ITAT Hyderabad strikes down Section 270A(9) misreporting penalty when reopened return is accepted without variation

Background and significance of the ruling

The Hyderabad Bench of the Income Tax Appellate Tribunal, in the case of Sree Tharakarama Constructions Vs ACIT, has delivered an important ruling on the distinction between under-reporting and misreporting of income under Section 270A of the Income Tax Act 1961.

The Tribunal deleted a penalty of Rs. 11,03,872 that had been levied under Section 270A(9) for alleged misreporting, in a situation where:

  • The assessee had not filed the original return under Section 139
  • The case was reopened under Section 147 and notice under Section 148 was issued
  • The assessee thereafter filed a return in response to Section 148
  • The returned income was accepted in full by the Assessing Officer (AO) without any addition or adjustment

The ITAT held that such a situation may at best constitute a case of under-reporting within Section 270A(2), but does not amount to misreporting under Section 270A(9) in the absence of specific findings of misrepresentation, suppression of facts, or any of the other circumstances expressly listed in the statute.

This decision provides critical clarity for assessees facing penalty exposure under the new penalty regime introduced by Section 270A, especially in reassessment scenarios following a survey.

Procedural history of the case

Appeal and delay condonation

  • The assessee, Sree Tharakarama Constructions, filed an appeal before the ITAT against the order of the CIT(Appeals)-12, Hyderabad dated 27.06.2025 for Assessment Year 2017-18.
  • There was a delay of 10 days in filing the appeal.
  • The assessee submitted a petition for condonation of delay supported by an affidavit explaining that:
    • He is a senior citizen, around 74 years old
    • He suffered from serious age-related ailments
    • He had undergone surgery for a gland exposed from the heart
    • He was under continuous medical treatment at Nalgonda and could not travel without assistance
    • A medical certificate from the treating doctor was produced

The Authorised Representative (AR) argued that the delay was involuntary and purely due to health reasons, which were beyond the assessee’s control.

The Departmental Representative (DR) did not seriously oppose the condonation.

After examining the affidavit and medical evidence, the Tribunal held that:

The reasons advanced constituted “reasonable and sufficient cause” preventing timely filing of appeal, and therefore, in the interest of justice, the delay of 10 days was condoned and the appeal was admitted for decision on merits.

Core dispute – penalty under Section 270A(9)

Grounds raised by the assessee

The assessee challenged the penalty primarily on the following broad planks (rephrased in substance):

  1. The penalty order passed under Section 270A and its confirmation by the CIT(A) are erroneous in law and on facts.
  2. The AO allegedly lacked jurisdiction even to issue notice under Section 148 and to complete the reassessment, alleged to be contrary to **CBDT Instruction No. 1 of 2011; therefore, any consequential penalty under Section 270A` was also claimed to be bad in law.
  3. It was argued that the case did not fall under either under-reporting or misreporting as contemplated in Section 270A(2) or Section 270A(9) because the assessee only filed the return belatedly and there was no concealment or suppression.
  4. The assessee highlighted that the return filed in response to Section 148 was accepted in toto without any modification and that corresponding tax and interest were duly paid. Consequently, mere delay in filing the return could not be equated with misreporting.
  5. It was contended that income declared was estimated by the assessee himself, no incriminating material indicating concealment was found during survey, and thus there was no basis for alleging either under-reporting or misreporting.
  6. The assessee strongly contested the approach of treating failure to file the original return as “misreporting” under Section 270A(9)(a), especially when the return was eventually filed and accepted.
  7. An additional jurisdictional ground was also raised questioning the validity of the assessment and penalty orders in the absence of a proper order under Section 127 transferring jurisdiction.