Mumbai ITAT: Reclassification of Disclosed Income to a Different Head Cannot Attract Penalty Under Section 271(1)(c)

Case Overview

Case Name: Growell Consultants Private Limited Vs National Faceless Appeal Centre (NFAC)/ITO (ITAT Mumbai)
Appeal Number: ITA No. 3891/MUM/2026
Date of Order: 24/08/2026
Assessment Year: 2012-13
Forum: Income Tax Appellate Tribunal, Mumbai Bench

Background and Factual Matrix

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) delivered a significant ruling in the matter of Growell Consultants Private Limited, a company engaged in financial activities, securities dealings, and the provision of professional and advisory services. The appeal arose from a penalty order that had been confirmed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi, vide its order dated 26.02.2026 pertaining to Assessment Year 2012-13.

The assessee had originally filed its return of income on 30.09.2012, declaring a loss of Rs.9,51,374/-. The assessment was subsequently reopened, and a reassessment was completed under Section 143(3) read with Section 147 of the Income-tax Act, 1961 on 02.12.2019. During the course of reassessment proceedings, the Assessing Officer (AO) took the view that licence/rental income of Rs.6,16,000/-, which had been offered by the assessee under the head "Profits and Gains of Business or Profession", was in fact assessable under the head "Income from House Property". On this basis, the AO made an addition of Rs.6,16,000/- and assessed the total income at Rs.60,090/-.

Following the completion of reassessment, the AO initiated penalty proceedings under Section 271(1)(c) of the Income-tax Act, 1961, issued a show-cause notice to the assessee, and ultimately levied a penalty of Rs.1,90,344/-.

The CIT(A)'s Order Sustaining the Penalty

The assessee challenged the penalty before the CIT(A), NFAC, Delhi. However, the CIT(A) declined to grant relief and sustained the penalty, primarily on the reasoning that the income had not been reported under the correct head as finally determined by the AO, and that the relevant particulars came to light only during reassessment proceedings initiated by the department.

The CIT(A) recorded the following observations in the order:

"In this case the addition was not disclosed by assessee suo-moto but detected during proceedings u/s 143(3) read with section 147 of the I.T. Act, 1961. It is clear that these particulars were not furnished income in the return as per the provisions of the Act during filing of return, but were detected by the Assessing officer after action u/s 143(3) read with section 147 of the I.T. Act, 1961 by the department during the assessment proceedings. These grounds of appeal raised by the assessee are unsubstantiated and vague. The order has been passed as per procedure prescribed in the Act and the order passed by Assessing Officer is justified and ample opportunities were provided during assessment and penalty proceedings to substantiate its claim but appellant failed to do so, hence the ground raised is hereby dismissed being devoid on merit."

The CIT(A) further concluded: