Mumbai ITAT Quashes Section 270A Penalty — Absence of Specific Clause in Notice Proves Fatal

Case Overview

Anshul Specialty Molecules Pvt. Ltd. Vs DCIT (ITAT Mumbai)
Assessment Year: 2019-20
Penalty Quashed: ₹5,57,203/-
Order Pronounced: 01/06/2026

The Mumbai Bench of the Income Tax Appellate Tribunal delivered a significant ruling in the matter of penalty proceedings initiated under Section 270A of the Income Tax Act, 1961. The Tribunal set aside a penalty of ₹5,57,203/- levied on the assessee, holding that the Assessing Officer's failure to identify the precise clause of Section 270A(2) under which the alleged under-reporting of income was attracted rendered the entire penalty proceedings legally unsustainable.

Background and Business Profile of the Assessee

Anshul Specialty Molecules Pvt. Ltd. is a company engaged in the manufacture and sale of pharma intermediates, flavour, fragrance, and specialty chemicals, catering to both domestic and international markets. The company also carries out investment activities.

For Assessment Year 2019-20, the assessee filed its original return of income on 06.11.2019, declaring total income of ₹20,30,62,240/-, comprising income from profit and gains from business, Short Term Capital Gain (STCG), and Long Term Capital Gain (LTCG).

Assessment Proceedings and Disallowance Under Section 14A

The assessee's case was picked up for scrutiny, and notices under Section 143(2) and Section 142(1) of the Income Tax Act, 1961 were issued and duly served.

During the course of assessment, the Assessing Officer noted that the assessee had received dividend income of ₹8,93,27,568/- and had claimed this as exempt income in its return. The Assessing Officer observed that the assessee had not segregated its expenditure between amounts incurred for earning exempt income and those incurred for earning taxable income.

Invoking Section 14A read with Rule 8D of the Income Tax Rules, the Assessing Officer computed a disallowance equivalent to 1% of the annual average of the monthly average of opening and closing balances of the total value of investments, arriving at a disallowance of ₹38,26,982/-.

The assessment order was passed on 30.09.2021 under Section 143(3) read with Section 144B of the Act, determining the total assessed income at ₹20,68,89,222/-.

Simultaneously, the Assessing Officer initiated penalty proceedings under Section 270A of the Act for alleged under-reporting of income, and subsequently passed a penalty order dated 21.03.2025, levying a penalty of ₹5,57,203/-.

First Appeal Before CIT(A) — NFAC

The assessee challenged the penalty before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC). However, the CIT(A) upheld the penalty on the ground that the assessee had not been able to demonstrate that all relevant facts had been disclosed along with supporting documentary evidence.

Dissatisfied with this outcome, the assessee filed an appeal before the ITAT Mumbai.

Grounds of Appeal Raised Before ITAT

The assessee raised both primary grounds and additional grounds of appeal before the Tribunal. The primary grounds challenged the penalty on merits, including: