ITAT Deletes Penalty for Misreporting Income on Political Donation Deduction Under Section 80GGC:

The assessee is an individual who filed his return of income for Assessment Year 2019-20 on August 19, 2019, declaring a total income of Rs 13,86,810. In the return, he claimed a deduction of Rs 5,00,000 under Section 80GGC of the Income Tax Act in respect of donations made to political parties. According to the assessee, the donations were made through banking channels and were supported by donation receipts and bank statements.

Subsequently, based on information arising from investigations concerning certain registered unrecognised political parties (RUPPs), the AO initiated reassessment proceedings in connection with a donation of Rs 2,00,000 made to Apan Desh Party. The AO levied a penalty of Rs 3,12,000 under Section 270A(8) read with Section 270A(9), treating the case as one of misreporting of income. The CIT(A) upheld the penalty. The Tribunal noted that both parties submitted that the issue was covered by the coordinate Bench’s decision in Hiro Mulchand Tanwani Vs Income Tax Officer Case.

In the earlier decision, the Tribunal had held that the mere disallowance of a deduction claimed under Section 80GGC does not automatically justify a penalty for misreporting under Section 270A. It observed that penalty proceedings are distinct from assessment proceedings and that the findings recorded during assessment are not, by themselves, conclusive for determining whether the conditions for imposing a penalty have been satisfied.

The Tribunal further noted that Section 270A distinguishes between under-reporting of income and misreporting of income. The higher penalty applicable to misreporting requires the circumstances specified under Section 270A(9) to be established. A deduction claim that is ultimately found inadmissible cannot, without more, be treated as deliberate misreporting.Respectfully following the bench’s decision, and finding no contrary decision or distinguishing facts, the Tribunal held that the penalty imposed under Section 270A was not sustainable in law. Accordingly, it deleted the penalty of Rs 3,12,000 imposed by the AO and upheld by the CIT(A).