD making assessee shuttle between CPC & AO