Introduction
The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, in Nisha Yogeshkumar Darji v. Income Tax Officer (ITA No. 759/AHD/2026, pronounced on 30 July 2026), delivered a significant ruling on the scope of penalty under Section 270A of the Income Tax Act, 1961. The case arose from the disallowance of a deduction claimed under Section 80GGC and the consequent penalty levied for alleged “misreporting of income.” The Tribunal, following the co-ordinate bench decision in Hiro Mulchand Tanwani v. ITO (ITA No.110/AHD/2026), held that such a penalty cannot be sustained merely because a deduction claimed in the return is disallowed during assessment. The Tribunal also found that the Assessing Officer had failed to specify the applicable limb of Section 270A(9), which was independently fatal to the penalty.
Facts
For Assessment Year 2019-20, the assessee filed a return of income claiming a deduction of ₹3,00,000 under Section 80GGC of the Act, being a donation made to a political party, namely Rashtriya Samajwadi Party (Secular). The department had, after search and seizure action under Section 132, received information that certain unrecognized political parties were being used to solicit bogus donations in lieu of commission, with donations ultimately returned to the donors.
On this basis, the Assessing Officer reopened the assessment under Section 147 by issuing notice under Section 148 dated 24 April 2023. Thereafter, the Assessment Order under Section 147/144 was passed on 15 March 2025, disallowing the donation deduction. Consequently, the total income was assessed at ₹18,92,370 as against the returned income. Penalty proceedings under Section 270A were initiated, and the Assessing Officer levied a penalty of ₹1,87,200, being 200% of the tax payable on income under-reported in consequence of misreporting. The assessee’s appeal before the learned CIT(A) was dismissed by the National Faceless Appeal Centre, Delhi, by order dated 9 January 2026. Aggrieved, the assessee approached the ITAT.
Reasoning
The Tribunal’s reasoning is instructive because it cleanly separates the quantum assessment exercise from the penalty jurisdiction. At the outset, the Tribunal noted that the issue stood covered by the co-ordinate bench decision in Hiro Mulchand Tanwani, in which the ITAT considered near-identical facts involving a Section 80GGC donation to a political party.
The foundational principle reiterated by the Tribunal is that penalty proceedings are distinct and independent from assessment proceedings. The findings recorded in an Assessment Order are not conclusive for the purpose of levy of penalty. This is a cardinal rule under the tax law framework, and the Tribunal applied it without hesitation. Merely because the Assessing Officer disallowed a deduction during reassessment does not automatically lead to the conclusion that the assessee had furnished inaccurate particulars or suppressed facts.
The Tribunal also emphasized the statutory distinction drawn by Section 270A between “under-reporting of income” and “misreporting of income.” The expression “misreporting” is not a catch-all phrase. It is attracted only in specific circumstances enumerated in sub-section (9), such as misrepresentation or suppression of facts, failure to record investments, claiming expenditure not substantiated by evidence, recording false entries, or failure to report receipts. Each of these circumstances involves some element of deliberateness or mens rea. In the present case, the assessee had transparently disclosed the donation in the return of income and claimed the deduction on the basis of a belief that the payment qualified for Section 80GGC. The disallowance arose because the Assessing Officer was not satisfied about the genuineness or eligibility of the donation. That, by itself, is insufficient to convert a bona fide claim into a case of misreporting.
Another important aspect was the treatment of the assessee’s failure to challenge the quantum addition. The Revenue appeared to suggest that accepting the addition without filing an appeal amounted to an admission of concealment. The Tribunal rejected this position. The fact that the assessee may have chosen not to contest a disallowance because of the relatively small amount involved, or to avoid prolonged litigation, cannot be equated with an admission of furnishing false particulars. This reasoning is particularly useful for taxpayers who, for pragmatic reasons, decide not to pursue quantum litigation but still wish to contest punitive penalties.
The Tribunal observed that there was no material on record to establish that the assessee furnished false evidence, suppressed any facts, or made any deliberate misrepresentation. A claim of deduction made in the return, even if ultimately found to be inadmissible, does not automatically amount to misreporting. Unless the Revenue demonstrates with cogent evidence that the claim was bogus and knowingly made on the basis of false particulars, the higher penalty prescribed for misreporting cannot be sustained. The Tribunal went on to state that at best the case may fall within the ambit of under-reporting, but even that would require the Assessing Officer to satisfy the conditions prescribed under Section 270A. In the absence of any finding of deliberate inaccurate particulars or fabricated documents, the 200% penalty was legally untenable.
Significantly, the Tribunal also independently noted that the Assessing Officer had failed to specify the limb of Section 270A(9) under which the penalty was levied. This was raised as a ground of appeal by the assessee, who contended that neither the Assessment Order, nor the penalty notice, nor the penalty order mentioned the specific clause (a) to (f) of sub-section (9). The Tribunal accepted this procedural lacuna as an additional reason to delete the penalty. This important detail reinforces the need for strict procedural compliance when invoking penal provisions. While the Tribunal rejected the assessee’s other contentions challenging the validity of the penalty proceedings, the deletion of the penalty was sustained on both substantive and procedural grounds.
Given the absence of any change in the factual matrix or legal proposition, the Tribunal followed the co-ordinate bench decision and deleted the penalty of ₹1,87,200. The appeal was therefore partly allowed, with all the assessee’s grounds being treated as partly allowed.
Conclusion
The ITAT’s order in Nisha Yogeshkumar Darji is a meaningful contribution to the penalty jurisprudence under Section 270A. It clarifies that a disallowance of a deduction, even in a reassessment order, cannot automatically attract the higher penalty reserved for misreporting. The transparency with which the assessee disclosed the donation in the return weighed heavily in favour of the assessee. Moreover, the failure to specify the precise limb of Section 270A(9) was treated as a fatal defect. The decision also serves as a reminder to the Revenue that penalty proceedings require independent and cogent evidence of deliberate concealment or misreporting, and cannot be treated as a mechanical consequence of the assessment order. Taxpayers with genuine, disclosed claims can take considerable comfort from this ruling.
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