ITAT Mumbai Quashes Section 270A Penalty of Rs. 3.22 Crore: Non-Specification of Misreporting Limb Renders Penalty Proceedings Void

Case Reference

Monisha Ravi Jaising Vs ACIT (ITAT Mumbai)
Assessment Year: 2022-23
Order Date: 20/04/2026

Background and Factual Matrix

The present case arose from a penalty dispute concerning an individual assessee whose return of income for A.Y. 2022-23 was subjected to scrutiny assessment. The assessee had filed her return on 31.12.2022 declaring total income of Rs. 1,15,54,630/-. During the course of assessment proceedings, the Assessing Officer noticed a property sale transaction reported by the buyer in TDS returns filed in Form No. 26QB, which did not find any mention in the assessee's filed return of income. The AO also found the existence of a substantial self-assessment tax refund, which he considered anomalous.

Facts Regarding the Property Transaction

The assessee explained that she had entered into a sale agreement for a flat on 31.03.2022 with Shri Anil R. Malhotra and Seema A. Malhotra, at a total sale consideration of Rs. 12,11,40,000/-. The buyer had deducted TDS on the said consideration under Section 194-IA of the Income Tax Act, 1961 and deposited the same into the government account on 31.03.2022, which accordingly reflected in Form 26AS for the relevant year.

However, the assessee's position was that:

  • Physical possession of the flat was transferred to the buyer only after receipt of full payment and registration of the sale deed, which occurred on 11.05.2022
  • The transfer of shares of the cooperative housing society in which the flat was situated took place on 28.06.2022
  • On account of the above, the transfer of the property — for income tax purposes — fell in A.Y. 2023-24 and not A.Y. 2022-23

The assessee further stated that she had initially paid self-assessment tax of Rs. 1,48,00,000/- anticipating inclusion of Long Term Capital Gains (LTCG) in her return. However, on being advised that the capital gain was not taxable in A.Y. 2022-23, she filed her return without reporting the LTCG, which resulted in the earlier self-assessment tax payment being processed as a refund.

Assessment and Penalty Proceedings

The Assessing Officer rejected the assessee's explanation and computed LTCG from the property sale at Rs. 5,66,56,708/-, which was added to the assessee's total income for A.Y. 2022-23. Penalty proceedings were also initiated under Section 270A of the Income Tax Act, 1961.

Notably, the assessee did not prefer any appeal against the quantum assessment order and accepted the AO's addition.

Subsequently, the AO issued a show cause notice for levy of penalty and, after considering the assessee's reply, concluded that it was a fit case for levy of penalty for "under-reporting of income in consequence of misreporting". The penalty was computed at 200% of the tax on the under-reported income by invoking Section 270A(9), resulting in a penalty of Rs. 3,22,89,792/-.

Submissions Before CIT(A)

Assessee's Arguments

Before the Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre (NFAC), Delhi, the assessee made comprehensive submissions on multiple grounds:

1. Bona Fide Conduct and Prior Tax Payment

The assessee contended that the omission to report LTCG was purely a result of an inadvertent error by the accountant. Crucially, the assessee had already discharged her tax liability by paying Rs. 1,48,00,000/- towards LTCG even before filing the return of income, and TDS had also been deducted by the buyer under Section 194-IA. This conduct, it was argued, demonstrated bona fide intent to comply with tax obligations and negated any allegation of concealment.

2. Exception Under Section 270A(6)(a)

It was submitted that since the assessee had suo moto disclosed the transaction and furnished all relevant details during assessment proceedings, and the AO had computed LTCG based on those very particulars, the case fell squarely within the exception carved out under Section 270A(6)(a) — which provides that no under-reporting exists where the assessee offers a bona fide explanation and discloses all material facts.

3. Assessee Cannot Be Penalized for Advisor's Error