ITAT Ahmedabad Strikes Down 200% Penalty Under Section 270A: Withdrawal of Section 80GGC Deduction Post Reopening Does Not Constitute Misreporting
Overview of the Dispute
A recent ruling by the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, in the matter of Reena Ayan Shah Vs ITO (ITAT Ahmedabad) — pertaining to Assessment Year 2019-20 — has reinforced an important principle in penalty jurisprudence: the mere withdrawal of a deduction following the issuance of a notice under Section 148 does not, by itself, constitute misreporting of income attracting the enhanced 200% penalty under Section 270A.
The Tribunal directed deletion of a penalty of ₹62,400 that had been levied on the assessee, finding that the foundational requirements for misreporting under Section 270A(9) had not been established by the Revenue.
Background: Original Return and the Departmental Flag
The assessee had filed her original return of income for Assessment Year 2019-20, declaring total income of ₹7,89,410. In that return, a deduction of ₹1,50,000 was claimed under Section 80GGC in respect of a political donation made to a Registered Unrecognised Political Party (RUPP).
Subsequently, the Income Tax Department received intelligence indicating that the donation in question was bogus in nature. On the basis of this information, the case was flagged as a "High Risk CRIU/VRU Case" under the CBDT's Risk Management Strategy through the Insight Portal.
Following this classification, the assessment was reopened under Section 147 read with Section 144 and Section 144B, and a notice under Section 148 was issued on 20.04.2023.
Return Filed in Response to Reopening and Completion of Reassessment
In response to the notice under Section 148, the assessee filed a return of income on 22.05.2023, declaring total income of ₹9,36,400 — a figure that reflected the withdrawal of the earlier deduction of ₹1,50,000 under Section 80GGC.
The Assessing Officer (AO) completed the reassessment proceedings on 28.11.2024 and accepted the income as declared in the return filed pursuant to reopening, making no further addition or variation. Despite this, the AO concluded that the original deduction represented furnishing of inaccurate particulars, thereby constituting under-reporting of income through misreporting within the meaning of Section 270A(9) of the Income-tax Act, 1961.
Accordingly, penalty proceedings under Section 270A were initiated during the course of the reassessment proceedings itself.
Penalty Imposed Despite No Further Addition to Income
During the penalty proceedings, the AO issued notices under Section 270A on 28.02.2025 and 11.03.2025. The assessee responded, contending that the deduction had been claimed in good faith, without any mala fide intent, and through proper banking channels.
The AO rejected this explanation and imposed a penalty of ₹62,400 under Section 270A. This figure represented the elevated penalty rate applicable in cases where under-reported income is alleged to have arisen on account of misreporting, as opposed to ordinary under-reporting.
Note: The distinction between "under-reporting" and "misreporting" under
Section 270Ais critical — misreporting attracts a penalty at 200% of the tax payable on the misreported income, whereas under-reporting attracts a lower rate of 50%.
First Appellate Stage: CIT(A) Confirms Penalty
Before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, the assessee failed to respond to multiple notices issued during the appellate proceedings. As a consequence, the learned CIT(A) decided the matter on the basis of available records and dismissed the appeal by order dated 22.12.2025.
The CIT(A) held that: