ITAT Ahmedabad Cancels Section 270A Misreporting Penalty on Withdrawn Political Donation Deduction

The Ahmedabad Bench of the Income Tax Appellate Tribunal in Abhishek Jayraj Karnani Vs ITO (ITAT Ahmedabad) has held that merely withdrawing a deduction claimed for a political donation does not, by itself, establish “misreporting of income” under Section 270A(9)(c) of the Income Tax Act 1961.

The Tribunal deleted a penalty of ₹3,12,000 imposed under Section 270A relating to Assessment Year **2019-20`, observing that the conditions required for treating the case as “misreporting” had not been independently and clearly demonstrated by the Revenue.

Factual Matrix: Political Donation Deduction and Reassessment

Original Return and Deduction Claim

  • The assessee was a salaried individual.
  • He filed his original income tax return on 31.08.2019 declaring a total income of ₹13,29,300.
  • In this return, he claimed a deduction of ₹5,00,000 under Section 80GGC for a political contribution to **Yuva Jan Jagruti Party`.
  • This claim was specifically and transparently reflected in the return; there was no concealment of the fact of donation or of the deduction claimed.

Trigger for Reopening: Search on Political Party

  • Subsequently, search and seizure action was carried out in the case of **Yuva Jan Jagruti Party`.
  • Based on information generated from those proceedings, the Assessing Officer initiated action under Section 148A.
  • Thereafter, a notice under Section 148 was issued to the assessee for reopening the assessment for AY 2019-20.

Return Filed in Response to Section 148

  • In response to the reopening, the assessee filed a fresh return of income.
  • In that return, he declared a higher income of ₹18,29,300, i.e., he withdrew the earlier deduction under Section 80GGC of **₹5,00,000`.
  • He also paid the corresponding tax and interest arising due to this withdrawal.

Reassessment Completed Without Further Additions

  • The reassessment was completed on 10.12.2024 under Section 147 read with Section 144B.
  • The Assessing Officer accepted the income as declared in response to the Section 148 notice.
  • Importantly, no further addition beyond the withdrawn deduction was made in the reassessment order.

Penalty Proceedings Under Section 270A

Basis for Penalty

  • Despite accepting the reassessment return as such, the Assessing Officer initiated penalty proceedings.
  • The withdrawn deduction of ₹5,00,000 under Section 80GGC was treated as under-reported income in consequence of misreporting.
  • A penalty of ₹3,12,000 was levied under Section 270A(9)(c), applying the higher rate of 200% for misreporting.

Grounds Raised Before CIT(A) and ITAT

The assessee challenged the penalty, contending broadly that:

  • The deduction was fully disclosed in the original return; there was no concealment.
  • After reopening, the assessee voluntarily withdrew the deduction, offered it to tax and paid due tax and interest.
  • Penalty under Section 270A(9)(c) is aimed at situations like “claim of expenditure not substantiated by any evidence” and similar misreporting situations; those conditions were not established in this case.
  • Therefore, the case, at most, could involve under-reporting, but the Revenue had not properly made out the specific statutory preconditions for misreporting.

The CIT(A) – NFAC, Delhi, however, confirmed the penalty. The assessee then carried the matter to the ITAT Ahmedabad.

Tribunal’s Analysis: Disclosure, Withdrawal, and Misreporting

Full Disclosure in Original Return

The Tribunal first recorded that: