The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has deleted a Rs 23.94 lakh penalty imposed on a taxpayer who had initially failed to report cash deposits of Rs 38.37 lakh in his income tax return.
The taxpayer later disclosed the deposits during assessment proceedings and paid Rs 19.89 lakh in tax on the revised computation. The tribunal held that merely categorising the omission as “misreporting” was not sufficient to impose a penalty equal to 200% of the tax payable under Section 270A of the Income-tax Act.
The order was pronounced on September 10, 2026, in the case of Manoj Kumar Divakaran v. DCIT, Circle 42(2)(1), Mumbai, ITA No. 1297/Mum/2026, for Assessment Year 2022-23.
Taxpayer Disclosed Rs 38.37 Lakh During Assessment
The case relates to Manoj Kumar Divakaran, who filed his original income tax return on July 5, 2022, declaring total income of Rs 47.43 lakh.
His return was later selected for scrutiny. During the assessment proceedings, Divakaran submitted a revised computation on November 25, 2023, in which he included cash deposits totalling Rs 38.37 lakh held in two bank accounts.
He explained that the deposits had been missed from the original return because of a communication gap with his tax adviser. Following the revised computation, he paid Rs 19.89 lakh as self-assessment tax.
The Assessing Officer completed the assessment on March 26, 2024, treating the Rs 38.37 lakh as income from other sources. Divakaran accepted the addition and did not challenge the assessment.
However, the Income Tax Department subsequently initiated penalty proceedings under Section 270A, alleging that the income had been under-reported as a result of misreporting.
Why Was the Rs 23.94 Lakh Penalty Imposed?
The distinction between under-reporting and misreporting of income was central to the dispute.
Under Section 270A, misreporting can result in a penalty of 200% of the tax payable on the under-reported income. In this case, the Assessing Officer imposed a penalty of Rs 23.94 lakh, which the taxpayer challenged before the appellate authorities.
Divakaran had also sought immunity from penalty under Section 270AA on April 30, 2024. According to the tribunal’s order, he had paid the applicable tax and interest and had not filed an appeal against the underlying assessment.
The Assessing Officer, however, rejected the immunity request, maintaining that the case involved misreporting.
ITAT Says Misreporting Must Be Specifically Established
The Mumbai ITAT examined whether the circumstances actually met the requirements for treating the income as under-reported due to misreporting under Section 270A.
The tribunal noted that Divakaran had disclosed the Rs 38.37 lakh during the assessment proceedings and paid the resulting tax. The revised computation was also not rejected by the Assessing Officer.
The bench further observed that the penalty proceedings did not identify the specific provision under Section 270A(9) that constituted misreporting in the taxpayer’s case.
The tribunal relied on the Delhi High Court’s decision in Prem Brothers Infrastructure LLP v. NFAC. In that case, the court held that simply using the term “misreporting” without identifying the relevant provision and explaining how its conditions were fulfilled was not sufficient.
The Mumbai ITAT also considered an earlier tribunal ruling involving a revised computation in which additional income was accepted during assessment. That decision had similarly distinguished between ordinary under-reporting and under-reporting resulting from misreporting.
Rs 23.94 Lakh Penalty Deleted
After considering the facts, the Mumbai ITAT allowed Divakaran’s appeal and deleted the Rs 23.94 lakh penalty.
The tribunal concluded that there was no sufficient basis to treat the income as having been under-reported as a consequence of misreporting. It also held that the taxpayer was entitled to immunity from the penalty.
The ruling, however, did not remove the underlying Rs 38.37 lakh income addition. Divakaran had accepted that assessment and had not challenged it.
The relief granted by the tribunal was specifically related to the Rs 23.94 lakh penalty, rather than the addition of Rs 38.37 lakh to his taxable income.