AO fails to Specify Sub-Clause u/s 270A(9): ITAT deletes Penalty for Under-Reporting [Read Order]

The Dehradun Bench of Income Tax Appellate Tribunal ( ITAT ) deleted penalty for under-reporting of Income, holding that the Assessing Officer (AO) failed to specify the relevant sub-clause of Section 270A(9) of Income Tax Act,1961,while initiating proceedings.

Himalayan Vacations Private Limited, appellant-assessee, filed its income tax return declaring a total income of Rs. 85,03,260. The case was selected for limited scrutiny to examine business expenses. During the assessment, the AO disallowed Rs. 5,76,822 from Sales Promotion Expenses and initiated penalty proceedings under Section 270A for underreporting of income due to misreporting.

The AO imposed a penalty of Rs. 3,56,478 under Section 270A(9)(a), calculated at 200% of the tax payable on the underreported income. The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who dismissed the appeal on 20th January 2025. Aggrieved, the assessee approached the tribunal.

The assessee counsel argued that the show cause notice dated 8th February 2021 did not specify under which sub-clause of Section 270A(9) the penalty proceedings were initiated. He also pointed out that neither the assessment order nor the notice mentioned which specific instance under Section 270A(9) was invoked to claim that the income had been underreported, and requested the penalty be deleted.

In contrast, the Departmental counsel argued that the assessee admitted the disallowance after verification by the AO, indicating that the income was underreported due to misrepresentation or suppression of facts. He stated that Section 270A(9)(a) was correctly invoked and requested the penalty be upheld.

The Tribunal heard both parties and reviewed the records. It was observed that the AO, in the show cause notice issued for penalty proceedings, had not specified under which sub-clause of Section 270A(9) the penalty was initiated. The notice merely mentioned “under-reported income due to misreporting” without indicating the applicable limb of Section 270A.

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The two member bench comprising Yogesh Kumar U.S (Judicial Member) and Manish Agarwal (Accountant Member) noted that the assessment order also did not clarify which instance under Section 270A(9) was invoked. It referred to the Hon’ble Delhi High Court’s decision in Schneider Electric South Asia (HQ) PTE Ltd. vs. ACIT (2022), where the Court held that in the absence of such particulars, a penalty imposed under Section 270A is bad in law.

The appellate tribunal also relied on its coordinate bench ruling in DD Target PMT Pvt. Ltd. vs. DCIT, which followed the same principle and deleted the penalty.

Applying these precedents, the tribunal held that the AO had failed to specify the relevant sub-clause of Section 270A(9) in the present case. As a result, the penalty under Section 270A was deleted, and all grounds of appeal raised by the assessee were allowed.

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