Bona fide claim on debatable education cess deduction did not justify penalty under section 270A.

Penalty under section 270A was unsustainable where the assessee claimed deduction of education cess as business expenditure on a bona fide, disclosed interpretation supported by earlier judicial views. The issue remained genuinely debatable until the retrospective clarification in the Finance Act, 2022, and the Revenue did not establish under-reporting, misreporting, mala fide concealment, or deliberate furnishing of inaccurate particulars. Shifting descriptions of the charge also weakened the penalty basis. On these facts, the claim could not be treated as actionable misreporting, and the penalty was directed to be deleted.

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Issues: Whether penalty under section 270A of the Income-tax Act, 1961 was leviable for the assessee's claim of deduction of education cess as business expenditure, where the claim was based on a bona fide interpretation supported by earlier judicial views and the controversy was later addressed by retrospective legislative amendment.

Analysis: The penalty provisions under section 270A require the Revenue to bring the case within the statutory contours of under-reporting or misreporting. The assessee had claimed education cess as deductible expenditure on the basis of then-existing favourable judicial decisions, and the issue was genuinely debatable until the retrospective amendment in the Finance Act, 2022 clarified the position. The penalty was initiated and levied on shifting descriptions of the charge, and the record did not establish any mala fide concealment or deliberate misreporting. In such circumstances, a claim made on a bona fide and disclosed basis, in relation to a contentious issue later clarified retrospectively, does not justify penalty.

Conclusion: The penalty under section 270A was not sustainable and was directed to be deleted.

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