Section 270A misreporting penalty applies despite subsequent tax payment or bona fide explanation.

Sandeep Singh Karhail, Judicial Member.-The assessee has filed the present appeal against the impugned order dated 11.07.2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax Appeals, National Faceless Appeal Centre, Delhi [“learned CIT(A)”], which in turn arose from the penalty order passed under section 270A of the Act, for the assessment year 2020-21.

2. In this appeal, the assessee has raised the following grounds: –

The Learned CIT(A) erred in confirming penalty of 200% under Section 270A on the alleged ground of “misreporting of income,” without appreciating that the incorrect claim of deduction u/s 80P(2)(b) was an inadvertent, bona fide error committed by the erstwhile consultant and not a deliberate attempt to conceal or misreport income.

The Appellant had, on identification of the error, voluntarily discharged the entire tax liability along with interest amounting to ^7,12,735 (tax) and 3,70,979 (interest) vide Challan No. 02218 dated 29-01-2024, well before passing of the CIT(A) order. This voluntary compliance clearly demonstrates absence of any malafide intention to evade tax. Challan is enclosed for verification.

The appellant had disclosed the entire interest income of 18,58,408 under the head “Income from Other Sources” in the ITR. Hence, there was no concealment, misreporting, or suppression of income.

The only mistake was an inadvertent claim of deduction u/s 80P, which was made under a bona fide belief by the erstwhile tax consultant. Such an error does not amount to furnishing inaccurate particulars.

It is a settled law that penalty provisions are not automatic and should not be invoked where the taxpayer has acted under a bona fide belief or has made an inadvertent error without any intention to conceal or misreport income.

The appellant’s actions demonstrate bona fide compliance and transparency. The additional tax and interest payments were made voluntarily upon discovery of the omission, negating any intent to suppress income deliberately. Hence, the penalty for misreporting under Section 270A(9) at 200% is not justified. The penalty is not automatic and should consider the taxpayer’s bona fide belief and voluntary compliance.

Judicial precedents and Tribunal rulings emphasize that penalty cannot be levied where the taxpayer has acted in good faith and rectified errors promptly.

The erstwhile Tax Consultant inadvertently omitted dividend income of Rs. 4,26,000 received during the year from being declared under the head “Income from Other Sources.” Upon realization, the appellant paid the appropriate tax and interest.

The dividend income was inadvertently left out due to an oversight, and no mala fide intention is involved. The appellant has already deposited the tax and interest due on this amount vide challan No. 02218 dated 29-01-2024. This payment reflects the Bonafide conduct and compliance by the appellant.

In line with principles of natural justice, the appellant requests the Hon’ble Income Tax Appellate Tribunal to consider the facts sympathetically and the omission may be condoned considering the tax and interest already remitted, and no penalty or adverse inference may be drawn in this regard.

3. The solitary grievance of the assessee is against the levy of penalty under section 270A of the Act for under-reporting of income which is in consequence of misreporting of income.

4. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a cooperative society, engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members to Federal Cooperative Society. For the year under consideration, the assessee filed its return of income on 28.12.2020, declaring a total income of Rs. 86,13,330/-. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, it was noticed that the assessee has claimed deduction under section 80P(2)(d) of the Act in respect of interest income earned on deposits and investments with Nationalised Banks and other Scheduled Banks. Further, it was also noticed that the assessee has claimed exemption under section 80M of the Act in respect of dividend income earned during the year under consideration. The Assessing Officer (“AO”), vide order dated 26.09.2022, passed under section 143 r.w.s. 144B of the Act held that the interest income earned by the assessee society from Nationalised Banks and Cooperative Banks does not qualify as income which is forming part of the profits and gains of the assessee from activities prescribed under the Act. Accordingly, the AO disallowed the deduction claimed under section 80P(2)(d) of the Act. As regards the deduction claimed under section 80M of the Act, the AO held that the same only pertains to a company and is not available to the assessee being a cooperative society. Accordingly, the deduction claimed in respect of the dividend income under section 80M of the Act was disallowed. The AO also made the disallowance in respect of employee’s contribution to Provident Fund under section 36(1)(va) r.w.s. 224(x) of the Act.

5. Meanwhile, penalty proceedings under section 270A of the Act were initiated in respect of the disallowance made vide assessment order for under-reporting of income which is in consequence of misreporting and penalty notice under section 270A r.w.s. 274 of the Act was issued. After considering the submissions of the assessee, the AO, vide order dated 31.03.2026 passed under section 270A of the Act, levied a penalty of Rs. 1,98,62,472/-.

6. The learned CIT(A), vide impugned order, after taking into consideration the relief granted to the assessee in quantum proceedings, restricted the penalty in respect of the addition under section 80P(2)(d) in respect of interest income received from Nationalised Bank and disallowance of deduction claimed under section 80M of the Act in respect of dividend income earned by the assessee. Being aggrieved, the assessee is in appeal before us.

7. During the hearing, the learned Authorised Representative (“learned AR”) submitted that the claim of deduction under section 80P(2)(d) of the Act in respect of interest earned from Nationalised Bank was inadvertently made by the erstwhile consultant of the assessee and there was no deliberate attempt to conceal or misreport the income. The learned AR submitted that immediately upon identification of the error, the assessee voluntarily discharged the entire tax liability along with interest on 29.01.2024, well before passing the impugned order. As regards the deduction claimed under section 80M of the Act in respect of dividend income, the assessee made similar submission that the erstwhile tax consultant inadvertently omitted dividend income received during the year under consideration from being declared under the head “income from other sources”. The learned AR submitted that the said mistake was totally on account of oversight and no mala fide intention is involved. It was submitted that immediately upon identification of the mistake, the assessee deposited the due tax and interest on 29.01.2024, i.e. before passing of the impugned order by the learned CIT(A). Accordingly, the learned AR submitted that since the assessee has voluntarily paid the due tax and interest upon discovery of the omission, which is on account of bona fide mistake and an inadvertent error, penalty cannot be levied.

8. On the other hand, the learned Departmental Representative (“learned DR”), by vehemently relying upon the order passed by the lower authorities, submitted that the assessee paid the due tax and interest only after these issues were picked up during the scrutiny and additions were made. Therefore, the learned DR submitted that the same cannot be treated as a bona fide mistake on the part of the assessee.

9. We have considered the submissions of both sides and perused the materials available on record. In the present case, there is no dispute regarding the fact that the assessee earned interest income from Nationalised Banks and the same was claimed as deduction under section 80P(2)(d) of the Act, while filing its return of income. Further, during the year under consideration, the assessee also earned dividend income, which was not declared under the head “income from other sources” and deduction was claimed under section 80M of the Act. It is evident from the record that both these issues were noticed during the scrutiny assessment proceedings and statutory notices were issued to the assessee for seeking its response and necessary details. While passing the assessment order under section 143(3) r.w.s. 144B of the Act, the AO disagreed with the claim of the assessee and, inter alia, made disallowance of deduction claimed under section 80P(2)(d) of the Act in respect of interest earned from Nationalised Banks and deduction claimed under section 80M of the Act in respect of dividend income earned during the year under consideration. It is pertinent to note that till the conclusion of assessment proceedings, the assessee did not drop its claim of the aforementioned deductions under section 80P(2)(d) and section 80M of the Act. It is further pertinent to note that the assessee, even during the penalty proceedings, contested the initiation of penalty proceedings under section 270A of the Act on the aforementioned issues. As is evident from the perusal of the record, only during the pendency of its appeal against the penalty order passed under section 270A of the Act, the assessee suo moto paid the due tax and interest in respect of deduction claimed in respect of interest earned from Nationalised Banks and deduction in respect of dividend income earned during the year under consideration.

10. As per the assessee the deduction claimed under section 80P(2)(d) of the Act in respect of interest earned from Nationalised Banks and deduction claimed under section 80M of the Act in respect of dividend income was an inadvertent error committed by its erstwhile tax consultant and upon identification of the said error, the assessee voluntarily discharged the due tax liability along with the payment of interest. Thus, it is the plea of the assessee that the aforementioned deductions were a bona fide mistake and there was no deliberate attempt on the part of the assessee to conceal, misreport or suppress its income.

11. It is pertinent to note that the impugned penalty in the present case has been levied under section 270A of the Act for under-reporting of income which is in consequence of misreporting. From the perusal of the provisions of section 270A of the Act, we find that only in case of under-reported income, sub-section (6) of section 270A of the Act provides an exemption from levy of penalty if the assessee provides an explanation which is found to be bona fide. It is pertinent to note that sub-section (8) of section 270A of the Act specifically provides an exclusion of said benefit in cases where penalty is levied for under-reporting of income which is in consequence of misreporting thereof. In such circumstances, the statute mandates levy of penalty at 200% of the amount of tax payable on under-reported income. Therefore, from the perusal of the provisions of section 270A of the Act, we find that even though the decision to levy penalty is at the discretion of the AO, however, once the same is exercised in affirmative and the AO arrived at the conclusion that the under-reporting of income is in consequence of misreporting of income then the section specifically mandates levy of penalty @200% under section 270A(8) of the Act. Thus, the provisions of section 270A of the Act do not provide any leeway when it comes to levy of penalty for under-reporting of income which is in consequence of misreporting of income.

12. In the present case, from the perusal of the penalty order passed under section 270A of the Act, it is evident that not only the notice under section 274 r.w.s. 270A of the Act was issued for initiating penalty proceedings for under-reporting of the income which is in consequence of misreporting thereof under section 270A(9)(a) of the Act, but the AO also levied penalty at 200% for the same charge.

13. As regards the submission of the assessee that it has voluntarily paid the due tax amount along with the interest, we of the considered view that the same cannot be treated as voluntary, but it is only in consequence of the assessment order passed under section 143(3) of the Act and penalty levied under section 270A of the Act, and if these issues would have been picked up for scrutiny, we agree with the submissions of the learned DR that there would have been an obvious revenue loss. Accordingly, we do not find any merit in the submission of the assessee that it was a voluntary disclosure.

14. Therefore, in view of the facts and circumstances of the present case and relevant statutory provisions as noted in the foregoing paragraphs, we do not find any infirmity in the impugned order in upholding the levy of penalty under section 270A of the Act, and thus, the same is upheld. As a result, the grounds raised by the assessee are dismissed.

15. In the result, the appeal by the assessee is dismissed.