The Delhi Bench of the Income Tax Appellate Tribunal has deleted a penalty of ₹12.84 lakh imposed under Section 270A of the Income Tax Act, 1961, holding that a dispute concerning the applicable rate of tax cannot be treated as under-reporting or misreporting of income when the income returned by the taxpayer and the income assessed by the Assessing Officer are identical.
The Bench of Satbeer Singh Godara (Judicial Member) and Amitabh Shukla (Accountant Member) observed that Section 270A authorises the imposition of a penalty only in established cases of under-reporting or misreporting of income. Since there was no difference between the returned income and the assessed income in the present case, the Tribunal found no basis for invoking the penalty provision.
The taxpayer filed his income tax return on November 4, 2022, declaring a total income of ₹8,43,02,530. The assessment was subsequently completed under Section 143(3) of the Income Tax Act through an order dated March 22, 2025.
During the assessment proceedings, the Assessing Officer modified the rate of tax applicable to interest income of ₹1,17,69,000 earned by a minor and clubbed in the taxpayer’s hands.
The taxpayer had claimed the benefit of a reduced rate of taxation under the Double Taxation Avoidance Agreement between India and the United Arab Emirates. However, the Assessing Officer rejected the treaty-rate benefit and applied a different rate of tax to the interest income.
The Assessing Officer also denied TDS credit of ₹2,62,824 on the ground that the corresponding rental income had not been offered to tax.
Following these adjustments, the Assessing Officer imposed a penalty of ₹12,83,998 under Section 270A. The Commissioner (Appeals) subsequently upheld the penalty by treating the amount of ₹1.17 crore as under-reported income within the meaning of Section 270A(2).
The taxpayer argued that the returned income and assessed income were the same. Therefore, there was neither under-reporting nor misreporting of income that could justify the imposition of a penalty under Section 270A.
It was submitted that the interest income in question had already been disclosed in the income tax return. The controversy was confined to the applicable rate of tax and the taxpayer’s eligibility for the concessional rate under the India-UAE tax treaty.
According to the taxpayer, a modification of the applicable tax rate, without any corresponding addition to the returned income, could not be characterised as under-reporting of income.
The Revenue, on the other hand, relied upon the orders passed by the Assessing Officer and the Commissioner (Appeals).
The Tribunal noted that Section 270A mandates the imposition of a penalty only where a case of under-reporting or misreporting of income is established.
The Tribunal found that the income declared by the taxpayer in the return and the income ultimately assessed by the Assessing Officer were identical. There was consequently no difference in income that could be regarded as under-reported.
The dispute merely concerned the tax rate applicable to the minor’s interest income clubbed in the taxpayer’s hands and the availability of the concessional rate under the India-UAE tax treaty.
The Tribunal held that a disagreement over the applicable tax rate, by itself, did not establish that the taxpayer had concealed, under-reported or misreported any income.
The Tribunal also considered the Assessing Officer’s decision to deny additional TDS credit of ₹2,62,824 on the ground that the corresponding rental income had not been offered.
Referring to the taxpayer’s explanation reproduced in the assessment order, the Bench observed that the explanation regarding the additional TDS claim did not suffer from any major lacuna.
The circumstances surrounding the TDS claim, therefore, also did not justify treating the case as one involving under-reporting or misreporting of income for the purpose of Section 270A.
Concluding that no case for the imposition of a penalty had been made out, the Tribunal set aside the orders of the lower authorities.
It directed the Assessing Officer to delete the penalty of ₹12,83,998 imposed under Section 270A through the order dated March 22, 2025. The taxpayer’s appeal was accordingly allowed.
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