Visakhapatnam ITAT Deletes ₹2.59 Crore Penalty Under Section 270A(9) and Section 271AAD in Post-Search Disclosure Case

Background and Context

A significant ruling has emerged from the Income Tax Appellate Tribunal, Visakhapatnam Bench, in the matter of Ghanta Srinivas Vs DCIT (ITAT Visakhapatnam), concerning ITA Nos. 172/VIZ/2026 and 173/VIZ/2026 for Assessment Year 2022-23. The case presents critical guidance on the legality of penalty proceedings under Section 270A(9) and Section 271AAD of the Income Tax Act, 1961, particularly where the Assessing Officer accepts the additional income disclosed by an assessee following search proceedings without making any independent addition.

The assessee, a medical practitioner based in Guntur, had originally filed his return of income for AY 2022-23 on 29.09.2022, declaring total income of ₹48,97,990/-. A search and seizure operation under Section 132 of the Income Tax Act, 1961 was carried out at his premises on 12.12.2022, during which cash amounting to ₹5,24,18,100/- was found and seized by the department.

Facts of the Case

Search, Seizure, and Subsequent Disclosure

When called upon to explain the source of the seized cash, the assessee initially offered varying explanations — at first attributing the cash to proceeds from agricultural land sales, flat transactions, and maturity of chit fund amounts. He later retracted these statements and maintained that the entire cash represented unaccounted professional receipts accumulated over two financial years.

Accordingly, the assessee agreed to offer the entire seized amount of ₹5,24,18,100/- as additional professional income spread across AY 2022-23 and AY 2023-24. Since the statutory deadline for filing a revised return for AY 2022-23 had already lapsed, he submitted a revised statement of total income during the course of assessment proceedings, admitting ₹3,03,74,646/- as additional income attributable to AY 2022-23, and paid the applicable taxes thereon. For AY 2023-24, the balance of ₹2,20,43,454/- was disclosed in the return of income filed for that year.

Assessment Completed Without Any Further Addition

The Assessing Officer completed the assessment under Section 143(3) of the Income Tax Act, 1961 on 19.01.2024 and assessed total income at ₹3,72,41,820/- entirely on the basis of the revised computation submitted by the assessee, without making any independent addition whatsoever.

Despite accepting the assessee's revised figures without modification, the Assessing Officer simultaneously:

1. Initiated and levied penalty under Section 270A(9) for under-reporting of income in consequence of misreporting — computed at 200% of the tax on suppressed income, amounting to ₹2,59,14,274/-
2. Initiated separate penalty proceedings under Section 271AAD for alleged omission of professional receipts from the books of accounts

The penalty computation under Section 270A(9) was as follows:

Arguments Before the Tribunal

Assessee's Contentions

The learned Counsel for the assessee, Shri M.V. Prasad, CA, advanced multiple grounds before the Tribunal challenging the validity and sustainability of both penalties:

Ground 1 — Vague Show Cause Notice Under Section 274 Read With Section 270A

The assessee's primary legal argument was that the show cause notice issued under Section 274 read with Section 270A was fatally defective, as it failed to identify the specific sub-clause of Section 270A(9) under which the penalty was being proposed. Section 270A(9) contains six distinct limbs — clauses (a) through (f) — each addressing a different category of misreporting:

• Misrepresentation or suppression of facts
• Failure to record investments in books of account
• Recording of false entries in books of account
• Claim of expenditure not substantiated by evidence
• Failure to record receipts in books of account
• Other specified circumstances