IN THE ITAT AGRA BENCH 'SMC' Archives - Tax Heal https://www.taxheal.com/tag/in-the-itat-agra-bench-smc Complete Guide for Income Tax and GST in India Tue, 10 Nov 2026 08:17:15 +0000 en-US hourly 1 https://wordpress.org/?v=7.1.4 Clerical Computational Errors in F&O Loss Reporting Do Not Constitute Undisclosed Income Warranting Section 271AAB Penalty https://www.taxheal.com/and-brajesh-kumar-singh-accountant-member-10.html Tue, 10 Nov 2026 08:17:15 +0000 https://www.taxheal.com/?p=143577 Clerical Computational Errors in F&O Loss Reporting Do Not Constitute Undisclosed Income Warranting Section 271AAB Penalty Issue Whether an addition of ₹40,688 arising from a clerical computational error in reporting Futures and Options (F&O) loss in the return of income constitutes “undisclosed income” under Section 271AAB(3)(c), thereby justifying the levy of penalty under Section 271AAB(1A).… Read More »

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Clerical Computational Errors in F&O Loss Reporting Do Not Constitute Undisclosed Income Warranting Section 271AAB Penalty
Issue
  • Whether an addition of ₹40,688 arising from a clerical computational error in reporting Futures and Options (F&O) loss in the return of income constitutes “undisclosed income” under Section 271AAB(3)(c), thereby justifying the levy of penalty under Section 271AAB(1A).
Facts
  • Assessment Year: The case pertains to Assessment Year 2023-24.
  • Return Filing: The assessee filed an income tax return declaring a total income of ₹17.26 lakhs.
  • Clerical Discrepancy: During the assessment proceedings, the assessee pointed out a clerical computational error where the F&O loss was inadvertently reported as ₹19.50 lakhs instead of the actual loss of ₹19.09 lakhs, creating a computational difference and resultant addition of ₹40,688.
  • Penalty Proceedings: The Assessing Officer treated the discrepancy as suppressed income, categorizing it as “undisclosed income” in both assessment and penalty proceedings, and levied a penalty under Section 271AAB(1A).
  • Appellate Review: The Commissioner (Appeals) confirmed the penalty levied by the Assessing Officer.
Decision
  • Exclusion from Undisclosed Income: The addition of ₹40,688 resulting from a mere clerical computational error in reporting F&O losses does not fall within the definition of “undisclosed income” under Section 271AAB(3)(c).
  • Non-Leviability of Penalty: An inadvertent reporting error does not constitute undisclosed income; consequently, the penalty levied under Section 271AAB(1A) is legally unsustainable and cannot be sustained.
  • Favour: The decision was rendered in favour of the assessee.
Key Takeaways
  • Nature of Computational Errors: Discrepancies or additions arising solely from bona fide clerical mistakes or calculation slips in tax returns do not attract penal consequences meant for concealed or undisclosed income.
  • Scope of Section 271AAB: Penalty under Section 271AAB requires clear existence of “undisclosed income” as defined under the statute, which cannot be stretched to cover inadvertent reporting oversights or mathematical slip-ups.
  • Burden on Revenue: Tax authorities must verify the factual genesis of an addition before treating regular return mismatches as hidden or undisclosed sources of income warranting harsh search-related penalties.
IN THE ITAT AGRA BENCH ‘SMC’
Pallavi Sethi
v.
ACIT/DCIT
Sunil Kumar Singh, Judicial Member
and BRAJESH KUMAR SINGH, Accountant Member
IT Appeal No. 597 (Agr) of 2026
[Assessment year 2023-24]
NOVEMBER  4, 2026
Naveen Gargh, Adv. for the Appellant. Anil Kumar, Sr. DR for the Respondent.
ORDER
Brajesh Kumar Singh, Accountant Member.- This appeal is directed against the impugned order dated 15.05.2026 passed in appeal No. CIT(A)-IV/KNP/10026/2022-23 by the ld. Commissioner of Income Tax (Appeals), Kanpur-4 [hereinafter referred to as the “CIT(A)] u/s. 250(6) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) for the A.Y. 2023-24, wherein ld. CIT(A) has dismissed assessee’s appeal.
2. Brief facts of the case: The assessee filed her return of income on 28.10.2023 declaring total income of Rs.17,26,620/-. The AO noted that a search and seizure action was conducted u/s. 132 of the Act on 03.08.2022 at the residential and business premises of Ghanaram & others Group of Jhansi. Consequently, the jurisdiction over the assessee was assigned to the DCIT, Central Circle, Agra. During the course of assessment proceedings, the assessee in her reply dated 19.02.2024 to the AO stated that due to clerical computation error in the Income-tax Return filed, the F&O loss was reported as Rs.19,50,335/- instead of actual loss of Rs.19,09,647/- resulting in addition of Rs.40,688/- to the total income of the assessee and requested the AO to rectify the same while passing the order u/s. 143(3) of the Act. In this regard, the relevant submission of the assessee as noted by the AO in the assessment order is reproduced as under:
” 6. Vide reply dated 19.02.2024 submitted in compliance of the notice issued u/s 142(1) of the Act, the Assessee has submitted that:
” While preparing the above computation, it is noticed that Loss from intraday and interest paid to parties was inadvertently wrongly reported due to oversight which is corrected in the above computation due to clerical computational error, wherein in the ITR filed, the F&O loss was reported as Rs. 1950,335/- instead of actual loss of Rs. 19,09,647/- resulting in addition of Rs. 40,688/- to the total income of the assesse, which we request may be rectified while passing order u/s 143(3)”.”
2.1 On the basis of the above submission, the AO noted that the assessee had wrongly claimed loss from intraday and interest paid to parties and suppressed income and added the same to the total income of the assessee vide assessment order u/s 143(3) of the Act dated 29.03.2024. The AO also initiated penalty proceedings u/s. 271AAB(1A) of the Act in respect of the above addition of Rs 40,688/-.
2.2 Subsequently, the AO initiated proceedings u/s. 271AAB of the Act and issued a penalty notice dated 13.09.2024. The AO noted that the assessee did not file any reply and levied a penalty @ 60% of the undisclosed income as per provisions of section 271AAB(1A) of the Act at Rs.24,410/-.
2.3 Aggrieved with the said order, the assessee filed an appeal before the learned CIT(A). The assessee submitted before the learned CIT(A) that the above addition of Rs.40,688/- was neither found in any document during the search u/s. 132 of the Act nor by the AO in the assessment proceedings and therefore, does not qualify as undisclosed income as per the definition of undisclosed income given in section 271AAB(1A) of the Act. However, the learned CIT(A) did not agree with the same and noted that the disclosure was not suo moto in the original return, but it was only in post search assessment proceedings and it partakes the character of undisclosed income within the meaning of section 271AAB(1A) of the Act. The learned CIT(A) also noted that the legislature intended stringent consequences in search cases. Unlike section 271(1)(c) of the Act, the requirement of proving deliberate concealment or mens rea is not essential once undisclosed income pertaining to search is determined. Accordingly, the learned CIT(A) confirmed the penalty order.
3. Aggrieved with the said order, the assessee is in appeal before us on the following grounds of appeal:
” 1. BECAUSE in any view, the Ld. C.I.T. (Appeals)-4, Kanpur vide Order dt.15.05.2026 has Grossly erred by Dismissing the Appeal and Confirming the “Penalty imposed of Rs.24,410/- (on so called being 60% of Undisclosed Income of Rs.40,688/-) u/s 271AAB(1A) of the I.T. Act” vide Order dt.28.09.2024 which is Wrong, Illegal, Without Reasonable Opportunity of being heard, Bad in Peculiar Facts & Law.
2. BECAUSE in any view, the Addition of impugned Amount of Rs.40,688/-being solely on the basis of Excess Loss in F & O inadvertently shown in the Calculation in ITR was requested by the Appellant himself in the Peculiar Facts cannot be characterized as “Undisclosed Income” as defined under Explanation (C) to Section 271AAB of the I.T. Act.
3. BECAUSE in any view, the so called Addition of Rs.40,688/- is of F & O Loss was reported in ITR at Rs.19,50,335/- instead of Actual Loss of Rs.19,09,647/-.
Brought to the Notice of the A.O. by the Appellant himself in a Ist Submission on 19.02.2024 even before issuing Notice u/s 142(1) dt.05.03.2024 alongwith the Payment of Rs.7,120/- on 19.02.2024 itself.
Neither in the knowledge of the A.O., Nor there was any Seized Material in this regard during the Search u/s 132(1) on 03.08.2022.
4. BECAUSE in any view, the Penalty Order dt.28.09.2024 passed u/s 271AAB(1A) of the I.T. Act & impugned Order dt.15.05.2026 of Ld. C.I.T. (Appeals)-4, Kanpur is without Reasonable Opportunity of being heard is against the “Principle of Audi Alteram Partem” & thus in Violation of “Principle of Natural Justice”.
5. BECAUSE in any view, in the peculiar facts there is No Mens-rea for impugned Penalty Proceedings u/s 271AAB(1A) of the I.T Act (which is Quashi- Criminal in Nature)
The impugned Penalty imposed u/s 271AAB is Wrong & Illegal.
6. BECAUSE in any view, the Penalty initiated & imposed u/s 271AAB(1A) of the I.T. Act is Wrong, Illegal & Void.
7. BECAUSE in any view, and without prejudice to the aforesaid Grounds, the Penalty Order passed, so called Show Cause Notice u/s 271AAB(1A), imposing Penalty of Rs.24,410/-, Confirmed by Ld. C.I.T. (Appeals)-4, Kanpur is without Proper Opportunity, Wrong, Illegal, Bad in Facts & Law.”
4. At the time of hearing, the learned AR relied upon the facts stated before the learned CIT(A) and submitted that the amount of Rs.40,688/-does not represent undisclosed income and therefore, the assessee is not liable for penalty u/s. 271AAB(1A) of the Act.
5. On the other hand, learned Sr. DR supported the orders of the authorities below.
6. We have heard both the parties and perused the material on record. In this case, as noted above, during the course of assessment proceedings, the assessee in her reply dated 19.02.2024 to the AO stated that due to clerical computation error in the income-tax return filed, the F&O loss was reported as Rs.19,50,335/- instead of actual loss of Rs.19,09,647/- resulting in addition of Rs.40,688/- to the total income of the assessee and requested the AO to rectify the same while passing the order u/s. 143(3) of the Act. The same was subsequently added by the AO in the assessment order by treating it as suppressed income of the assessee. During the penalty proceedings as well as the appellate proceedings, the AO as well as the learned CIT(A) have considered the amount of Rs.40,688/- as undisclosed income and accordingly the AO levied a penalty u/s 271AAB(1A) of the Act which was confirmed by the Ld. CIT (A). In this regard, undisclosed income has been defined in clause (c) of sub-sec. (3) of Section 271AAB of the Act, which is reproduced as under :
“Section 271AAB(3)(c):
(c) “undisclosed income” means—
(i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has—
(A) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or
(B) otherwise not been disclosed to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of search; or
(ii) any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted.”
6.1 On perusal of the same, and after giving a thoughtful consideration, we are of the considered view that the addition of Rs. 40,688/- on account of clerical computation error in the income-tax return filed by the assessee, wherein the F&O loss was reported at Rs.19,50,335/- instead of actual loss of Rs.19,09,647/- will not fall under the term ‘undisclosed income’ as defined in clause (c) of sub-sec. (3) of Section 271AAB of the Act. In this regard, the claim of the assessee that the excess loss of Rs.40,688/- is not found recorded in any document found in the course of search has not been negated by the AO and therefore the provisions of clause (A) and (B) of section 271 AAB (3)(c)(i) of the Act will not be attracted. Further, the offer by the assessee to offer the sum of Rs. 40,688/- to tax cannot be termed as ‘false’ that would not have been found to be so had the search not been conducted as provided in clause (ii) of section 271 AAB (3)(c) of the Act. There may be some truth in the observations of the AO and the Ld. CIT(A) that the mistake of over reporting of F&O loses to the extent of Rs. 40,688/- would not have been detected had the search not been conducted in the case of Ghanaram & others Group of Jhansi and consequently, the jurisdiction over the assessee was not assigned to the DCIT, Central Circle, Agra and the case was not picked up for scrutiny. There is always a distinction between any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be ‘false’ and would not have been found to be so had the search not been conducted and an ‘inadvertent mistake’ which is suo moto offered by the assessee even in a post search assessment proceedings. In our view, the under reporting of F&O loses to the extent of Rs. 40,688/- in the present case is an inadvertent mistake which does not fall under the definition of undisclosed income as discussed above and therefore the penalty u/s 271AAB(1A) will not be leviable in this case. Therefore, the levy of penalty of Rs. 24,410/- u/s 271AAB(1A) of the Act is not sustainable in this case and the same is deleted.
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