Wrong Head of Income Is Not Misreporting: ITAT Quashes Rs. 2.48 Crore Penalty

The assessee, Shri Penninti Vivekananda Rao, a non-resident individual, filed his return for AY 2020-21 declaring total income of Rs. 5.20 crore, including capital gains of Rs. 3.22 crore arising from surrender of three Bajaj Allianz Equity Plus Fund policies purchased between 2004 and 2006. The case was selected for complete scrutiny.

The Assessing Officer held that the gains from surrender of the policies were taxable as “Income from Other Sources” and not as “Capital Gains”. Penalty proceedings under Section 270A were initiated for alleged misreporting of income. The assessee’s application for immunity under Section 270AA was rejected, and a penalty of Rs. 2.48 crore was levied. The CIT(A) upheld the penalty. The assessee appealed to the ITAT.

Issue Before ITAT: Whether penalty under Section 270A(9) for misreporting can be levied where income is fully disclosed but offered under an incorrect head of income.

ITAT’s Order: The ITAT deleted the penalty. It held that the assessee had fully and correctly disclosed the income from surrender of the policies in the return, and the dispute was confined only to the head of taxation. Misreporting under Section 270A(9) applies only to specified situations such as suppression of facts, false entries, or failure to record receipts, none of which were present.

The Tribunal held that offering income under an incorrect head, based on a bona fide claim, does not amount to misreporting. Penalty under Section 270A is not automatic, and a rejected legal claim by itself cannot attract penal consequences.

To Read Full Judgment, Download PDF Given Below