Assessee’s Disclosed Receipts Settled Under MAP Cannot Attract Section 270A Penalty for Under-Reporting Income

By | September 4, 2026
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Assessee’s Disclosed Receipts Settled Under MAP Cannot Attract Section 270A Penalty for Under-Reporting Income
Issue
Whether a penalty under Section 270A of the Income-tax Act, 1961 for under-reporting of income is sustainable when the assessee fully disclosed all material facts regarding its receipts, but the revenue taxability was subsequently agreed upon under the Mutual Agreement Procedure (MAP).
Facts
  • Assessee Profile: The assessee is a tax resident of Singapore and an overseas media entity.
  • Indian Operations: The assessee had an Associated Enterprise (AE) in India, DCIN, which distributed channels/digital platforms and sold commercial airtime.
  • Return of Income: For Assessment Year 2020-21, the assessee disclosed its advertisement and distribution/subscription receipts in its return but claimed them as non-taxable in India under the India-Singapore DTAA due to the absence of a Permanent Establishment (PE).
  • MAP Resolution: Subsequently, through the Mutual Agreement Procedure (MAP), it was agreed that 10% of the net advertisement and distribution revenue (post DCIN’s share) would be taxed in India as business profits at the rate of 40% plus applicable surcharge and cess.
  • Penalty Order: The Assessing Officer (AO) levied a penalty of approximately ₹6.98 crores under Section 270A for under-reporting of income without specifying the applicable clause under Section 270A(2).
  • CIT(A) Relief: The CIT(A) deleted the penalty, leading to further proceedings.
Decision
  • No Under-Reporting on Full Disclosure: The Tribunal held that since the assessee had fully disclosed its advertisement and subscription receipts, a penalty cannot be initiated merely because its legal claim of non-taxability was found unsustainable.
  • Debatable Legal Issue: The taxability of the receipts under the DTAA was a debatable issue; a mere difference of opinion between the taxpayer and the tax authorities does not automatically attract a penalty.
  • Deletion Upheld: The deletion of the penalty by the CIT(A) was completely justified and upheld in favour of the assessee.
Key Takeaways
  • Full Disclosure Protects Against Penalty: Disclosing all relevant material facts and revenue streams in the tax return protects an assessee from under-reporting penalties under Section 270A, even if the tax treatment claimed is later rejected or modified.
  • MAP Settlements Are Non-Penal per se: Agreeing to a taxation quantum under a Mutual Agreement Procedure (MAP) to resolve international tax disputes does not ipso facto establish intentional under-reporting or misreporting of income.
  • Procedural Defect in Show-Cause Notice: The failure of the Assessing Officer to specify the exact sub-clause of Section 270A(2) under which the penalty is initiated invalidates the penalty proceedings due to lack of specific notice to the taxpayer.
IN THE ITAT DELHI BENCH ‘D’
Assistant Commissioner of Income-tax
v.
Discovery Networks Asia-pacific Pte Ltd.
Vikas Awasthy, Judicial Member
and Manish Agarwal, Accountant Member
ITITA No.13 (DEL) of 2025
CO No.72 (DEL) of 2026
[Assessment year 2020-21]
AUGUST  17, 2026
M.S. Nethrapal, CIT DR for the Appellant. Manuj Sabharwal, Drona Negi, Manish Kumar and Devvrat Tiwari, Advs. for the Respondent.
ORDER
Vikas Awasthy, Judicial Member.- This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals), Delhi-42 [in short ‘the CIT(A)’] dated 31.07.2025, for AY 2020-21, deleting penalty levied u/s.270A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). The assessee has filed Cross Objections (CO) raising legal grounds challenging validity of penalty proceedings.
2. Facts of the case in brief as emanating from records are: The assessee is a tax resident of Singapore and is engaged in the business of broadcasting television program through TV channels and digital platforms around the globe including India. The assessee has an AE in India i.e. Discovery Communications India (DCIN) that is engaged in the business of distributing channels/digital platforms in India through its sub-distributors and selling commercial airtime on the channels/digital platforms. The assessee entered into an agreement w.e.f. 01.04.2017 and 01.04.2019 with DCIN grating exclusively rights for sale of commercial airtime and distribution of channels/digital platforms in India upon payment of specified percentage of revenue derived from aforesaid functions. The assessee filed its return of income for the impugned assessment year declaring NIL income. As per the assessee, the distribution revenue received from its Indian AE was not in the nature of royalty under India-Singapore Double Tax Avoidance Agreement (DTAA), hence, revenue received by the assessee from advertisement and distribution in India is not chargeable to tax in the absence of any Permanent Establishment (PE) in India. Further, the stand of the assessee is that since DCIN has been remunerated at Arm’s Length, no further attribution of assessee’s revenue from India is required to be made.
2.1. In scrutiny assessment proceedings, the Assessing Officer (AO) held that DCIN constitutes a Dependent Agent Permanent Establishment (DAPE) of the assessee in India under Article 5 of India-Singapore DTAA. The AO further held that 10% of the gross advertisement revenue are attributable to assessee’s DAPE and is taxable @40%(plus applicable surcharge & cess). Aggrieved by the final assessment order dated 26.04.2023 for AY 2021-22, the assessee filed appeal before the Tribunal in ITA No. 1886/Del/2023 . During the pendency of said appeal, the assessee decided to opt for MAP resolution in AY 2014-15 to 2016-17, AY 2020-21 and 2021-22. As per MAP resolution it was mutually agreed that 10% of the net advertisement and distribution revenue received by the assessee from India (i.e. post DCIN’s share) shall be taxed as business profits of the assessee in India @40%(plus applicable surcharge & cess). Consequent to MAP resolution, the assessee made a request before the Tribunal to withdraw appeal in Discovery Networks Asia Pacific Pts. Ltd. v. ACIT [ITA No. 1886/Del/2023, dated 29-1-2024] dismissed the appeal of assessee as withdrawn. Thereafter, the AO on 23.03.2024 passed order u/s.154 r.w.s. 143(3) of the Act to give effect to MAP resolution dated 09.01.2024.
3. The AO issued notice u/s.274 r.w.s.270A of the Act dated 26.04.2023 for initiating penalty proceedings for ‘under-reporting of income’ in AY 2020-21. The said notice was followed by two more similar notices dated 10.01.2024 and 08.03.2024. The AO, vide order dated 30.03.2024, levied penalty of Rs.6,98,28,285/- for ‘under-reporting of income’.
4. Against the penalty order dated 30.03.2024 passed u/s.270A of the Act, the assessee filed an appeal before the CIT(A). The CIT(A), vide impugned order, allowed the appeal of the assessee and deleted the penalty levied u/s.270A of the Act. Against the order of CIT(A), the Revenue is in appeal before the Tribunal.
5. Shri M.S. Nethrapal, representing the Department, submitted that the CIT(A) has erred in deleting penalty levied u/s.270A of the Act for under-reporting of income by the assessee in the return of income. The ld. DR submits that under MAP resolution there is no reference to waiver of penalty. Unless the MAP resolution explicitly states about waiver of penalty, the penalty cannot be waived. He further contended that penalty proceedings are distinct and independent from assessment proceedings. Opting for MAP resolution does not invalidate separate penalty proceedings. In any case under MAP resolution, the adjustment to the assessment has not been annulled, part of the addition has been sustained even under MAP. Penalty has been levied on the addition to the extent sustained under MAP. The ld. DR asserted that the onus lies on the assessee to establish that the addition finally sustained under MAP was not due to concealment or furnishing inaccurate particulars. Rule 44H(5) of the Income Tax Rules, 1962 explicitly allows for “adjustment of tax, interest or penalty already determined” to incorporate the MAP decision rather than requiring its deletion. The ld. DR further contended that the penalty provisions are intra vires even when applied to amounts determined through international conventions u/s.90 of the Act. To support his submissions, the ld. DR placed reliance on the decision rendered in the case of Toyota Kirloskar Motor P. Ltd. v. UOI [2020] 422 ITR 138 (Karnataka) .
6. Per contra, Shri Manuj Sabharwal, appearing on behalf of the assessee, vehemently defended the impugned order passed by the CIT(A) in deleting penalty levied u/s.270A of the Act. He contended that the assessee has also filed CO assailing levy of penalty on legal grounds. Nevertheless, penalty levied by the AO is not sustainable on merits as well. The CIT(A) has deleted the penalty for multiple reasons, including the issue being a debatable question of law, capable of more than one opinion; the AO has not specified as to which particular clause of section 270A(2) of the Act has been invoked by the AO for levy of penalty; and the assessee in the return of income has not concealed any particulars of income. The assessee has disclosed entire receipts from India and has, thereafter, claimed the same as exempt under the bona fide belief. Similar additions were made by the AO in the preceding assessment years; the assessee had opted for MAP resolution for AY 2014-15 to 2016-17, 2020-21 and 2021-22. The issue of taxability of advertisement and net distribution revenue is a recurring issue and the assessee has been consistently claiming it as income not taxable in India under DTAA in all the preceding assessment years. The assessee has taken recourse to MAP resolution to resolve the dispute. The entire facts have been disclosed by the assessee in assessment proceedings as well as under MAP resolution. Therefore, the AO is wrong in alleging that there was under-reporting of income.
7. The ld. Counsel further pointed that penalty proceedings were initiated against the assessee in AY 2014-15 and 2015-16 as well, albeit u/s.271(1)(c) of the Act. The assessee carried the issue in appeal before the Tribunal in Discovery Networks Asia Pacific Pte Ltd. v. ACIT (International Taxation)  (Delhi – Trib.)/ITA No.908-909/Del/2020 for the respective assessment years, the Tribunal vide order dated 31.12.2024 deleted the penalty.
8. Both sides heard, orders of the lower authorities examined. The Revenue is in appeal against the order of the CIT(A) deleting penalty levied u/s.270A of the Act for alleged ‘underreporting of income’. At the outset, we observe that while issuing notice u/s.270(4) r.w.s.270A of the Act (at page 107 of the paper book), the AO has only mentioned “under-reporting of income”. Similarly, while passing the penalty order u/s.270A of the Act dated 30.03.2024, the AO has levied penalty without clearly specifying the clause under section 270A(2) of the Act for which penalty has been levied. Under sub-section (2), there are six clauses from (a) to (g), specifying different instances of ‘under-reporting of income’. It is neither emanating from the notice or the penalty order the clause that has been violated resulting in ‘under reporting’. Thus, there is ambiguity in the notice as well as the order levying penalty u/s.270A of the Act. It is settled law that penalty proceedings are unsustainable where the notice for initiating penalty proceedings is ambiguous. Similar view has been taken by the Co-ordinate Bench in the case of SSRS MEM EDU Society v. ACIT [ITA No.3064/Del/2025. dated 3-2-2026] for AY 2018-19 following the decision of Hon’ble Jurisdictional High Court rendered in Prem Brothers Infrastructure LLP v. NFAC   (Delhi).
9. Further, the assessee, in original return of income filed on 02.02.2021, has shown total income of Rs.2,38,48,67,120/- which includes the gross revenue from advertisement and net distribution/subscription revenue. Subsequently, the assessee filed revised return of income on 30.03.2021 declaring total income of Rs.1,07,98,430/- and claiming income in respect of advertisement and subscription revenue taxable as NIL and has claimed credit for tax deducted at source on the revenue received on advertisement and distribution/subscription. Thus, it is not a case where the assessee has not disclosed revenue from advertisement & subscription. The assessee has claimed said income not taxable in India. Penalty proceedings cannot be initiated merely for the reason that any deduction/exemption claimed by the assessee according to the AO is not allowable. [Re: CIT v. Reliance Petroproducts (P) Ltd  322 ITR 158 (SC) .
10. It is no more res integra that penalty cannot be levied on issues that involve debatable question of law. In the instant case, the AO held revenue from subscription as Royalty and it was mutually agreed between the Competent Authorities of two Sovereign States to tax revenue from Subscription as Business Income. Thus, the nature of income was debatable. Further, the contention of the assessee is that the transaction between the assessee and its AE in India is at Arm’s Length. This fact has not been disputed by the Revenue. Thus, in light of the judgment rendered in the case of DIT v. Morgan Stanley & Co. 292 ITR 416 (SC), no addition could have been made in the hands of the assessee.
10.1 We find that in AY 2014-15 and 2015-16, penalty u/s.271(1)(c) of the Act was levied by the AO for similar additions. The CIT(A) deleted the penalty, the Revenue carried the issue in appeal before the Tribunal in Discovery Networks Asia Pacific Pte Ltd. (supra) for the respective assessment years. The Tribunal deleted the penalty by observing as under:-
“50. We have heard the rival submissions and have carefully perused the orders of the authorities below. After hearing the rival submission, we find the ground no. 1 and 2 are general in nature. The facts of the substantive ground no 3 to 6 revolves around levy of penalty on the ground that the assessee has neither disclosed correct income nor gave accurate particulars of his income. We find from the penalty order that the penalty was levied because the AO held that the assessee did not revise its ROI for AY 2016-17 even post DALLC’s MAP resolution which shows its intention to evade taxes; that the assessee did not file of appeal before the Hon’ble ITAT in the quantum matter which does not indicate that inaccurate particulars were not filed when the Rol was filed; ROI of AY 2017-18 and AY 2018-19 was revised after penalty show cause notices were issued for AY 2014-15 and AY 2015-16; Deletion of penalty by Hon’ble CIT(A)-42 in AY 2008-09 in case of DALLC (i.e., assessee’s predecessor company) cannot be treated at par with the instant case since DALLC’s case was covered under MAP and finally the assessee failed to offer a bona-fide explanation and has furnished inaccurate particulars of income. The AO held that had the case not been selected for scrutiny assessment, the income would have remained untaxed.
51. From the conspectus of facts as discussed above, we are of the considered view that the assessee has truly and fully disclosed all the material facts of its receipts of advertisement and distribution activities. The assessee was merely contesting the taxability of such receipts as ‘Royalty’ or ‘business income’. We find the basis of such a stand of the assessee are the judicial precedents and legal interpretation of ‘Royalty’ in decisions of the Hon’ble HC of Delhi in the case of CIT International Taxation v. ESPN Star Sports (Mauritius) SNC et Co mpagnie (supra) and Hon’ble HC of Bombay in the case of CIT v. MSM Satellite (Singapore) Pte. Ltd (supra).
52. We also find that the AO has not questioned the genuineness or adequacy of revenue received by the assessee. The penalty imposed is merely on the basis of additions made by the AO in the assessment order. The AO has adopted a view which is different from the view taken by the assesse on the same set of facts which can only be termed as difference of opinion. There were judgements such as Director of Income-tax (International Taxation) v. Morgan Stanley & Co. (supar) and ADIT- 1 v. E-funds IT Solutions Inc.(supra) which interpreted such receipts as not taxable. We therefore hold that when the assessee has disclosed all facts, addition made on difference of opinion can not lead to levy of penalty u/s 271(1)(c). We get support from the decision of the Hon’ble HC of Delhi in case of CIT v. Nath Bros Exim International Ltd. [2007] 288 ITR 670 (Delhi HC) wherein it was held as under:

“5. What is required to be considered is whether there was any enquiry that was required to be made by the Assessing Officer before concluding that the assessee had furnished inaccurate or false particulars. In this case, we are of the view that no such enquiry was required to be made but there was only the need for application of the law. On the legal position, the Assessing Officer was not satisfied and did not agree with the assessee but that by itself is not a ground to invoke the penalty provision of the statute.

53. We fully endorse the reliance placed by the CIT(A) on the decision of the hon’ble Supreme Court in the case of CIT v. Reliance Petroproducts (P) Ltd 322 ITR 158 (SC) wherein it has held that “mere making of a claim which is not sustainable in law will not amount to furnishing of inaccurate particulars and that the legislature does not intend to impose penalty on every assessee whose claim is rejected by the assessing officer”. We are also aligned with the view of the CIT(A) that the instant case is only a case of wrong claim by the assessee. There is no incorrect or false reporting of income or expenditure except for the fact that the AO considered it to be a case of claim which is not in accordance with the provisions of the Act. We find that the explanation offered by the assessee are bonafide that it adopted nil taxability position on the basis of judicial precedents.
54. We are also fortified in our view from the decision of the coordinate bench in the case of Raytheon Company ITA No. 1391/DEL/2023 wherein, on similar facts, it has been held as under:

“The assessee has disclosed all material facts during the assessment as well as MAP proceedings and has not concealed any particulars of income. It is only a difference of opinion as to whether there exists PE in India for assessee or not. There is no conclusive proof that the assessee has PE in India. It is only an assumption that the assessee has PE in India and by way of deeming fiction, the profits were attributed for such assumed PE by the authorities in the MAP proceedings. We hold that there is no concealment of income or furnishing inaccurate particulars of such income by the assessee.”

55. We also agree with the CIT(A) that mere non-filing of appeal in quantum matter would not ipso-facto lead to an automatic levy of penalty under section 271(1)(c) of the Act. A view which is supported by the judgement of Hon’ble SC in the case of Sir Shadi Lal Sugar & General Mills Ltd. V. CIT (supra) wherein it has been held that:

“14.from agreeing to additions, it does not follow that the amount agreed to be added was concealed. There may be 101 reasons for such admissions. “.

56. Similarly, the Hon’ble Karnataka High Court in the case of CIT v. Manjunatha Cotton & Ginning Factory  (Kar) observed that:

“(K) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the Assessing Officer in the assessment order”

57. We also endorse the submission of the ld AR that the decision of the Supreme Court in the case of MAK Data (supra) and Delhi Court in the case of Zoom Communications (supra) are distinguishable as they are based on different set offacts. We agree with the distinction elaborated by the AR and the same is not reproduced for the sake of brevity. To reiterate, the assessee has disclosed complete facts with respect to aforesaid receipts in the submissions filed during the course of assessment proceedings. We further find that the Assessment Order nowhere lays down that the information/details were not filed and/or the Company failed to offer any explanation in respect to claim made. We also find that the issues pertaining to taxability of the assesse revenue have different judicial views. We are satisfied that the explanation offered by the assessee are bona-fide and based on judicial precedents. Moreover, the taxability for the subject AYs has been recently resolved through MAP resolution agreed between the CA of India and Singapore and no mention of imposition of penalty has been made in aforesaid MAP resolution. Subsequently, the Assessing Officer passed an order giving effect to the MAP resolution wherein no mention of penalty has been made. In view of the above discussion, we hold that under the given facts and circumstances, no penalty can be imposed in the instant case under section 271(1)(c) of the Act on account offurnishing inaccurate particulars of income. Accordingly, we find no reasons to interfere with the decision of the CIT(A) and delete the penalty u/s 271(1)(c). The grounds 3 to 6 are allowed.”
Though, in the impugned assessment year, penalty has been levied under the provisions of section 270A of the Act, however, the fundamental principles for invoking penalty provisions remain the same.
11. The entire submissions made by the DR are on the basis as if the CIT(A) has deleted the penalty for the reason that the assessee has opted for MAP resolution. From perusal of impugned order it is evident that the CIT(A) has deleted penalty for various reasons.
The CIT(A) has deleted penalty inter-alia for the following reasons:
– levy of penalty is not automatic and every addition to returned income does not necessarily entail levy of penalty;
– no penalty is leviable in respect of issues which are debatable questions of law; &
– when the appellant had disclosed all material facts in respect of receipts from advertisement distribution revenue, merely on account of difference of opinion regarding taxability of such receipts cannot ipso facto result in levy of penalty.
The CIT(A) has also followed decision of the Tribunal in assessee’s own case in deleting the penalty for AY 2014-15 and 2015-16 (supra). We see no reason to interfere with findings of the CIT(A) in deleting penalty. Hence, we uphold the impugned order.
12. In the result, appeal of the Revenue is dismissed being devoid of any merit.
13. Since, we have dismissed appeal of the Revenue, the CO filed by the assessee/respondent has become infructuous. Hence, the same is dismissed as such.
14. In the result, appeal of the Revenue and CO of the assessee are dismissed.