ITAT Delhi on Section 270A: Penalty Invalid Without Specific Charge and Where Claim Is Debatable

Background and Context

Section 270A of the Income Tax Act 1961 introduced a new framework for imposing penalty on account of “under-reporting” and “misreporting” of income. Unlike the earlier regime under Section 271(1)(c), the new provision is more structured and hinges on clearly defined instances listed in Section 270A(9)(a) to 270A(9)(f) that constitute “misreporting”.

The decision of the Delhi Bench of the ITAT in Jagmohan Motors Pvt. Ltd. Vs ACIT examines two critical aspects of this penalty provision:

  • Whether penalty can be sustained when the penalty notice does not specify the exact statutory limb/clause of Section 270A(9) allegedly violated; and
  • Whether penalty for misreporting/under-reporting can be imposed when the underlying disallowance arises from a bona fide and debatable legal issue, namely whether riot-related damages are capital or revenue in nature.

The Tribunal ultimately annulled the penalty, offering important guidance for both the Revenue and assessees on how Section 270A should be invoked and defended.

Facts of the Case

Assessment and Additions

  1. The assessee, Jagmohan Motors Pvt. Ltd., was assessed for Assessment Year 2017-18 under Section 143(3) by order dated 27.12.2019.
  2. In this scrutiny assessment, the Assessing Officer (AO) made total additions of ₹2,98,66,092.
  3. On appeal, the CIT(A) deleted most of these additions, sustaining only one disallowance aggregating to ₹52,65,499.

Nature of Surviving Disallowance

  • The remaining addition of ₹52.65 lakh related to a loss claimed as revenue expenditure by the assessee on account of damage caused during riots/vandalism.
  • The assessee had treated this as a revenue loss in its profit and loss account.
  • The CIT(A) held that the amount was not allowable as claimed; the assessee did not further contest this disallowance in quantum proceedings.

Penalty Proceedings under Section 270A

  • Subsequent to the assessment, the AO initiated penalty proceedings under Section 270A.

  • A series of penalty notices were issued to the assessee on the following dates:

    • 27.12.2019
    • 31.05.2021
    • 23.07.2021
    • 21.12.2021
    • 06.06.2025

  • These notices broadly mentioned initiation of penalty but did not spell out:

    • Whether the charge was “under-reporting” or “misreporting” of income; and
    • Under which precise clause of Section 270A(9)(a) to (f) the assessee’s conduct was alleged to fall.

  • Eventually, by penalty order dated 27.06.2025, the AO levied penalty of ₹9,11,142 (the body of the order mentions a figure of ₹36,4,568, but the appeal and grounds focus on the penalty of ₹9,11,142) treating the disallowance as a case of misreporting under Section 270A(8) r.w.s. 270A(9)(a).

Order of CIT(A) / NFAC

  • The assessee challenged this penalty order before the CIT(A)/NFAC.
  • The first appellate authority confirmed the action of the AO and upheld the penalty under Section 270A.

Grounds Before the ITAT

The assessee approached the ITAT, broadly contending: