The Income Tax Appellate Tribunal (ITAT), Mumbai, has upheld a penalty of ₹2.05 crore under Section 270A of the Income-tax Act, 1961, holding that surrendering non-genuine expenditure after its detection during a tax investigation cannot be treated as voluntary disclosure merely because the taxpayer claims to have acted to avoid prolonged litigation.

The Bench of Narender Kumar Choudhry (Judicial Member) and Prabhash Shankar (Accountant Member)  found a contradiction between the company’s insistence that its evidence established genuine transactions and its subsequent surrender of the expenditure. On the facts before it, the Bench did not accept the explanation that the withdrawal was merely intended to secure peace or avoid litigation.

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The dispute concerned the disallowance of ₹4,07,56,500 claimed towards depreciation, amortisation and revenue expenditure relating to transactions with an entity that the tax authorities found to be an accommodation entry provider.

The company, which operates a television news channel, had filed its return declaring income of ₹28,95,46,040. A survey conducted at its premises and those of its group concerns on January 4, 2021, led the Department to examine transactions with entities allegedly providing entries at inflated or arbitrary prices to enable claims of expenditure, depreciation and amortisation.

One such entity was Mixrex Media and Cable Private Limited, referred to in the order as MMCPL.

According to the findings recorded by the Assessing Officer, enquiries revealed that MMCPL’s premises were shut and no business activity was being conducted from the stated address. Its director, Shahaji Dagdu Suryavanshi, had stated before the Directorate General of GST Intelligence that he signed blank cheques and papers, was unaware of the company’s day-to-day operations and received ₹5,000 per month.

The director also stated that no business activity was being carried out by the company and that he was unaware of any other staff working there. The authorities treated these statements as indicating that he was a dummy director.

A summons issued under Section 131 returned undelivered with the remark “left”. Electronic service on the registered email address also elicited no response. Notices issued under Section 133(6), seeking transaction details, similarly remained unanswered.

The Assessing Officer further noted that MMCPL’s return for Assessment Year 2019–20 disclosed no fixed assets. On the basis of these findings, the officer concluded that the company had obtained entries from a non-genuine entity that was adding layers to transactions rather than carrying on actual business.

The disputed claims of ₹4,07,56,500 were disallowed, and the assessment was completed under Section 143(3), determining total income at ₹33,03,02,540.

The Assessing Officer separately initiated penalty proceedings under Section 270A for under-reporting of income in consequence of misreporting.

The officer invoked clauses (a) and (d) of Section 270A(9), which concern misrepresentation or suppression of facts and the recording of false entries in the books of account.

The Department’s case was that the taxpayer had claimed deductions on the strength of transactions with a paper entity and recorded entries at arbitrary or inflated prices without an adequate business rationale.

The Commissioner of Income Tax (Appeals)-48, Mumbai, upheld the penalty through an order dated August 29, 2025. The company then approached the Tribunal.

Before the Tribunal, the company maintained that its transactions were genuine and supported by documentary evidence.

It relied on invoices, e-way bills, bank statements showing payments to MMCPL and an invoice relating to content programmes. According to the company, the capital assets acquired included a virtual studio, Flyway equipment, digital asset management equipment, a video mixer and a core switch with slots.

The company argued that the assets had been capitalised in its books and that the e-way bills contained transportation and delivery details.

It also disputed the significance of purchase orders being generated after delivery, contending that urgent requirements could explain the sequence and that shortcomings in a third-party vendor’s records should not determine the allowability of its own expenditure or depreciation.

The company further alleged that the investigation report relied upon by the authorities had not been supplied to it. It argued that the Assessing Officer had failed to rebut its documentary evidence and that a vendor’s failure to respond to a notice could not, by itself, establish that a transaction was non-genuine.

Emphasising that assessment and penalty proceedings are independent, the company submitted that a disallowance does not automatically justify a penalty.

The company relied on its letter dated June 4, 2021, offering the disputed expenditure and depreciation for disallowance. It maintained that the offer was made because of limited time and to avoid prolonged litigation, rather than as an admission of wrongdoing.

It also submitted that the time limit for filing a revised return had expired and that it had therefore requested the Assessing Officer to consider the disallowance during assessment.

The Tribunal rejected the characterisation of the surrender as voluntary.

It noted that the claims had already been made in the original return filed on October 31, 2020. The offer to withdraw them came after the survey and adverse investigative findings concerning accommodation entries.

The Bench concluded that the disclosure followed detection by the Department and could not be treated as an independent, voluntary correction.

The appellate authority had held that the existence of invoices, e-way bills and bank statements did not establish genuineness where the investigation showed that the counterparty was a paper entity.

The Tribunal sustained the adverse findings. It observed that the Assessing Officer had conducted independent enquiries based on the investigation material, but the concern was not found operating at its stated address. The company had not established the contrary.

The Bench concluded that the facts supported the application of Section 270A(9), including the findings relating to suppression of correct facts and false entries in the books.

The decision therefore rested on the investigative findings and the circumstances of the surrender, rather than treating the disallowance alone as sufficient to impose the penalty.

The company also sought protection under Section 270A(6), contending that it had disclosed material facts and provided a bona fide explanation.

The authorities rejected that defence because the case was treated as under-reporting resulting from misreporting.

As reproduced in the order, Section 270A(8) provides for a penalty equal to 200% of the tax payable on under-reported income where that income results from misreporting, notwithstanding the provisions of subsections (6) and (7).

The Tribunal upheld the application of the misreporting provisions in the circumstances of the case.

The Tribunal relied on the Supreme Court’s decision in MAK Data (P.) Ltd. v. Commissioner of Income-tax-II, which addressed surrender of income after detection and the limits of explanations based on buying peace or avoiding litigation.

Although that judgment concerned the earlier penalty provision under Section 271(1)(c), the Bench considered its reasoning relevant to misreporting under Section 270A.

The Tribunal also referred to other decisions concerning disclosures made after investigation or detection. Its reasoning emphasised that the voluntariness of a surrender must be assessed against the facts and timing of the disclosure.

The company’s reliance on Reliance Petroproducts was distinguished by the appellate authority because that case concerned an incorrect legal claim, whereas the present dispute involved transactions found to be fabricated or non-genuine.

The Tribunal distinguished the coordinate Bench decisions relied upon by the company.

It noted that Sushil Rajendra Kothari concerned the absence of a specific penalty charge, while Kavita Jagjit Singh involved a bona fide omission to disclose interest on an income-tax refund.

In DCIT v. Man Industries Ltd., the addition relating to accommodation entries had been restricted to 5% on an estimated basis. The Tribunal held that those circumstances differed from the present case.

Accordingly, those decisions did not support cancellation of the penalty on the facts before the Bench.

In its written submissions, the company additionally argued that the show-cause notices did not identify the specific clause of Section 270A(9), and that the penalty should therefore be quashed.

The Tribunal declined to entertain this contention because it had not been raised before the lower authorities. It was also absent from the grounds filed in Form 36, and no additional ground had been filed before the Tribunal.

The notice objection was therefore rejected on that procedural basis.

The Tribunal ultimately held that the surrender of the disputed depreciation and amortisation claims was not voluntary and that the explanation of avoiding prolonged litigation did not justify deletion of the penalty.

The Bench also referred to the statutory immunity mechanism under Section 270AA, observing that the company had not opted for it.

Dismissing all grounds of appeal, the Tribunal sustained the penalty of ₹2,05,15,192.

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