Pranav B Prem

The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench has held that an incorrect computation of deduction under Section 54F of the Income Tax Act cannot be treated as misrepresentation or suppression of facts for the purpose of imposing penalty for “misreporting of income” under Section 270A(9). The Tribunal clarified that merely claiming a deduction based on an erroneous interpretation does not make it a case of wilful concealment or false entry.

Also Read: Delhi ITAT Rules, Reopening Notice Under Sec 148 Income Tax Act Falling Outside Completion Period Prescribed By ‘TOLA’ Cannot Sustain

A Bench comprising Accountant Member Annapurna Gupta and Judicial Member Siddhartha Nautiyal passed the ruling in an appeal filed by Krunal Sanghvi challenging the penalty order imposed under Section 270A(9). Although the appeal was filed with a delay of 338 days, the Tribunal condoned the delay after noting that the assessee had changed his tax consultant and was not properly advised regarding the available appellate remedy. The Bench held that the delay was neither deliberate nor mala fide and that substantial justice must prevail over technicalities.

The dispute pertained to the assessee’s claim of full deduction under Section 54F on capital gains invested in a new residential property. While the assessee claimed deduction on the entire investment of ₹1,17,92,358, the Assessing Officer computed the allowance on a proportionate basis and restricted the deduction to ₹91,60,046. The assessee accepted the addition and did not challenge the computation before the Commissioner of Income Tax (Appeals). Nevertheless, the Assessing Officer proceeded to levy penalty on the ground that the assessee had “misreported income” by claiming excess deduction.

Also Read: ITAT Mumbai: Estimation Theory Inapplicable to Sham Purchases; 100% Disallowance of ₹26.49 Lakh Restored

The Tribunal observed that Section 270A(9) prescribes specific circumstances that constitute misreporting, such as misrepresentation or suppression of facts, false entries, unsubstantiated expenses, failure to record investments or receipts, and non-reporting of specified transactions. After examining the record, the Bench found that none of these situations were attracted. It held that the assessee had disclosed all relevant facts, including the capital gains earned and the investment made in the new asset, and the dispute was solely with respect to the method of computing deduction under Section 54F.

Also Read: ITAT Flags Revenue’s Double Standard in Allowing Interest Expense but Terming Loan as Accommodation Entry

The Tribunal also noted that neither the Assessing Officer nor the CIT(A) specified which clause of Section 270A(9) was attracted. The orders imposing penalty did not establish that the assessee had misrepresented facts or suppressed information. The Tribunal held that a bona fide claim that turns out to be legally incorrect cannot be equated with misreporting of income, and that the penalty provisions must be construed strictly. Finding the levy of penalty to be unsustainable in law, the Tribunal deleted the penalty imposed under Section 270A(9) and allowed the appeal filed by the assessee.

Appearance

Counsel For  Appellant: Chintan Shah, AR

Counsel For Respondent: Abhijit, Sr.DR

Cause Title: Krunal Sanghvi Versus ITO

Case No: I.T.A. No. 1285/Ahd/2025

Coram: Accountant Member Annapurna Gupta, Judicial Member Siddhartha Nautiyal