Rupal Sunil Shah Vs Mum-C-(251)(1) (ITAT Mumbai)
Mumbai ITAT Deletes Section 270A Penalty; Clerical Interchange of Partner’s Remuneration and Exempt Profit Share Is a Bona Fide Error
The Income Tax Appellate Tribunal (ITAT), Mumbai, considered the assessee’s appeal against the order of the Commissioner of Income Tax (Appeals) dated 01.12.2025 for Assessment Year 2020-21, confirming a penalty imposed under Section 270A of the Income-tax Act, 1961. The appeal arose from reassessment proceedings completed under Sections 147 read with 144B of the Act.
The reassessment order dated 31.01.2025 assessed the total income at ₹22,10,345 as against the returned income of ₹7,68,880. During reassessment, the Assessing Officer observed that the assessee had received remuneration from partnership firms amounting to ₹30,52,867 and exempt share of profit under Section 10(2A) amounting to ₹16,11,402. In the original return, these figures had been inadvertently interchanged, with taxable remuneration shown as exempt share of profit and vice versa. Consequently, the Assessing Officer held that taxable remuneration of ₹14,41,465 had escaped assessment. The assessee accepted the mistake during reassessment, filed a return in response to the notice under Section 148, and paid the additional tax and interest. However, the Assessing Officer treated the return filed under Section 148 as invalid because it was filed beyond the prescribed time and held that the assessee had under-reported income by way of misreporting. Penalty under Sections 270A(8) and 270A(9) amounting to ₹4,84,044, being 200% of the tax payable on under-reported income, was levied.
Before the Commissioner (Appeals), the assessee submitted that she was a senior citizen engaged in share trading and was also a partner in three partnership firms. It was contended that the error was purely clerical, arising because the previous Chartered Accountant had inadvertently interchanged the figures of remuneration and exempt share of profit. The assessee submitted that immediately after receiving the notice under Section 148, she realized the mistake, fully cooperated with the Department, accepted the variation without dispute, and paid the tax and interest. The Commissioner (Appeals), however, held that claiming exemption for taxable remuneration constituted misreporting of income and that the explanation of clerical error did not satisfy the requirements of Section 270A(6)(a). The Commissioner (Appeals) also observed that the judicial precedents relied upon by the assessee related to Section 271(1)(c) and were not applicable to Section 270A. Accordingly, the penalty was confirmed.
Before the Tribunal, the principal issue was whether penalty under Section 270A(8) for misreporting of income could be sustained where the assessee had inadvertently interchanged the figures of taxable partner’s remuneration and exempt share of profit, while both amounts had been correctly disclosed in the records.
The Tribunal observed that the penalty had been levied solely because the figures relating to remuneration from partnership firms and exempt share of profit under Section 10(2A) had been interchanged in the return of income. It noted that both amounts were duly reflected in the books of account of the partnership firms and were already available on record. It further observed that the case did not involve receipts kept outside the books, omission of income from disclosure, false evidence, fictitious entries, suppression of receipts, or unsupported claims. The dispute was confined only to incorrect classification of the two disclosed figures.
Referring to Section 270A(6)(a), the Tribunal observed that under-reported income does not include cases where the assessee offers a bona fide explanation and discloses all material facts to substantiate that explanation. It held that the provision recognizes that every addition in assessment does not automatically attract penalty and requires the Assessing Officer to examine whether the assessee’s explanation falls within the statutory exception before invoking Sections 270A(8) and 270A(9).
The Tribunal found that the assessee had consistently maintained throughout the proceedings that the incorrect disclosure resulted from inadvertent interchange of figures by the previous Chartered Accountant. It further noted that Section 270A(9) specifies circumstances constituting misreporting of income, including misrepresentation or suppression of facts, failure to record investments, unsupported expenditure claims, false entries, failure to record receipts, and failure to report international transactions. According to the Tribunal, none of these circumstances existed in the present case, nor was there any finding that the assessee had deliberately suppressed material facts or made a false claim. It held that merely because taxable remuneration had been shown under the exempt head, the case could not automatically be treated as one of misreporting under Section 270A(9).
The Tribunal further observed that the Assessing Officer was expected to adopt a judicious and balanced approach while exercising the power to levy penalty and should not proceed on the assumption that every addition necessarily warrants penal consequences. It observed that Section 270A is intended to penalize deliberate and culpable conduct rather than genuine human errors, and that tax administration should not equate bona fide mistakes with concealment or misrepresentation.
The Tribunal referred to the Supreme Court decision in Price Waterhouse Coopers (P.) Ltd. v. CIT, where penalty under Section 271(1)(c) was held to be unsustainable in the case of an inadvertent and bona fide error despite disclosure in the tax audit report. It also referred to CIT v. Reliance Petroproducts Pvt. Ltd., wherein the Supreme Court held that rejection of a claim by itself does not justify levy of penalty. The Tribunal observed that although these decisions arose under Section 271(1)(c), the principles continued to have persuasive value while interpreting Section 270A(6)(a), which incorporates the concept of a bona fide explanation.
Applying these principles, the Tribunal held that the Assessing Officer ought to have examined the assessee’s explanation in light of Section 270A(6)(a) instead of mechanically invoking Sections 270A(8) and 270A(9). Since both figures had been duly disclosed and the error related only to their classification, the Tribunal found that the circumstances indicated a bona fide human error rather than any intention to conceal or misrepresent income. It therefore held that the conditions prescribed under Section 270A(9) were not satisfied and that the case fell within the exception provided by Section 270A(6)(a). Accordingly, the Tribunal held that the Assessing Officer was not justified in levying penalty at 200% of the tax payable on under-reported income under Section 270A(8), directed deletion of the penalty, and allowed the assessee’s appeal.
