ITAT Ahmedabad on Misreporting Penalties under Section 270A: Why a Vague Charge Fails

Background of the Dispute

The Ahmedabad Bench of the Income Tax Appellate Tribunal in Sharad Shishir Kabra Vs ITO examined the validity of a penalty levied under Section 270A(9) of the Income Tax Act 1961. The core question was whether a penalty alleging “misreporting” can stand when the Assessing Officer does not clearly identify the precise category of misreporting specified in Section 270A(9)(a) to Section 270A(9)(g).

The matter arose out of a reassessment for Assessment Year 2019-2020 framed under Section 147 read with Section 144B. In that reassessment, the Assessing Officer:

  • Disallowed a deduction claim of INR 8,00,000 made under Section 80GGC
  • The claim related to an alleged political contribution to Manvadhikar National Party
  • Consequently, treated the amount as income and completed the reassessment
  • Subsequently initiated penalty proceedings under Section 270A

Thereafter, by order dated 20/08/2025, the Assessing Officer imposed a penalty of INR 4,99,200, categorising it as under-reporting of income “in consequence of misreporting” under Section 270A(9).

The first appellate authority, the National Faceless Appeal Centre (NFAC), acting as CIT(A), dismissed the assessee’s appeal by order dated **21/03/2026`. The assessee then carried the matter to the Tribunal, challenging the imposition of penalty on all grounds.

Note: The Tribunal confined itself strictly to the legality of the penalty. It did not rule on whether the Section 80GGC deduction was substantively allowable or whether the donation was genuine.

Statutory Framework: Under-Reporting vs Misreporting

Structure of Section 270A

The Tribunal began its analysis by examining the scheme of Section 270A:

  • Section 270A(2) lists various situations treated as under-reporting of income (Section 270A(2)(a) to Section 270A(2)(g)).
  • When under-reporting is identified, the assessee is entitled to offer an explanation.
  • Section 270A(6)(a) provides circumstances where under-reported income will not attract penalty, if the explanation is satisfactory and bona fide.
  • If the assessee’s explanation fails the test in Section 270A(6)(a), the Assessing Officer may levy a standard penalty at 50% of the tax on under-reported income under Section 270A(7).

However, the position changes when the Assessing Officer alleges misreporting:

  • Section 270A(8) prescribes a harsher penalty of 200% of the tax payable on the under-reported income where such under-reporting results from misreporting.
  • Section 270A(9) then enumerates exhaustive categories of conduct that are treated as “misreporting of income” (Section 270A(9)(a) to Section 270A(9)(g)).

Distinct Stages in Penalty Proceedings

From a combined reading of these provisions, the Tribunal highlighted two separate and sequential steps:

  1. First Stage – Under-reporting determination
    • Identify if any of the instances listed in Section 270A(2)(a) to Section 270A(2)(g) apply.
    • Consider the assessee’s explanation in light of Section 270A(6)(a) and related provisions.
    • If the explanation is not acceptable under the statute, levy penalty at 50% under Section 270A(7).