Purchased property below market value, filed no ITR, got income tax notice, paid the tax but asked to pay Rs 70,000 penalty; ITAT Delhi gives full relief

When Mr Rai from Indrapuram, Ghaziabad, purchased a property for Rs 48 lakh, he claimed to have no idea that the property’s stamp duty value was Rs 58.7 lakh. However, this lack of due diligence on Rai’s part, cost him heavily as the Income Tax Department assumed that Rai must have paid the remaining amount of Rs 10.7 lakh (Rs 58.7 lakh minus Rs 48 lakh) by other means to the seller and so it escaped the tax net.

With this assumption, the income tax Assessing Officer (AO) issued a Section 148 tax notice to Rai, since he had not filed an income tax return (ITR) also. From the tax department’s eyes, they had information that Rai purchased a property worth Rs 58.7 lakh at Rs 48 lakh and had also filed no ITR. These circumstances pointed out that something must be wrong since nobody would normally sell their property below the market value.

Rai filed his ITR in response to the Section 148 tax notice and pleaded that he is a semi-literate person who does not have much knowledge about tax laws and so he accepts his fault and is willing to pay the tax. Subsequently, Rai paid the tax due on the Rs 10.7 lakh differential amount. But by the time he paid, the AO had already initiated tax penalty proceedings against Rai.


The Assessing Officer (AO) levied a penalty under Section 270A amounting to Rs 70,700 on the tax on unreported income of Rs 10,78,190. The Commissioner of Appeals confirmed this penalty too. Thus Rai filed an appeal before the Income Tax Appellate Tribunal (ITAT) Delhi.

Advocate C M Agarwal and Advocate Archit Agarwal argued on Rai’s behalf before the ITAT Delhi tax tribunal.

On September 16, 2026, Rai won the case in ITAT Delhi.

Why did Rai win the case in ITAT Delhi?

Pranshu G, Partner at Ashok Pranshu & Co, said to ET Wealth Online: Historically, Section 271(1)(c) contained the expression “deliberately”, which was subsequently omitted through legislative amendment. Section 270A, governs penalties for under-reporting and misreporting of income. Establishing deliberate concealment or mala fide intention is not a mandatory condition for imposing a penalty for under-reporting of income.

However, Section 270A(6)(a) expressly excludes from the computation of under-reported income any amount in respect of which the taxpayer offers a bona fide explanation and substantiates such explanation by disclosing all material facts.

In the present case, Rai had purchased a property below its stamp duty valuation and subsequently disclosed the differential amount as income upon receiving a reassessment notice. The Tribunal observed that the Income Tax Department had failed to establish any mala fide intention and specifically held that the taxpayer's case fell within the statutory exception under Section 270A(6)(a).

The crucial takeaway is that the absence of mens rea does not, by itself, invalidate a penalty under Section 270A. However, where the taxpayer satisfies the statutory condition(s) for exclusion under Section 270A(6), the penalty cannot be sustained.

ITAT Delhi discussion

Before the ITAT Delhi, Rai’s advocates argued that Rai is a semi-literate individual and as soon as he realised his bona fide mistake, he paid the necessary tax. Rai’s advocates told the ITAT Delhi tax tribunal that their case fell within Section 270A(6)(a) and is also covered by decision of Hon’ble Supreme Court in Sahara India Mutual Benefit Co. 337 CTR 377.

Rai’s advocate also gave reference to decision of Hon’ble Madras High Court in the case of Natrajan Anand Kumar in WP No.29829/2023 dated 23.01.2024.

ITAT Delhi said that the Income Tax Department has not been able to place on record any evidence so as to establish a mala fide mens rea on Rai’s part to have concealed the said income.

ITAT Delhi also said that Rai’s case falls within the meanings of section 270A(6)(a).

Thus, in the interest of justice, ITAT Delhi set-aside the penalty order and allowed Rai’s appeal.