CIT(A) cannot issue conditional remand directions without conclusively deciding penalty for bona fide error

ORDER

Jagdish, Accountant Member. – This appeal filed by the assessee is directed against the order dated 10.12.2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as ‘the Ld. CIT(A)’] for A.Y. 2023-24, arising out of the penalty order dated 19.09.2025 passed by the Assessing Officer under section 270A of the Income-tax Act, 1961 (‘the Act’), levying penalty of Rs.21,77,57,030/-.

2. The assessee has raised the following grounds of appeal:—

On the facts and circumstances of the case and in law, the order passed by the learned Commissioner of Income Tax (Appeals) (‘CIT(A)’)/National Faceless Appeal Centre (‘NFAC’) is invalid and bad in law as being in violation of the principle of natural justice and without granting personal hearing requested by the appellant.

On the facts and in the circumstances of the case and in law, the appellate order passed by the learned CIT(A)/NFAC is bad in law, inasmuch as the learned CIT(A)/NFAC has exceeded the jurisdiction vested in him under section 251 of the Act by restoring the matter to the Assessing Officer (‘AO’) for reconsideration, thereby exercising a power of set-aside not contemplated or permitted under the said section.

3.1 On the facts and circumstances of the case and in law, the CIT(A)/NFAC erred in upholding the action of AO in levying penalty for under-reporting in consequence of misreporting under section 270A(9) of the Act on account of disallowance for diminution in the value of investments of Rs.31,15,80,000/-. The order of the CIT(A)/NFAC is wrong, illegal and contrary to law.

3.2 On the facts and in the circumstances of the case, the CIT(A)/NFAC erred in upholding the penalty without appreciating that the alleged discrepancy arose solely on account of a bona fide and inadvertent clerical error.

3.3 On the facts and circumstances of the case, the CIT(A)/NFAC failed to appreciate that the assessee, in the assessment proceedings, submitted all details and suo motu offered the differential disallowance of Rs.31,15,80,000/-.

3.4 On the facts and in the circumstances of the case and in law, the CIT(A)/NFAC failed to appreciate that a bona fide and inadvertent clerical error does not fall under any of the limbs specified in section 270A(9) of the Act and, accordingly, the penalty imposed is wholly unwarranted and liable to be quashed.

4. The above grounds or sub-grounds are without prejudice to each other.

5. The appellant craves leave to add, amend or alter all or any of the grounds of appeal.”

3. Brief facts of the case are that the assessee is engaged in the business of distribution of television channels through analogue and digital cable distribution network, primary internet and allied services. For the year under consideration, it made a provision of Rs.34,62,00,000/-for diminution in the value of investments and disclosed the same under ‘Exceptional Items’ in Note No.44 to the profit and loss account forming part of its audited financial statements. The assessee filed its return of income on 26.10.2023 declaring loss of Rs.90,64,80,592/-. In Part A-P&L-Ind AS of the return, the correct amount of Rs.34,62,00,000/- was disclosed. However, while entering the corresponding disallowance in Part A-OI, the figure was entered as Rs.3,46,20,000/- instead of Rs.34,62,00,000/-. The return was processed under section 143(1) on 30.01.2024 accepting the returned loss.

4. The case was thereafter selected for scrutiny. Notice under section 142(1) dated 15.10.2024, at Point No.15, called for details of expenditure under the head ‘Other Expenses’. It neither pointed out the aforesaid discrepancy nor raised any specific query regarding the allowability of the provision for diminution in the value of investments. While compiling its response, the assessee, by submission dated 27.01.2025, itself informed the Assessing Officer that one zero had inadvertently been omitted while entering the add-back and offered the differential amount of Rs.31,15,80,000/- for disallowance. The assessment was completed under section 143(3) read with section 144B on 24.03.2025 by making the said disallowance and determining the loss at Rs.59,49,00,590/-. The Assessing Officer thereafter treated the difference as under-reported income in consequence of misreporting under section 270A(9) and levied penalty at 200 per cent of the tax payable thereon, amounting to Rs.21,77,57,030/-.

5. On appeal, the Ld. CIT(A) observed that the explanation of bona fides was required to be considered objectively and in the light of human probabilities. After reproducing the decision in Van Oord Dredging and Marine Contractors BV v. Asstt. DIT (IT) [2020]  184 ITD 750 (Mumbai – Trib.), the Ld. CIT(A), however, concluded as under:—

“It is reiterated that assessee’s contention of not making the correct disallowance of 100% will be given credence (since there is no argument put forth on merits) if the assessee is able to produce evidence for having corrected the bona fide mistake immediately after the error was pointed out. One more opportunity is given to the taxpayer to prove before the assessing officer that errors occurred while punching in the ITR and Computation sheet . The penalty levied is upheld subject to a confirmation that the item was added back immediately after or during scrutiny proceedings.”

The Ld. CIT(A) accordingly treated the appeal as partly allowed.

6. Before us, the Ld. Authorised Representative submitted that the correct provision of Rs.34.62 crore was disclosed in Note No.44 and in the profit and loss schedule of the return; only the add-back field contained Rs.3.462 crore because one zero was omitted. The Assessing Officer had issued a general query on ‘Other Expenses’ and had not detected or confronted this discrepancy when the assessee voluntarily disclosed and offered the balance on 27.01.2025. It was contended that the assessee never consciously claimed the provision as an allowable expenditure, that all primary facts were disclosed, and that the case falls within section 270A(6)(a) and none of the clauses of section 270A(9). Reliance was placed, inter alia, on Dy. CIT v. Sasan Power Ltd.  (Mumbai – Trib.).

7. The Ld. Departmental Representative supported the levy of penalty and submitted that penalty is a civil liability. According to him, the incorrect return resulted in reduction of the assessed loss and the subsequent admission during scrutiny could not efface the default committed at the time of filing the return. He emphasised that no revised or updated return was filed and relied upon Gunmala Jain v. ITO  (Jaipur-Trib.) to contend that withdrawal or correction after departmental action does not absolve an assessee from penalty for misreporting.

8. We have heard the rival submissions and perused the material available on record. We shall first deal with Ground No.2, whereby the assessee has challenged the jurisdiction exercised by the Ld. CIT(A). Section 251(1)(b), which governs an appeal against an order imposing penalty, empowers the Commissioner (Appeals) to confirm or cancel the penalty order or to vary it so as either to enhance or reduce the penalty. It does not confer any power to set aside a penalty order or to restore the issue to the Assessing Officer for a fresh decision. In the present case, the Ld. CIT(A) purported to uphold the penalty ‘subject to’ confirmation by the Assessing Officer and granted the assessee another opportunity to establish before the Assessing Officer when the correction was made. The question whether the error was bona fide was thus left undecided and the matter was, in substance, restored to the Assessing Officer for reconsideration. Such a conditional adjudication is not contemplated by section 251(1)(b). Ground No.2 is, therefore, accepted to the extent that the impugned order cannot be sustained.

9. Coming to the merits, we find that certain material facts requiring adjudication were already available before the Ld. CIT(A). The audited financial statements and the return disclosed the provision of Rs.34,62,00,000/- as an exceptional item, whereas the add-back in Part A-OI was entered at Rs.3,46,20,000/-. The difference is arithmetically consistent with the assessee’s explanation that one zero was omitted while punching the add-back. Further, the notice dated 15.10.2024 merely sought details of ‘Other Expenses’ and did not point out this mismatch. The assessee claims to have disclosed the error and offered the differential disallowance of Rs.31,15,80,000/- by its submission dated 27.01.2025, before any specific query was raised on this issue. These facts have a direct bearing on whether the explanation is bona fide and whether the assessee disclosed all material particulars. Non-filing of a revised return may justify making the disallowance in assessment, but that circumstance alone is not conclusive of misrepresentation or suppression for the purpose of section 270A(9).

10. Section 270A(6)(a) excludes from under-reported income an amount in respect of which the assessee offers a bona fide explanation and has disclosed all material facts to substantiate such explanation. The correct figure stated to have been disclosed in the profit and loss account and the return, the partial add-back already made, the nature of the query raised by the Assessing Officer and the timing of the assessee’s disclosure are all relevant to the application of this provision. Even after the disallowance, the assessed result continued to be a loss of Rs.59,49,00,590/-. Though reduction of loss may constitute underreporting under section 270A(2), the continued loss is nevertheless a surrounding circumstance to be considered while examining the bona fides of the explanation. These matters required a clear factual finding by the Ld. CIT(A), which is absent from the impugned order.

11. In Sasan Power Ltd. (supra), the co-ordinate Bench considered an excess depreciation claim arising because an insurance receipt had inadvertently not been reduced from the block of assets. The computation was corrected during scrutiny proceedings and the deletion of penalty under section 270A was upheld. The relevant conclusion in paragraph 13 reads as under:—

“13. By respectfully following the above said decision, we deem it fit to hold that there is no infirmity in the order of the ld. CIT(A) in deleting the penalty levied by the ld. A.O. As we have decided the issue on the merits of the case, the legal grounds raised by the assessee in its cross objection becomes academic.”

The said decision supports the assessee’s plea that a computational mistake corrected during scrutiny may constitute a bona fide error. The factual applicability of these authorities, as also the assessee’s claim under section 270A(6)(a), requires adjudication on the evidence already placed on record.

12. In view of the foregoing, we hold that the impugned order is unsustainable because the Ld. CIT(A) exceeded the jurisdiction conferred by section 251(1)(b) by issuing a conditional direction to the Assessing Officer and, at the same time, failed to record a conclusive finding on the assessee’s plea of a bona fide clerical error under section 270A(6)(a). We accordingly set aside the impugned order and restore the appeal to the file of the Ld. CIT(A) for fresh adjudication in accordance with law. The Ld. CIT(A) shall decide the appeal himself by a reasoned and speaking order, after examining the return, audited financial statements, notice under section 142(1), the assessee’s submission dated 27.01.2025 and the judicial precedents relied upon by both sides. A reasonable opportunity of hearing, shall be granted to the assessee. We clarify that we have not expressed any final opinion on the merits of the penalty and all contentions are left open. Grounds Nos.1 and 2 are allowed for statistical purposes, while Ground No.3 is restored to the Ld. CIT(A) for fresh adjudication. Grounds Nos.4 and 5 are general and require no separate adjudication.

13. In the result, the appeal filed by the assessee is allowed for statistical purposes.