Ahmedabad: Income Tax Appellate Tribunal (ITAT), Ahmedabad, has removed penalties imposed on taxpayers who had claimed deductions for political donations but later withdrew the claims during reassessment, holding that such withdrawal or disallowance does not by itself amount to “misreporting” of income.The orders were passed in a set of appeals for assessment year 2019-20 and against penalties imposed under Section 270A of the Income-tax Act, 1961. The cases come amid increased enforcement in matters concerning alleged bogus political donations, including FIRs against certain registered unrecognised political parties and persons allegedly linked to them.The taxpayers’ assessments had been reopened after information flagged through the tax department’s risk management system indicated that they had made political donations and claimed deductions under Section 80GGC.Following notices issued under Section 148, the taxpayers revised the returns in response and withdrew the deduction claims. The reassessments were subsequently completed by accepting the income declared in the revised returns. Tax demands raised under Section 156 were also paid.The assessing officers, however, initiated penalty proceedings alleging “under-reporting of income in consequence of misreporting of income”. The penalties were imposed by treating the cases as misreporting under Section 270A, which attracts a higher penalty. In one of the matters, the penalty was calculated at 200% of the tax attributable to the disallowed deduction.Before the ITAT, both sides pointed out that the issue was covered by an earlier decision of a coordinate bench involving similar claims under Section 80GGC and penalty proceedings under Section 270A.Following the earlier ruling, the tribunal held that merely making a deduction claim that is subsequently withdrawn or found inadmissible cannot automatically be treated as misreporting.The tribunal relied on the earlier bench’s observation: “A claim of deduction made in the return, even if ultimately found to be inadmissible, does not automatically lead to the conclusion that the assessee has misreported income.”The bench noted that Section 270A(9) specifies circumstances constituting misreporting, including misrepresentation or suppression of facts, recording of false entries and making an unsubstantiated claim supported by false material. It held that the record must establish deliberate wrongdoing before the provision carrying the higher penalty can be invoked.Finding no distinguishing facts in the cases before it, the tribunal held that the penalties imposed and upheld at the first appellate stage were unsustainable and directed their deletion. The appeals were accordingly allowed.Chartered accountant Sulabh Padshah said the orders provided relief to taxpayers in several recent matters. “When a donation is disclosed and a deduction is claimed transparently in the return, a later withdrawal or disallowance cannot be labelled ‘misreporting’ by default,” he said.
