ITAT Mumbai Deletes Section 270A Penalty Against Charitable Trust: No Under-Reporting When Assessed Income Remains Nil
Overview of the Case
The Mumbai Bench of the Income Tax Appellate Tribunal delivered a significant ruling in Podar Literacy and Education Trust Vs DCIT (ITAT Mumbai), bearing Appeal No. ITA No. 4762/Mum/2025, pronounced on 09.12.2025 for Assessment Year 2017-18. The Tribunal set aside a penalty of ₹37,61,672/- imposed under Section 270A of the Income-tax Act, 1961, holding that the statutory preconditions for levy of such penalty were simply not met in the facts and circumstances of the case.
The core question before the Tribunal was a nuanced but fundamentally important one: does the disallowance of a depreciation claim — even one that is legally impermissible — automatically constitute "under-reporting of income" under Section 270A when the assessee's total income, both returned and assessed, remains at Nil throughout?
Background and Facts of the Case
About the Assessee
Podar Literacy and Education Trust is a public charitable trust, duly registered under Section 12AA(1)(b)(i) of the Income-tax Act, 1961 and approved under Section 10(23C)(vi). Its income, subject to fulfillment of the prescribed statutory conditions, is exempt under Section 11 of the Act.
Filing of Return and Search Proceedings
For Assessment Year 2017-18, the trust filed its return of income declaring total income at Nil. Subsequently, a search and seizure operation under Section 132 and a survey under Section 133A were conducted on the Podar Education Group on 09.01.2018, under which the trust was also covered. Following these proceedings, the trust filed a fresh return under Section 153A, once again disclosing total income at Nil.
Completion of Assessment
The Assessing Officer completed the assessment under Section 143(3) read with Section 153A vide order dated 27.12.2019, determining the total income at Nil. However, during the course of assessment, the Assessing Officer disallowed depreciation amounting to ₹2,19,21,165/- on the ground that the acquisition cost of the relevant assets had already been treated as application of income in prior years. The disallowance was rooted in Section 11(6) of the Act, which bars a double deduction — once by way of treating acquisition cost as application of income, and again by way of depreciation on the same assets.
Crucially, even after this disallowance, the assessed income of the trust remained at Nil. No positive taxable income emerged. No declared loss was reduced. No loss was converted into income.
Initiation of Penalty Proceedings Under Section 270A
Despite the total income continuing to be Nil post-disallowance, the Assessing Officer recorded a finding that the trust had under-reported its income to the extent of ₹2,19,21,165/- and initiated penalty proceedings under Section 270A.
The trust filed detailed replies in response to the notices, submitting that:
- The depreciation claim was made in good faith and was not accompanied by any concealment or misrepresentation of facts.
- Its income was otherwise exempt under
Section 11and no taxable income resulted from the disallowance. - No tax benefit or tax advantage of any kind had accrued to it as a consequence of the claim.