ITAT Deletes Section 270A Penalty of Rs. 1.24 Lakh:

The assessee filed his return of income for Assessment Year 2019–20 after declaring total income of Rs. 10,87,680 after claiming a deduction of Rs. 2,00,000 under Section 80GGC of the Income Tax Act, 1961, for a donation stated to have been made to Rashtriya Samajwadi Party (Secular). During reassessment proceedings, the AO relying principally on investigation and search findings concerning certain registered unrecognised political parties (RUPPs) and their alleged modus operandi of providing accommodation entries, disallowed the deduction claimed under Section 80GGC.

Consequently, the AO imposed a penalty of Rs. 1,24,800 under Section 270A by treating the disallowed deduction as under-reported income in consequence of misreporting. The CIT(A) upheld the penalty by order dated 19 February 2026.

The Tribunal observed that the assessee had disclosed the deduction claim under Section 80GGC in the original return of income and furnished a bank statement evidencing the payment of Rs. 2,00,000. The Tribunal held that, for imposing a penalty at the enhanced rate applicable to misreporting, the AO was required to establish the specific ingredients of misreporting prescribed under Section 270A(9). Mere disallowance of a deduction, even if the claim was ultimately found inadmissible, could not automatically establish that the assessee had misrepresented or suppressed facts or furnished inaccurate particulars of income.

The Tribunal also held that the distinction between an inadmissible claim and misreporting of income had not been properly established in the penalty order. The CIT(A)’s reliance on general investigation findings could not substitute the requirement of proving the assessee’s specific conduct under Section 270A(9). Accordingly, the Tribunal held that the penalty was not sustainable merely because the deduction under Section 80GGC had been disallowed. It set aside the penalty order, deleted the penalty of Rs. 1,24,800 and allowed the assessee’s appeal.