The Commissioner of Income Tax (Appeals), through the National Faceless Appeal Centre (NFAC), has deleted a penalty of ₹62,400 imposed under Section 270A of the Income Tax Act, 1961, holding that the disallowance of a disclosed political donation deduction does not automatically establish misreporting of income.
The appellate authority found that the Assessing Officer had neither identified the specific clause of Section 270A(9) applicable to the taxpayer nor independently established that he had misrepresented or suppressed facts. It also emphasised that findings in assessment proceedings are not conclusive for imposing a penalty.
Buy Now: Direct tax (Income Tax) E-Magazine September 2026
Background: Deduction Claimed for Donation to Political Party
The taxpayer filed his income tax return on August 30, 2019, declaring total income of ₹7,08,060. He claimed a deduction of ₹1,50,000 under Section 80GGC for a donation made to Apna Desh Party.
His case was subsequently reopened following information flagged on the Income Tax Department’s Insight Portal under the category of “High Risk CRIU/VRU cases”.
According to the appellate order, the information originated from a search and seizure operation conducted on September 7, 2022, involving a group of Registered Unrecognised Political Parties in Ahmedabad. The search covered 23 political parties, including Apna Desh Party.
The reassessment was completed on December 26, 2024, under Section 147 read with Sections 144 and 144B. The Assessing Officer treated the donation as an accommodation entry and disallowed the deduction.
Penalty proceedings were initiated under Section 270A on the ground that the resulting under-reported income was a consequence of misreporting.
Assessing Officer Imposed Penalty at 200% of Tax
Following the reassessment, the department issued a notice under Section 274 read with Section 270A on December 26, 2024.
In his response dated January 13, 2025, the taxpayer maintained that the donation had been made in a bona fide manner and requested that the penalty be waived. He also contended that a separate demand of ₹1,48,627 under Section 156 had been raised without accounting for tax deducted at source.
The Assessing Officer rejected the explanation and, by an order dated June 9, 2025, imposed a penalty of ₹62,400. The penalty represented 200% of the tax payable on the income treated as under-reported due to misreporting.
The taxpayer challenged that order before the appellate authority. His appeal was filed within the prescribed time.
Taxpayer Challenged Absence of a Specific Misreporting Charge
The taxpayer argued that the Assessing Officer had failed to explain how the disallowed deduction fell within any particular clause of Section 270A(9).
He also contended that penalty proceedings could not be treated as an automatic consequence of reassessment. According to him, the higher penalty for misreporting required a clear and independent finding that his conduct satisfied the statutory conditions.
A further ground challenged the jurisdiction underlying the reassessment and argued that the consequential penalty could not survive.
Under-Reporting and Misreporting Require Distinct Findings
The appellate authority examined the distinction between under-reporting and misreporting under Section 270A.
It noted that Section 270A(8) prescribes a penalty equal to 200% of the tax payable on under-reported income where such under-reporting results from misreporting. However, the circumstances constituting misreporting are specifically enumerated in Section 270A(9), and the list is exhaustive.
Those circumstances include misrepresentation or suppression of facts, failure to record investments, unsupported expenditure claims, false entries in books of account, failure to record receipts affecting total income, and failure to report specified transactions.
On examining the assessment order, penalty notice and penalty order, the appellate authority found that the Assessing Officer had repeatedly described the default as under-reporting “in consequence of misreporting”, but had not specified the applicable clause of Section 270A(9).
Disclosure of Donation Did Not Establish Misreporting
The appellate authority observed that the taxpayer had disclosed the donation in his return and claimed the deduction on the belief that the payment qualified for relief under Section 80GGC.
The deduction was disallowed because the Assessing Officer was not satisfied about the donation’s genuineness or eligibility. However, the appellate authority found no material on record establishing that the taxpayer had furnished false evidence, suppressed facts or deliberately misrepresented the transaction.
It held that a deduction claimed in a return does not automatically become an instance of misreporting merely because the claim is ultimately found inadmissible.
The authority also reiterated that penalty proceedings are distinct and independent from assessment proceedings. Consequently, the assessment findings alone could not establish the conditions necessary for the higher misreporting penalty.
Earlier Decisions Supported Deletion of Penalty
The appellate authority relied on Ahmedabad Income Tax Appellate Tribunal decisions in Nisha Yogeshkumar Darji v. ITO and Niket Maheshbhai Shah v. ITO. As recorded in the order, those decisions deleted penalties concerning Section 80GGC donations where the Assessing Officer had failed to identify the proper statutory limb or provide the necessary particulars.
The order also referred to the Delhi High Court’s decision in Prem Brothers Infrastructure LLP v. National Faceless Assessment Centre.
Further reliance was placed on Hiro Mulchand Tanwani v. ITO, involving a ₹1.50 lakh political donation deduction for Assessment Year 2019–20. The appellate authority recorded that the Tribunal had required cogent evidence showing that the claim was bogus and knowingly made on false particulars before a misreporting penalty could be sustained.
A similar view, the order noted, was followed in Siddharth Laxmikant Vaderkar v. ITO.
₹62,400 Penalty Deleted; Appeal Partly Allowed
Applying these principles, the appellate authority found that the Assessing Officer had not independently established any misrepresentation, suppression of facts or other default covered by Section 270A(9).
The penalty order merely repeated findings concerning the political party without demonstrating that the taxpayer’s under-reported income resulted from misreporting.
The authority therefore deleted the entire ₹62,400 penalty and allowed the taxpayer’s ground challenging the invocation of Section 270A(9).
Since substantial relief had been granted, the remaining grounds were not adjudicated. The appeal was formally recorded as partly allowed.
The relief concerned the penalty alone. The order did not reverse the disallowance of the ₹1.50 lakh donation deduction or decide the taxpayer’s challenge to the reassessment’s jurisdiction.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
