Shri Penninti Vivekananda Rao v. ADIT

Case snapshot

Sections / provisions: 270A(9)

Questions before the Court / Tribunal

• Misreporting penalty and wrong head of income: The reported ruling distinguishes an income item disclosed under an incorrect head from statutory misreporting. The exact clause of section 270A(9), factual disclosure and penalty reasoning require the official order.

Material facts and background

The brief facts of the case are that the assessee is a

non-resident individual who filed his return of income for A.Y.

Rs.5,20,66,038/-, consisting of Capital Gains of Rs.4,78,14,391/and Income from Other Sources of Rs.42,61,647/-. Out of the total capital gains, the assessee had shown Rs.3,22,68,672/- arising from surrender of three Equity Plus Fund issued by Bajaj Allianz Life Insurance Co. Ltd. (“Bajaj Equity Plus Fund”). The case of the assessee was selected for complete scrutiny under CASS, and statutory notices under section 143(2) and 142(1) of the Income Tax Act,1961 (“ the Act”) were issued to the assessee. The assessee had purchased the three Bajaj Equity Plus Fund of Rs.25 lakhs each on 28.11.2004, 28.03.2005 and 22.01.2006 respectively. During the assessment proceedings, the Ld. AO held that the gain on surrender of Bajaj Equity Plus Fund is taxable under the head “Income from Other Sources” and not “Capital Gains.” Accordingly, the Ld. AO initiated the penalty proceedings under section 270A of the Act for misreporting of income. The assessee sought immunity under section 270AA of the Act, which was rejected, and ultimately penalty of Rs.2,48,02,158/- was levied by the Ld. AO under section 270A of the Act, vide penalty order dated 10.03.2023. 4.

Aggrieved with the order of the Ld. AO, the assessee

filed appeal before the Ld. CIT(A). The Ld. CIT (A) upheld the penalty levied by the Ld. AO. 5.

Aggrieved with the order of the Ld. CIT (A), the assessee

is now in appeal before the Tribunal. At the outset, the Learned Authorized Representative (“Ld. AR”) submitted that the solitary issue arising out of the grounds of appeal of the assessee is on account of the levy of penalty of Rs. Rs.2,48,02,158/- under section 270A of the Act. The arguments of the Ld. AR were manifold. One of

Appellant / assessee submissions

is now in appeal before the Tribunal. At the outset, the Learned Authorized Representative (“Ld. AR”) submitted that the solitary issue arising out of the grounds of appeal of the assessee is on account of the levy of penalty of Rs. Rs.2,48,02,158/- under section 270A of the Act. The arguments of the Ld. AR were manifold. One of

the objections raised by the Ld. AR is that there is no case of misreporting under section 270A (9) of the Act in the case of the assessee. In this regard, the Ld. AR invited out attention to the computation of income of the assessee placed at page no. 13 of the paper book and submitted that the assessee disclosed all facts fully and truly in his return of income. The only dispute in the present case is regarding the head of taxability of the income, whether it is taxable under the head of capital gain or under the head of income from other sources. The assessee under a bonafide belief had offered the income under the head of capital gain. However, the Ld.AO made it taxable under the head of income from other source. As such there is no misrepresentation or suppression of facts on the part of the assessee. Hence, the case of the assessee does not fall under any of the clauses (a) to (f) of section 270A (9) of the Act and the penalty levied by the Ld. AO is liable to be deleted. In support of his contention, the Ld. AR placed reliance on the following judicial precedents: (a)

Revenue / respondent submissions

Per contra, the Departmental Representative (“Ld. DR”)

supported the orders of the lower authorities. The Ld. DR also invited our attention to page nos. 10 and 11 of the order of the Ld. CIT (A), the relevant portion of the same is reproduced as under:

the material available on record including the judicial precedents relied upon . As regards the objection of the Ld. DR that the assessee had not offered the income from surrender of the Bajaj Equity Plus Fund in his return of income, we have gone through the computation of income of the assessee placed at page no. 13 of the paper book which is to the following effect:

offered income of Rs.3,22,68,672/- with regard to surrender of the Bajaj Equity Plus Fund in his return of income. Accordingly, this objection of the Ld. DR is factually incorrect and is rejected. On the other hand, the Ld. AR has argued that there is no case of misreporting under section 270A (9) of the Act in the case of the assessee. The Ld. AR has submitted that the assessee disclosed all facts fully and truly in his return of income. The Ld. AR has also submitted that the assessee under a bonafide belief had offered the income under the head of capital gain. However, the Ld.AO made it taxable under the head of income from other source. As such there is no misrepresentation or suppression of facts on the part of the assessee. Hence, the Ld. AR has submitted that the case of the assessee does not fall under any of the clauses (a) to (f) of section 270A (9) of the Act and the penalty levied by the Ld. AO is liable to be deleted. In this regard, on perusal of the computation of income of the assessee, we find that the assessee has offered income of Rs.3,22,68,672/- with regard to surrender of the Bajaj Equity Plus Fund in his return of income. Hence we are of the considered view...

Court / Tribunal analysis and reasoning

offered income of Rs.3,22,68,672/- with regard to surrender of the Bajaj Equity Plus Fund in his return of income. Accordingly, this objection of the Ld. DR is factually incorrect and is rejected. On the other hand, the Ld. AR has argued that there is no case of misreporting under section 270A (9) of the Act in the case of the assessee. The Ld. AR has submitted that the assessee disclosed all facts fully and truly in his return of income. The Ld. AR has also submitted that the assessee under a bonafide belief had offered the income under the head of capital gain. However, the Ld.AO made it taxable under the head of income from other source. As such there is no misrepresentation or suppression of facts on the part of the assessee. Hence, the Ld. AR has submitted that the case of the assessee does not fall under any of the clauses (a) to (f) of section 270A (9) of the Act and the penalty levied by the Ld. AO is liable to be deleted. In this regard, on perusal of the computation of income of the assessee, we find that the assessee has offered income of Rs.3,22,68,672/- with regard to surrender of the Bajaj Equity Plus Fund in his return of income. Hence we are of the considered view...

penalty under section 270A(9) of the Act, the case of the assessee must fall under one of the clauses (a) to (f) of the said sub-section. In the present case, the assessee has duly offered the income arising on transfer of Bajaj Equity Plus Fund in the return of income. The only issue involved is that the assessee has offered the said income under an incorrect head, i.e., under the head “Capital Gains” instead of under the head “Income from Other Sources.” In our considered view, as the assessee has disclosed the income in the return of income, there is no misrepresentation or suppression of facts on the part of the assessee. Consequently, the assessee’s case does not fall under any of the clauses (a) to (f) of section 270A(9) of the Act. The situation is merely one of wrong reporting of the income under an incorrect head, and nothing more. In this regard, we have gone through the para nos. 10 & 11 of the decision of the Co-ordinate Bench of the ITAT, Mumbai, in the case of D.C. Polyester Ltd vs DCIT (supra), relied upon by the assessee, which is to the following effect: “10. We heard rival contentions and perused the record. We notice that section 270A of the Act uses the...

Assessing Officer ‘may direct”. Hence there is merit in the contention of the assessee that levying of penalty is not automatic and discretion is given to the Assessing Officer not to initiate penalty proceedings under section 270A of the Act. From the facts discussed earlier, it can be noticed that the addition came to be made on account of change in the head of income for assessing the rental income. We noticed that the assessee had offered rental income under the head “Income from House Property,” but the assessing officer has assessed the same under the head “Income from business.” The standard deduction @ 30% allowable u/s 24(a) while computing income under the head Income from house property will not be available when it is assessed under the Income from business. Thus, it is not a case that the assessee has suppressed or under reported any income. The addition came to be made to the total income returned by the assessee, due to change in the head of income, i.e., the addition has arisen on account of computational methodology prescribed in the Act. In our view, this kind of addition will not give rise to under reporting of income. Accordingly, we are of the view that the AO...

Operative decision and relief

assessee had offered income under the head “Income from House Property” instead of under the correct head “Profits and Gains of Business or Profession.” The ITAT held that penalty under section 270A of the Act cannot be levied merely because of a change of head of income. Hence, respectfully following the same, under the present facts and circumstances of the case, we are of the considered view that no penalty can be levied under section 270A(9)of the Act in the case of the assessee. Accordingly, we direct the Ld. AO to delete the penalty. 11.

assessee on merit, other alternative arguments of the assessee on merits and the legal grounds challenging the validity of the impugned order are rendered academic and are not adjudicated. 12.

Order pronounced in the Open Court on 19th November, 2025. Sd/Sd/(VIJAY PAL RAO) (MADHUSUDAN SAWDIA) VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad, dated 19th November, 2025 Vinodan/sps

Addresses Shri Penninti Vivekananda Rao, Plot No.4-19/C Road No.19, Shaikpet, Jubilee Hills, Hyderabad 500033 Telangana ADIT (International Taxation)-2 Aayakar Bhavan, Opp: LB Stadium, Basheerbagh, Hyderabad 500004 Pr. CIT – Hyderabad/CIT (IT&TP) Hyderabad DR, ITAT Hyderabad Benches CIT (IT) (SZ) Bengaluru Guard File

Authorities and precedents appearing in the judgment

• Supreme Court in the case of CIT vs. Reliance
• ITAT Mumbai Benches in the case of D.C. Polyester Ltd vs DCIT (ITA No. 188/Mum/2023
• ITAT Chennai Benches in the case of S. Saroja vs DCIT
• D.C. Polyester Ltd vs DCIT (supra)

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on Misreporting penalty and wrong head of income. The operative result is classified as Operative order controls. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Misreporting penalty and wrong head of income. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Check the exact penalty charge in the show-cause notice, the assessment finding and the final penalty order; ambiguity or a changed statutory limb can be material.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

Read / download the clean local judgment copy

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