Rs 17.41 lakh penalty for ITR filing mistake: CA firm's owner's affidavit helps taxpayer get relief in ITAT Mumbai; know how

A revised income tax return (ITR) filed on April 7, 2018, by a taxpayer from Kalbadevi, Mumbai, for the assessment year (AY) 2017-18, triggered a prolonged tax dispute after it raised red flags within the income tax system. The taxpayer had originally filed the return on November 28, 2017, reporting a loss of Rs 1.59 lakh, but in the revised ITR, the taxpayer declared a loss of Rs 1.06 crore, a huge jump that led to an anomaly in the tax system and ultimately resulted in a long tax dispute.

Thus, the ITR was selected for scrutiny under Computer-Assisted Scrutiny Selection (CASS), and the income tax department issued notices under Sections 143(2) and 142(1).

Responding to the taxpayer department's query regarding the discrepancy, the taxpayer explained to the tax department that the exempt share of profit had been inadvertently deducted while preparing Schedule BP, even though it had not been credited to the Profit and Loss Account. The taxpayer said that the error was clerical and unintentional and accepted that the current year's loss figure required re-computation.


The taxpayer said the error occurred only in Schedule BP, where the exempt income was inadvertently deducted again, resulting in an inflated loss. The taxpayer also submitted that the lapse was committed by the clerical staff of the CA firm that filed the ITR and provided an affidavit from the proprietor of the said CA firm.

The income tax assessing officer rejected the explanation on the ground that the mistake had resulted in substantial increase in loss to the benefit of the taxpayer and that the taxpayer had repeated the same error even in the revised ITR.

Thus, the Income Tax Assessing Officer treated the reduction of loss, including the disallowance under section 14A, as under-reported income in consequence of misreporting, quantified under-reported income at Rs 1.05 crore, and levied a penalty of Rs 69.67 lakh, being 200% of tax payable on this alleged under-reported income.

Also read: Rs 17 lakh income tax refund claim was denied as taxpayer did not e-verify ITR since he was busy taking care of late father; ITAT Delhi allows refund for this reason

Feeling aggrieved, the taxpayer filed an appeal with the commissioner of appeals (CIT A) who after hearing the case reduced the penalty from Rs 69.67 lakh to Rs 17.41 lakh. Still aggrieved, the taxpayer appealed before the Income Tax Appellate Tribunal (ITAT) Mumbai.

On June 23, 2026, the ITAT Mumbai's B Bench heard the case and on July 8, 2026, the ITAT Mumbai passed an order in the taxpayer's favour deleting the penalty entirely. This ruling was delivered by Mr Saktijit Dey, Vice President, and Mr Makarand Vasant Mahadeokar, Accountant Member of the ITAT Mumbai.

Also read: Rs 5.26 lakh capital loss carry forward was claimed in original ITR but a lesser claim was denied in revised ITR; Taxpayer fights back and wins in ITAT Bangalore

Keep reading to know how the taxpayer won the case.

Summary of the judgement

Chartered Accountant Suresh Surana said to ET Wealth Online that the Mumbai B Bench of the ITAT, in this case, dealt with the levy of a penalty under Section 270A of the Income-tax Act, 1961, in a case where the assessee's ITR declared loss was reduced during assessment due to an error in the return.

The assessee (the taxpayer) in the original ITR for AY 2017-18 reported a loss, and in the revised ITR, the taxpayer declared a higher loss. During scrutiny assessment, the assessing officer noticed that the assessee was a partner in a firm and had earned an exempt share of profit from the firm amounting to Rs 1.04 crore, says Surana.

Although this exempt income was disclosed in Schedule EI and reflected in the balance sheet, the assessee had also wrongly deducted the same amount in Schedule BP (Computation of income from business or profession), even though it was not credited to the Profit and Loss Account. This resulted in an inflated loss in the ITR, she says.

Surana says that during assessment proceedings, the assessee accepted the mistake and explained that the error was clerical and inadvertent, arising at the time of return preparation.

Surana says: "The assessee also placed on record an affidavit of the Chartered Accountant stating that the mistake had occurred due to an error by junior staff handling the ITR filing."

The assessing officer, however, treated the reduction of loss as under-reporting due to misreporting and levied a penalty equivalent to 200% of the tax payable under Section 270A.

On appeal, the CIT(A) reduced the penalty from 200% to 50% by treating the matter as under-reporting covered by Section 270A(2)(g) but sustained the penalty to the extent of Rs 17.41 lakh.

Surana says that the ITAT Mumbai deleted the penalty and held that this case was not suitable for the imposition of a penalty under Section 270A.

The tax tribunal noted that the primary facts were already disclosed in the ITR itself. The source of exempt income, the amount of exempt income, and its treatment in Schedule EI were all available on record. The mistake was confined to the manner of filling Schedule BP and was not a case of suppression of income, false entry, or concealment of material particulars.

The tax tribunal further observed that although the same mistake was repeated in the revised ITR, such repetition, by itself, was not conclusive enough to hold that the assessee had misreported income or furnished inaccurate particulars.

Why did the taxpayer win the case?

Surana says that the taxpayer won the case because the explanation furnished by the assessee was found to be bona fide and was not controverted by the Revenue.

Surana says that the tax tribunal considered several relevant circumstances in favour of the assessee, including disclosure of the exempt income in the return, reflection of the amount in the balance sheet, immediate acceptance of the re-computation during assessment, absence of any set-off or carry forward benefit from the excess loss, and the affidavit of the chartered accountant explaining the inadvertent error.

Surana says: "Since the income tax department did not bring any material to show that the explanation was false or that there was deliberate misreporting, the ITAT held that the penalty could not be sustained merely because the assessment resulted in reduction of loss."

Surana says that this ruling reiterates that Section 270A is not intended to penalise every adjustment, disallowance, or reduction of loss made during the assessment. Even where a case may technically fall under under-reporting due to a reduction of loss under Section 270A(2)(g), the exceptions under Section 270A(6) must be considered.

"Where the assessee offers a bona fide explanation and all material facts are disclosed, penalty should not be imposed mechanically," she says.

The ITAT Mumbai, therefore, held that an inadvertent computational or return filing error, particularly where the relevant income has otherwise been disclosed and the income tax department has not disproved the assessee's explanation, cannot automatically be treated as under-reporting or misreporting for the purpose of Section 270A. Accordingly, the penalty sustained by the CIT(A) was deleted, and the assessee's appeal was allowed.