Sidharth Gupta vs ITO, Ward 29 (1)

PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :

This appeal is filed by the assessee against the order of ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [“Ld. CIT(A)”, for short] dated 21.04.2026 for the AY 2020-21.

Brief facts of the case are, the assessee, a salaried individual, filed his original return of income for the year under consideration on 16.10.2020 declaring total income of Rs.81,35,200/-, including salary income and bank interest. The case was subsequently reopened under section 147 of the Income-tax Act, 1961 (for short ‘the Act’) on the basis of information available on the Insight portal concerning, inter alia, interest income from banks and purchase of motor vehicle. In response to notice u/s 148 of the Act dated 31.03.2024, the assessee filed a return on 24.04.2024 declaring total income of Rs.85,84,480/-, which included additional bank interest income of Rs.4,49,280/-. The reassessment was completed on 06.12.2024 u/s 147 read with section 144B at the income so returned, without any further addition.

The Assessing Officer thereafter imposed penalty of Rs.3,08,384/- u/s 270A of the Act, calculated at 200% of the tax attributed to the additional interest income of Rs.4,49,280/-, on the footing that the income had been under-reported in consequence of misreporting in terms of section 270A(8) and (9).

Aggrieved assessee preferred an appeal before the ld. CIT (A). The Ld. CIT(A) rejected the assessee’s explanation and upheld the penalty.

Aggrieved with the above order, the assessee is in appeal before us raising following grounds:

At the time of hearing, ld. AR for the assessee submitted that the penalty of Rs,3,08,384/- imposed u/s 270A of the Act was unjustified both in law and on facts. It was contended that the notice issued u/s 274 read with section 270A merely alleged under-reporting of income in consequence of misreporting, without specifying the particular clause of section 270A(9) allegedly attracted. In this regard, ld. AR placed reliance on the judgment of the Hon’ble Delhi High Court in Schneider Electric South East Asia (HQ) Pte Ltd. v. ACIT [2022] 145 taxmann.com 665 (Delhi) and other decisions of coordinate bench, wherein the importance of clearly specifying the statutory charge was emphasised. On merits, the Ld. AR submitted that the omission to disclose bank interest of Rs.4,49,280/- in the original return filed on 16.10.2020 was inadvertent and bona fide, particularly considering the disruption caused by the COVID-19 pandemic prevailing at the relevant time. It was further explained that the interest income was not reflected in Form 26AS and, therefore, escaped the assessee’s attention while preparing the return. He further submitted that the assessee subsequently disclosed the said income in the return filed in response to notice u/s 148 and paid the applicable taxes. Since the Assessing Officer accepted the returned income without making any further addition, the omission could not, in the absence of any specific finding establishing deliberate misreporting, justify the levy of penalty at the enhanced rate of 200%. The Ld. AR accordingly pleaded that the penalty be deleted. The Ld. AR also made reference to provision of section 270A(6)(a) in support of its plea of bonafide omission.

On the other hand, ld. DR for the Revenue relied on the findings of the lower authorities and submitted that the assessee had failed to disclose bank interest income of Rs.4,49,280/- in the original return of income. It was contended that the omission came to light only upon initiation of reassessment proceedings on the basis of information available with the Department and that the assessee disclosed the additional income only after issuance of notice u/s 148. He submitted that the subsequent disclosure and payment of taxes, prompted by reassessment proceedings, could not absolve the assessee of the consequences of having failed to report the income in the original return. Accordingly, the Ld. DR urged that the order of the Ld. CIT(A) confirming the penalty be upheld.

Considered the rival submissions and material placed on record. The principal grounds raised before us to challenge the penalty on two counts: first, that the notice issued u/s 274 read with section 270A did not specify the precise charge or the applicable clause of section 270A(9); and secondly, that the omission to report bank interest in the original return was bona fide and the interest income was subsequently disclosed in the return filed in response to notice u/s 148, which return was accepted by the Assessing Officer without making any addition.

Firstly, we will deal with the contention of the assessee challenging the validity of notice u/s 274 read with section 270A of the Act. The show cause notice dated 06.12.2024 issued by the AO is reproduced hereunder:

The above notice u/s 274 states, in substance, that the assessee appeared to have “under-reported income which is in consequence of misreporting thereof as per details given in the assessment order” and calls upon him to show cause why penalty u/s 270A should not be imposed. The notice does not identify the particular clause of section 270A(9) alleged to have been attracted. Nor does it state whether the alleged misreporting is founded on misrepresentation or suppression of facts under clause (a), failure to record a receipt under clause (e), or any other specified statutory circumstance.

We noted that section 270A distinguishes between under-reporting of income and under--reporting in consequence of misreporting. The consequences are materially different : the ordinary penalty u/s 270A(7) is 50% of the tax payable on under-reported income, whereas section 270A(8) prescribes a penalty of 200% where under-reporting is in consequence of misreporting. Section 270A(9), in turn, enumerates the various circumstances covered under clause (a) to (f) which constitute misreporting. In such circumstances, a bare recital that income is under-reported in consequence of misreporting, without identifying the relevant statutory clause, does not adequately inform the assessee of the precise allegation that he is required to meet.

It is trite law that the requirement of informing the relevant charge is not a mere formality and a notice initiating penalty proceedings must communicate the charge with sufficient clarity to afford a meaningful opportunity to respond. The issue is directly covered by the principle laid down by the Hon’ble Delhi High Court in Schneider Electric South East Asia (HQ) Pte Ltd. v. ACIT (supra) wherein the Hon’ble High Court held that where the assessment order and the penalty notice fails to specify the limb—under-reporting or misreporting—under which proceedings are initiated, and there is no indication as to how the ingredients of section 270A(9) are satisfied, the action of the Revenue is arbitrary and bereft of reasons. The Hon’ble Court further observed that a mere reference to the word ‘misreporting’ makes the order manifestly arbitrary.

We observed that the ratio of Schneider Electric (supra) squarely supports the assessee’s contention. In the present case, the notice dated 06.12.2024 merely states that the assessee has under-reported income in consequence of misreporting, without specifying the relevant clause of section 270A(9). Further, neither the assessment order nor the penalty order records a clear, clause-specific finding demonstrating how the facts satisfy any particular limb of section 270A(9). The general assertion that the interest income would have remained undisclosed but for reopening cannot, by itself, substitute for identification and application of the statutory ingredients. The coordinate benches in Grand Legacy v. DCIT (ITA No.229/DDN/2025), order dated 12.03.2026) and Rajkamal Agnihotri v. ITO (ITA No.240/DDN/2025, order dated 12.03.2026 relied upon by the assessee have similarly treated failure to specify the applicable charge u/s 270A(9) as a material defect warranting deletion of penalty.

We find that the Ld. CIT(A) held that the notice should be read along with the assessment and penalty orders, however, for the reasons noted above, we are unable to agree with such observation as the AO has failed to identify and communicate the specific clause of section 270A(9) either in the assessment order or penalty order. Furthermore, Hon’ble Delhi High Court in the case of Schneider Electric (supra) emphasizes the need to identify the applicable limb and explain how the statutory ingredients are satisfied; the defect cannot be cured merely by a general reference to misreporting elsewhere in the proceedings. Respectfully following the principle laid down by the jurisdictional High Court, we hold that the penalty proceedings u/s 270A suffer from a material infirmity and are accordingly quashed.

We also find that there is an independent and additional reason why the penalty cannot be sustained. The assessee’s consistent explanation is that the omission of the bank interest from the original return was inadvertent. The original return was filed on 16.10.2020 during the period affected by the first wave of the COVID-19 pandemic and the assessee stated that the relevant interest was not reflected in Form 26AS and, consequently, escaped his attention while preparing the return. On becoming aware of the omission, the assessee included the additional interest income of Rs.4,49,280/- in the return filed in response to notice u/s 148 and paid the tax thereon.

We further observed that the surrounding circumstances prevailing at the time of filing, also lend context to the assessee’s explanation. The original return was filed on 16.10.2020, when the country was continuing to deal with the disruption caused by the COVID-19 pandemic. Even though we do not treat the pandemic, by itself, as an excuse for non-disclosure; however, it is a relevant surrounding circumstance when evaluating whether the omission of a particular item of bank interest was inadvertent or constituted deliberate misreporting particularly when the interest was not reflected in Form 26AS. Moreover, subsequent inclusion of interest in the return filed in response to section 148, and the Assessing Officer’s acceptance of that return without further addition, the circumstances support the bona fide nature of the omission rather than an inference of deliberate misrepresentation.

We observed that it is worth taking note of Section 270A(6)(a) which provides that under-reported income does not include an amount in respect of which the assessee offers an explanation and the authority is satisfied that the explanation is bona fide and that all material facts have been disclosed to substantiate it. Considering the nature of the income, the explanation offered, its subsequent disclosure in the return filed in response to section 148, and the acceptance of that return without any further addition, we find the explanation plausible and bona fide for the purposes of the present penalty proceedings. The material on record does not justify the conclusion that the omission was a deliberate misrepresentation or suppression of facts warranting a penalty at 200% of the tax.

For the above reasons, we hold that the impugned penalty is unsustainable both on account of the non-specific notice and failure to identify the applicable limb of section 270A(9), and on the merits, having regard to the bona fide explanation and the subsequent disclosure and acceptance of the interest income in reassessment. The penalty of Rs.3,08,384/- imposed u/s 270A is accordingly deleted. The grounds raised by the assessee are allowed in the above terms.

In the result, the appeal filed by the assessee is allowed.