Deduction disallowance alone does not justify penalty for under-reporting absent statutory misreporting

Penalty under section 270A was not leviable where the addition arose only from disallowance of a deduction claimed under section 80IA(4)(iii). The Tribunal applied the statutory scheme that enhanced penalty for under-reporting requires the income to fall within specified misreporting categories, such as misrepresentation, suppression of facts, false entries, failure to record receipts, or unsupported expenditure. A deduction claim that is ultimately rejected in assessment does not, by itself, amount to misreporting or furnishing inaccurate particulars. The penalty was therefore held unsustainable and directed to be deleted.

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Issues: Whether penalty under section 270A of the Income-tax Act, 1961 was leviable where the addition arose from disallowance of deduction claimed under section 80IA(4)(iii), and whether such disallowance constituted under-reporting in consequence of misreporting.

Analysis: Section 270A(8) prescribes enhanced penalty only where under-reported income results from one of the specified forms of misreporting under section 270A(9), such as misrepresentation or suppression of facts, false entries, failure to record receipts, or unsupported expenditure. The addition in the present case arose only because the claimed deduction under section 80IA(4)(iii) was disallowed on the view that the rental income was not derived from the industrial undertaking. Such a claim, even if found not allowable in assessment, is not by itself a case of misreporting or under-reporting in the statutory sense. The principle that a claim not sustainable in law does not automatically amount to furnishing inaccurate particulars was applied to reject the penalty.

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

Final Conclusion: The assessee succeeded on the penalty issue and the penalty levied for alleged misreporting was cancelled.

Ratio Decidendi: A disallowance of a deduction claim, without the assessee's case falling within the specified misreporting categories, does not by itself justify penalty for under-reporting under section 270A.

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