ITAT Mumbai Holds No Section 270A Penalty for Bona Fide PAN Status Error in Co‑operative Society Case

Background of the Dispute

The matter in Mithibai College Employees Co Operative Credit Society Limited Vs ITO (ITAT Mumbai) revolves around the levy of penalty under Section 270A of the Income Tax Act 1961 on a co-operative credit society that was inadvertently allotted an incorrect PAN category.

The assessee is a co-operative credit society registered under the Maharashtra State Co-operative Societies Act, 1960, engaged in mobilising deposits from its members and granting loans to them as per its bye-laws. Despite being a co-operative society, it was mistakenly issued a PAN under the status “Firm” rather than the correct status of a co-operative society/Association of Persons (AOP).

This misclassification ultimately led to:

  • Technical problems in filing its return of income, and
  • Inability to claim deduction under Section 80P(2)(d) in the electronic system,
    which in turn triggered reassessment and subsequent penalty proceedings under Section 270A.

The penalty, which was confirmed by the NFAC/CIT(A), was eventually struck down by the ITAT Mumbai in its order dated 30.06.2026.

Chronology of Facts

Registration and PAN Allotment

  • The assessee is a duly registered co-operative credit society under the Maharashtra State Co-operative Societies Act, 1960.
  • It is not a partnership firm or LLP and has no partnership deed.
  • Due to an error at the time of PAN allotment, the assessee was categorised under the status “Firm” in the PAN database, instead of being shown as a co-operative society/AOP.

Reassessment and Claim under Section 80P(2)(d)

  1. A notice under Section 148 was issued for A.Y. 2017-18.

  2. When the assessee attempted to file the return in response to this notice, the e-filing portal would not permit claiming deduction under Section 80P(2)(d) because the PAN status was tagged as “Firm”.

  3. During reassessment proceedings, the assessee:

    • Disclosed interest income of ₹5,23,417 earned from Saraswat Co-operative Bank, and
    • Claimed deduction under Section 80P(2)(d) in respect of this interest, asserting its true character as a co-operative credit society.

  4. The Assessing Officer (AO):

    • Denied the deduction under Section 80P(2)(d),
    • Treated the interest income of ₹5,23,417 as taxable,
    • Initiated penalty proceedings under Section 270A, and
    • Ultimately levied penalty for “under-reporting of income in consequence of misreporting”.

  5. The CIT(A)/NFAC, by order dated 11.11.2025, upheld the penalty in appeal.

The assessee then approached the ITAT Mumbai solely on the penalty issue.

Grounds Raised before the Tribunal

The assessee challenged the penalty order on multiple legal and factual grounds, broadly structured as follows: