Penalty for underreporting fails where no deduction claim was made in the return and assessment addition followed.

Penalty for underreporting under Section 270A was unsustainable where the return itself did not contain the deduction claim under Section 80P(2)(d) in respect of interest income from RECL. Since the computation filed with the return showed no such claim, the resulting assessment addition did not by itself establish underreporting or misreporting. The levy of penalty was therefore not exigible and was held invalid.

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Issues: Whether penalty under Section 270A of the Income-tax Act, 1961 could be sustained when the assessee had not claimed deduction under Section 80P(2)(d) in respect of the interest income from RECL in the return of income.

Analysis: The computation of income filed along with the return showed that no deduction under Section 80P(2)(d) was claimed against the interest income received from RECL. On that basis, the income could not be treated as involving underreporting or misreporting merely because the assessment resulted in an addition and the penalty proceedings followed.

Conclusion: Penalty under Section 270A was not exigible and the levy was unsustainable; the issue was decided in favour of the assessee.

Ratio Decidendi: Penalty for underreporting cannot be imposed where the return itself does not contain the deduction claim said to have been wrongly made in respect of the relevant income.

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