Penalty Under Section 270A Is Unsustainable as AO Failed

Penalty Under Section 270A Is Unsustainable as AO Failed to Specify Applicable Limb of Misreporting

Issue

Whether a penalty levied under Section 270A for under-reporting of income in consequence of misreporting is legally sustainable when the Assessing Officer fails to specify the exact limb under Section 270A(9) in the show-cause notice and fails to establish any specific instance of misreporting.

Facts

Background & Technical Defect: For Assessment Year 2017-18, the assessee, a co-operative credit society, was allotted a PAN with the tax status ‘Firm’ instead of its correct status as a co-operative society.
Reassessment Proceedings: Pursuant to a notice issued under Section 148, the assessee faced technical difficulties while filing its return on the e-filing portal due to the incorrect PAN status, which prevented it from claiming deduction under Section 80P(2)(d).
Section 80P Claim: During assessment proceedings, the assessee disclosed interest income of approximately ₹5.23 lakhs earned from Saraswat Co-operative Bank, explained the PAN error, and sought deduction under Section 80P(2)(d).
Disallowance & Penalty Initiation: The Assessing Officer (AO) disallowed the Section 80P(2)(d) deduction, added the amount to taxable income, and initiated penalty proceedings under Section 270A for under-reporting of income in consequence of misreporting.
Defective Notice: The show-cause notice issued by the AO for levying penalty did not specify which particular sub-clause/limb under Section 270A(9) was being invoked.

Decision

Lack of Specificity: The penalty under Section 270A was held to be unsustainable because the AO failed to specify the precise limb of Section 270A(9) in the show-cause notice [Para 4.5].
Failure to Establish Misreporting: The AO failed to prove any actual instance or act of misreporting by the assessee, particularly given that the interest income was fully disclosed and the failure to claim deduction initially arose out of a technical PAN classification error [Para 4.6].
Outcome: The penalty levied under Section 270A was quashed, deciding the matter entirely in favor of the assessee [Paras 4.5 and 4.6].

Key Takeaways

Requirement of Specific Charge in Penalty Notice: A show-cause notice issued under Section 270A must clearly specify the exact limb of misreporting under Section 270A(9) being invoked; vague or non-specific notices render the penalty order invalid.
Under-Reporting vs. Misreporting Distinction: Disallowance of a statutory deduction (such as Section 80P) on fully disclosed facts does not automatically equate to “misreporting” of income unless the specific statutory criteria under Section 270A(9) are proven by the Revenue.
Technical Errors Are Not Misreporting: Discrepancies arising from administrative or portal-related technical glitches (such as incorrect status in PAN) cannot be characterized as deliberate misreporting of income.

IN THE ITAT MUMBAI BENCH ‘A’

Mithibai College Employees Co-operative Credit Society Ltd.

Income Tax Officer

Smt. Beena Pillai, Judicial Member
and Jagadish, Accountant Member

IT Appeal No. 188 (Mum.) of 2026
[Assessment year 2017-18]

JUNE 30, 2026

Nitin Kulkarni, CA for the Appellant. Surendra Mohan, Sr. DR. for the Respondent.

ORDER

Smt. Beena Pillai, Judicial Member. – Present penalty appeal filed by assessee is directed against the order passed by NFAC, Delhi, [hereinafter referred to as “Ld.CIT(A)”] dated 11/11/2025, for A.Y. 2017-18, on the following grounds of appeal: –

“1) In upholding the penalty levied by AO u/s 270A of the Income Tax Act when the show cause notices dated 24-1-2025 and 6-6-2025 issued by AO are without specifying the exact charge and specific limb of the section 270A and merely states that penalty is being levied – as it appears that you have underreported income as per details given in the assessment order

2) In confirming the imposition of penalty under section 270A(9)(a) r.w.s. 270A(8) for cause of – Underreporting of income in consequence of misreporting’ without giving any reason or finding and fails to demonstrate as to how the appellant’s cause of default / instance for penalty falls under clauses (a) to (f ) of sub-section (9) of section 270A, which lays down specific instances of ‘misreporting of income’

3) In not appreciating that cause of default for imposing penalty in appellant’s case does not fit in cases of misreporting of income’ cited in section 270A(9) at all and hence is of no consequence that results in underreporting of income

4) In disregarding the fact that penalty order of AO, was passed without application of mind, in a mechanical manner and in violation of natural justice, when due to specific reason beyond the appellant’s control, the appellant had been prevented to achieve due compliance to file the return of income under the category of AOP and had no mala fide intention in not filing of return in response to notice issued by AO under section 148 of the Income tax Act

5) In disregarding the fact that appellant had offered explanation which was true and bona fide and all facts relating to not filing of return of income were fully disclosed with supporting judicial pronouncements and nothing thereof was found to be untrue or false, nor the conduct of appellant was found to be deliberate and contumacious.

6) In ignoring that appellant was wrongly allotted PAN in the category of FIRM instead of correct category of AOP resulting in the peculiar circumstances due to which appellant was prevented from filing of NIL tax return and claiming the eligible deduction under section 80P of the Act.

7) In disregarding that Appellant had demonstrated the reasonable cause for its failure to comply with the notice issued under section 148 of the Act, not due to its own negligence or lapse but due to error of PAN issuing authority of not allotting the PAN in right category as AOP and had confirmed the penalty only on technicalities and rigidity of rules of law and overlooked the vital aspect of substantial justice and not considering the merits of the case

8) In denying immunity from the penalty under section 270A(6)(a), which action is manifestly arbitrary and in doing so failed to act in fair and objective manner, causing undue hardship to appellant when there was no fault of appellant

The appellant craves leave to add, alter, amend, modify, delete any or all aforesaid grounds of appeal”

2. Brief Facts of the Case are as under:

The assessee is a co-operative credit society registered under the Maharashtra State Co-operative Societies Act, 1960 and is engaged in accepting deposits from its members and providing loans to them in accordance with its approved bye-laws. The assessee is not a partnership firm or LLP and does not have any partnership deed.

2.1. Due to an inadvertent error by the PAN issuing authority, the assessee was allotted PAN under the status of “Firm” instead of the correct status of “Association of Persons (AOP)”. Subsequently, the assessee received notice u/s.148 of the Income-tax Act, 1961. While attempting to file the return in response to the said notice, the assessee could not claim deduction u/s.80P(2)(d) of the Act due to the incorrect PAN status reflected in the system.

2.1.1. During the assessment proceedings, the assessee explained the aforesaid factual position and claimed deduction u/s.80P(2)(d) of the Act in respect of interest income of Rs.5,23,417/- earned from Saraswat Co-operative Bank. However, the Ld.AO did not allow the said deduction and assessed the aforesaid amount as taxable income.

2.1.2. Consequently, penalty proceedings u/s.270A of the Act were initiated and penalty was levied for alleged under-reporting of income in consequence of misreporting. The assessee is in appeal against the levy of penalty, contending that the failure to claim deduction was due to a bona fide technical error arising from incorrect PAN classification and not due to any concealment or misreporting of income.

Against the penalty order passed by the Ld.AO the assessee preferred appeal before the Ld.CIT(A).

2.3. The Ld.CIT(A), after considering the submissions of the assessee held as under:

“5. Observation & Decision:

I have carefully perused and considered the penalty order, the statement of facts and written submission of the appellant. Having so considered, the grounds of appeals raised by the appellant are decided as under –

5.1 Grounds of appeal: The grounds of appeal are reproduced below for adjudication.

“1. The Learned AO has erred in levying penalty of Rs. 323472/- under section 270A of the Act 1961.

2. The Appellant craves leave to add, alter, amend, modify delete any or all the aforesaid ground of Appeal. “

5.2 Ground of appeal 1: Through this ground of appeal the appellant has challenged the penalty order passed by the AO u/s 270A of the Act and levy of penalty for the AY 2017-18.

5.2.1 The appellant claims to be a co-operative credit society registered under Maharashtra Co-operative Societies Act, 1961. However, the Permanent Account Number (PAN) issued to the appellant reflects the status as “Firm”. The appellant did not file any ITR u/s 139(1) for the year under consideration (AY 2017-18). Subsequently, the case was reopened u/s 147 and notice u/s 148 was issued. However, the appellant did not file any ITR even in response to the notice issued u/s 148.

5.2.2 During the re-assessment proceedings, the appellant contended that it should be allowed deduction u/s 80P of the Act, stating that it is in fact a cooperative society and that the PAN was wrongly allotted in the status of a “Firm”.

5.2.3 The claim of the appellant cannot be accepted for the following reasons:

(a) No return filed:

The appellant neither filed its ITR within the prescribed time u/s 139(1) nor in response to the notice issued u/s 148. As such, no valid ITR is available on record. In the absence of a valid ITR, the provisions of section 80A(5) are squarely applicable, which specifically bar the allowance of any deduction under Chapter VIA including section 80P. The section categorically provides that no deduction shall be allowed to an assessee unless it has been claimed in the ITR furnished within the time limit specified u/s section 139(1) or 139(4).

(b) Wrong status in PAN:

Further, the PAN of the appellant is in the status of “Firm” and not as a Cooperative Society. The deduction u/s 80P is strictly restricted to co-operative societies registered as such under the relevant Act. The appellant has not produced any evidence that it ever applied for correction of its PAN or brought the error to the notice of the Department through prescribed procedure. Therefore, in the absence of any valid proof of status correction, the appellant cannot be treated as a co-operative society for tax purposes.

The plea that the deduction could not be claimed due to wrong PAN status cannot be accepted. The onus of obtaining a correct PAN and ensuring compliance with ITR filing provisions lies solely with the appellant. Having failed to do so, the appellant cannot shift the responsibility to the Department or seek any relief.

5.2.3 In light of the above facts, total income was assessed by the AO for the first time during re-assessment proceedings on the basis of material available on record. As per the provisions of section 270A(2)(b), where no return of income has been furnished by the assessee/appellant and income is assessed for the first time, such assessed income shall be deemed to represent under-reported income for the purposes of levy of penalty u/s 270A. Therefore, the conditions specified in section 270A(9)(a) r.w.s. 270A(8) are squarely attracted. Accordingly, the levy of penalty u/s 270A for under-reporting of income in consequence of mis-reporting is fully in accordance with law, and the AO was justified in initiating and imposing the same.

5.2.4 In view of the above facts, law and discussion, there is no merit in the ground of appeal. Thus, the penalty levied by the AO u/s 270A is factually valid and in accordance with law and there is no scope for any interference with the AO’s order. Therefore, ground of appeal 1 is hereby dismissed.”

Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before this Tribunal.

3. The Ld. AR submitted that the penalty levied u/s 270A of the Act is unjustified and liable to be deleted, as the assessee had neither concealed any income nor furnished inaccurate particulars of income. It was submitted that the assessee is a co-operative credit society registered under the Maharashtra State Co-operative Societies Act, 1960 and was wrongly allotted PAN under the status of “Firm” instead of “AOP” due to an error on the part of the PAN issuing authority. The assessee’s actual legal status continued to remain that of a co-operative society and the erroneous PAN classification could not alter its legal identity.

3.1. The Ld.AR submitted that due to the incorrect PAN status, the assessee faced technical difficulty in filing the return of income and was unable to claim the legitimate deduction u/s 80P(2)(d) of the Act in respect of interest income earned from Saraswat Cooperative Bank. It was contended that the failure to claim the deduction was not deliberate but arose due to a bona fide technical issue, and the assessee had duly disclosed all material particulars during the assessment proceedings.

3.2. The Ld. AR further submitted that the assessee had explained the entire factual background before the Ld. AO and had requested allowance of deduction u/s 80P(2)(d). The explanation furnished by the assessee was neither found to be false nor unsubstantiated by the Assessing Officer. Therefore, the provisions of section 270A relating to under-reporting or misreporting of income were not attracted.

3.3. The Ld. AR contended that the mere fact that the return could not be filed due to the PAN error cannot result in levy of penalty, particularly when the assessee was otherwise eligible for deduction under law. It was submitted that for AY 2017-18, deduction u/s 80P was not governed by section 80AC and, therefore, denial of the deduction merely on account of procedural default was not justified.

3.4. The Ld. AR further submitted that the penalty order was legally unsustainable since the show cause notice issued u/s 274 r.w.s. 270A referred only to “under-reporting of income” whereas the penalty was ultimately imposed for “under-reporting of income in consequence of misreporting”. It was argued that the AO failed to specify the particular limb of section 270A(9) under which the alleged misreporting fell and failed to establish satisfaction of the conditions prescribed therein.

Accordingly, the Ld.AR prayed that the penalty levied u/s 270A of the Act be deleted, as the assessee’s explanation was bona fide and the alleged default was merely technical in nature.

3.5. On the contrary, the Ld.DR supported the order passed by the Ld. CIT(A) and submitted that the assessee had neither filed the return of income within the prescribed time u/s 139(1) of the Act nor furnished any return in response to the notice issued u/s 148 of the Act. Accordingly, the income assessed during the reassessment proceedings represented the first determination of income, and the provisions of section 270A of the Act were rightly invoked.

3.6. The Ld. DR submitted that the assessee’s claim that it could not file the return or claim deduction u/s 80P due to incorrect PAN status cannot be accepted, as the responsibility to comply with statutory filing requirements and maintain correct PAN details rests upon the assessee. Since no valid return was available on record, the assessee was not entitled to claim deduction under Chapter VIA in view of section 80A(5) of the Act.

3.7. The Ld. DR further submitted that the PAN of the assessee reflected its status as “Firm” and the assessee failed to establish that the status was corrected before the Department through the prescribed procedure. Therefore, the claim of being a co-operative society could not be accepted for the purpose of allowing deduction u/s 80P of the Act.

3.8. It was contended that the assessee failed to disclose its taxable income by not filing the return of income and, therefore, the income determined by the AO amounted to under-reporting of income. Further, since the failure to furnish the return resulted in determination of income for the first time during reassessment proceedings, the case was covered within the provisions of section 270A(2) and section 270A(9) of the Act, warranting levy of penalty for under-reporting of income in consequence of misreporting.

Accordingly, the Ld. DR submitted that the penalty levied by the AO u/s 270A of the Act was justified and the order of the Ld. CIT(A) upholding the same deserved to be confirmed.

We have perused the submissions advanced by both sides in light of records placed before us.

4. We have considered the rival submissions and perused the material available on record. The present appeal is directed against the levy of penalty u/s 270A of the Act. The assessee’s contention is that the failure to claim deduction u/s 80P(2)(d) and the consequent determination of taxable income was not due to any deliberate act or misreporting, but arose on account of an inadvertent error in allotment of PAN by the Department wherein the status of the assessee was reflected as “Firm” instead of the correct status of a co-operative society.

4.1. It is an undisputed fact that the assessee is a co-operative credit society registered under the Maharashtra State Co-operative Societies Act, 1960 and the PAN was allotted under an incorrect status. The assessee has explained that due to such incorrect classification, it faced technical difficulty while filing the return of income and could not claim the deduction u/s 80P(2)(d) of the Act in the return. The assessee had, however, disclosed the relevant interest income earned from Saraswat Co-operative Bank and made the claim of deduction during the assessment proceedings.

4.2. We find merit in the contention of the assessee that penalty proceedings u/s 270A are distinct from assessment proceedings and merely because an addition has been made or a claim has not been accepted, penalty cannot automatically be levied unless the conditions prescribed under the said section are satisfied. For levy of penalty for “misreporting of income”, the Assessing Officer is required to establish that the case falls within any of the specific categories provided u/s 270A(9) of the Act.

4.3. In the present case, the Revenue has not brought any material on record to demonstrate that the assessee furnished false particulars, suppressed any income, or adopted any of the modes of misreporting specified u/s 270A(9). The explanation furnished by the assessee regarding the PAN error and inability to claim deduction due to technical reasons has not been found to be false or incorrect.

4.4. We further note that the assessee had disclosed the interest income of Rs.5,23,417/- earned from Saraswat Co-operative Bank and the dispute relates only to the allowability of deduction u/s 80P(2)(d) of the Act. The claim of deduction was based on the assessee’s assertion of its status as a co-operative society and was not found to be based on any false information or suppression of facts.

4.5. Further, we find that the show cause notice issued u/s 274 r.w.s. 270A referred only to “under-reporting of income”, whereas the penalty has ultimately been levied for “under-reporting of income in consequence of misreporting”. The Assessing Officer has not specified the particular clause of section 270A(9) under which the alleged misreporting is covered. Thus, the mandatory requirement for imposing enhanced penalty for misreporting has not been satisfied.

4.6. Considering the totality of facts and circumstances, we are of the view that the assessee had furnished a bona fide explanation for the alleged default and the case does not fall within the ambit of misreporting of income as contemplated u/s 270A(9) of the Act. Accordingly, the penalty levied u/s 270A of the Act is not sustainable.

5. Accordingly, grounds raised by the assessee stands allowed.

6. In the result the appeal filed by the assessee stands allowed.