Bombay High Court
Gm Modular Private Limited 2019 20 vs Principal Commissioner Of Income Tax 1 on 30 March, 2026
Author: B. P. Colabawalla
Bench: B. P. Colabawalla
2026:BHC-OS:7760-DB
2-WP-378-2026.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 378 OF 2026
GM Modular Private Limited .. Petitioner
Versus
Principal Commissioner of
Income Tax - 1 and Ors. .. Respondents
Adv. Dharan V. Gandhi, a/w Ms. Aanchal Vyas, for the Petitioner.
Adv. Sushma Nagaraj, a/w Adv. Abhinav Palsikar, for the
Respondent.
CORAM: B. P. COLABAWALLA &
FIRDOSH P. POONIWALLA, JJ.
DATE: MARCH 30, 2026
P. C.
1. Rule. Respondents waive service. With the consent of the parties,
Rule is made returnable forthwith and heard finally.
2. By this Writ Petition, filed under Article 226 of the Constitution
of India, the Petitioner challenges the order dated 20.03.2025 passed by
Respondent No. 1 under Section 264 of the Income-tax Act, 1961 (for short
“IT Act“), which summarily rejected the revision application filed by the
Petitioner. The Petitioner also challenges the penalty order dated 29.01.2024
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passed by Respondent No. 2 under Section 270A of the Act for the
Assessment Year (for short “AY”) 2019-20.
3. The facts as narrated in the petition are as follows:
a) The Petitioner filed its return of income for AY 2019-20, declaring a
total income of Rs. 70,11,00,620/-.
b) The said return was processed under Section 143(1) of the IT Act,
wherein an adjustment/disallowance of Rs. 26,72,885/- was made on
account of the delayed payment of employees’ contribution to
Provident Fund (PF) and Employee State Insurance (ESI), under
Section 36(1)(va) of the Act. This was vide an intimation dated
08.05.2020.
c) Subsequently, a search and seizure action under Section 132 of the IT
Act was conducted, and an assessment order under Section 143(3) read
with Section 153A of the IT Act was passed on 17.08.2021. In this
assessment order, the Assessing Officer merely reiterated the
disallowance of Rs. 26,72,885/- under Section 36(1)(va) of the IT Act,
which was already made in the intimation issued under Section 143(1)
of the IT Act, alongside other additions.
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d) While the Commissioner of Income Tax (Appeals) deleted the addition
of Rs. 26,72,885/- under Section 36(1)(va) of the IT Act, the Income
Tax Appellate Tribunal (for short “ITAT”), vide order dated
31.05.2023, confirmed the disallowance of Rs. 26,72,885/- relying on
the judgment of the Hon’ble Supreme Court in the case of
Checkmate Services Pvt. Ltd vs. CIT reported in [2022] 448
ITR 518 (SC).
e) Insofar as the other additions are concerned, it is not disputed that the
same were either deleted or set aside by Respondent No. 2. No penalty
on such other additions was levied in the impugned penalty order.
f) Consequent to the ITAT order, Respondent No. 2 passed a penalty
order dated 29.01.2024 under Section 270A of the IT Act, levying a
penalty of Rs. 4,67,006/- for alleged under-reporting of income. As
mentioned earlier, this was only in respect of disallowance under
Section 36(1)(va) of the IT Act.
g) Aggrieved by the penalty order, the Petitioner filed a revision
application under Section 264 of the IT Act before Respondent No. 1.
However, vide the impugned order dated 20.03.2025, Respondent No.
1 simply rejected the application, holding that the issue was not fit for
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revisionary proceedings, without assigning any reasons. Hence, the
present Petition.
4. In this factual backdrop, Mr. Gandhi, learned Counsel appearing
on behalf of the Petitioner, submitted as follows:
a) Respondent No. 1 completely failed to exercise the wide discretion and
jurisdiction vested in him under Section 264 of the IT Act. He
submitted that it is well settled that the powers of the Commissioner of
Income-tax under Section 264 are very wide and certainly the issue
under consideration could have been dealt with by Respondent No. 1.
b) On merits, he contended that no penalty could be levied since the
claim for deduction was based on the favorable decision of the
jurisdictional Bombay High Court in the case of CIT vs. Ghatge
Patil Transports Ltd. reported in (2014) 368 ITR 749(Bom),
which was the binding law as on the date of filing the return of income.
Therefore, once a claim is made relying upon the decision of the
Jurisdictional High Court, then the same cannot be a subject matter of
penalty, if subsequently, the decision of the Jurisdictional High Court
is reversed by the Hon’ble Supreme Court.
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c) In any event, in light of divergent views of various High Courts, the
issue, at best, is a debatable issue and cannot therefore be an issue for
visiting the Assessee with a penalty. Even as late as on 27.01.2026, the
Hon’ble Supreme Court in Woodland (Aero Club) Private
Limited vs. ACIT in SLP(C) No. 1532 of 2026, has again decided
to revisit this issue. This clearly shows that the issue is a debatable.
d) He further pointed out that the adjustment for the PF/ESI
disallowance was already made while processing the return under
Section 143(1)(a) of the IT Act. Therefore, as per the computation
mechanism under Section 270A(2)(a) read with Section 270A(3) of the
IT Act, there is no “under-reported income” because the assessed
income does not exceed the income determined in the intimation
under Section 143(1)(a).
e) Lastly, he argued that the Petitioner’s case is squarely covered by the
exception under Section 270A(6)(a) of the IT Act, as all material facts
were fully disclosed and the explanation offered was bona fide. He
emphasised that merely because an addition is made or sustained, it
does not mean that penalty is inevitable.
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f) In support of his contentions, he relied upon the following decisions in
the cases of CIT v. Reliance Petroproducts (P.) Ltd. – [2010]
322 ITR 158 (SC), CIT v. Gurdaspur Co-operative Sugar
Mills Ltd.- [2024] 461 ITR 208 (SC), CIT v. Gurdaspur Co-
operative Sugar Mills Ltd. – [2013] 354 ITR 27 (Punj. &
Har.), CIT v. Nayan Builders & Developers – [2014] 368 ITR
722 (Bombay), Dilip N. Shroff vs. JCIT in [2007] 291 ITR 519
(SC) and K. Krishnamurthy vs. DCIT in [2025] 473 ITR 557
(SC).
5. Per contra, Ms. Nagaraj, the learned Counsel for the
Respondents, relying on the affidavit-in-reply, vehemently opposed the
petition. She argued that the Petitioner cannot bypass the statutory appellate
remedy available under Section 246A of the IT Act by invoking the
revisionary jurisdiction under Section 264. She submitted that Section 264
cannot be invoked when an order is an appealable order. It was further
contended that since the Hon’ble Supreme Court in Checkmate Services Pvt.
Ltd. (supra) has conclusively decided the issue in favour of the Revenue, the
law applies retrospectively, and therefore, the penalty for under-reporting of
income has to be mandatorily levied. It was therefore contended that
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Respondent No. 1 rightly declined to interfere in a matter where the quantum
addition had attained finality from the ITAT.
6. In rejoinder, Mr. Gandhi submitted that this argument of
maintainability of the Revision Application under Section 264 of the Act and
bypassing of appellate remedy has been repeatedly repelled by this Court. In
this regard, he relied upon a recent decision of this Court in the case of
Swaminarayan Mandir Trust v. Commissioner of Income-tax
(Exemptions) reported in [2026] 182 taxmann.com 209 (Bombay)
to support his contention.
7. We have heard the learned counsel for the parties and perused
the material on record.
8. We shall first deal with the preliminary objection raised by the
Department regarding the maintainability of the Revision Application under
Section 264 of the IT Act. Relevant extract of Section 264 of the IT Act is
reproduced hereunder:
“264. (1) In the case of any order other than an order to which
section 263 applies passed by an authority subordinate to him, the
Principal Chief Commissioner or Chief Commissioner or
Principal Commissioner or Commissioner may, either of his own
motion or on an application by the assessee for revision, call for
the record of any proceeding under this Act in which any such
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2-WP-378-2026.docorder has been passed and may make such inquiry or cause such
inquiry to be made and, subject to the provisions of this Act, may
pass such order thereon, not being an order prejudicial to the
assessee, as he thinks fit.
…
(4) The Principal Chief Commissioner or Chief Commissioner or
Principal Commissioner or Commissioner shall not revise any
order under this section in the following cases–
(a) where an appeal against the order lies to the Deputy
Commissioner (Appeals) or to the Joint Commissioner (Appeals)
o] the Commissioner (Appeals) or to the Appellate Tribunal but
has not been made and the time within which such appeal may be
made has not expired, or, in the case of an appeal to the Joint
Commissioner (Appeals) or the Commissioner (Appeals) or to the
Appellate Tribunal, the assessee has not waived his right of
appeal; or
(b) where the order is pending on an appeal before the Deputy
Commissioner (Appeals); or
(c) where the order has been made the subject of an appeal to
the Joint Commissioner (Appeals) or the Commissioner (Appeals)
or to the Appellate Tribunal.”
9. The provisions of Section 264 are wide enough to include “any
order” passed by an authority subordinate to the Principal Commissioner.
The penalty order passed under Section 270A of the IT Act is an order passed
under the Act, and therefore, the same can be revised under Section 264 of
the Act. Further, the legislature itself, under Section 264(4) of the IT Act, has
specified the circumstances under which the revisional power cannot be
exercised. Section 264(4)(a) provides that an order against which an appeal
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lies before the Commissioner (Appeals) or Joint Commissioner (Appeals),
and where the time limit to file such an appeal has not expired, then such an
order cannot be revised under Section 264 of the IT Act. However, in such a
scenario, if the Assessee waives his right to file an appeal, then such an order
can be the subject matter of revision under Section 264 of the IT Act. Further,
Sections 264(4)(b) and 264(4)(c) provide that an order cannot be revised
under Section 264 of the IT Act if an appeal against such order is filed and is
pending before the Commissioner (Appeals), Joint Commissioner (Appeals)
or the Appellate Tribunal. Thus, it is only in a case where either an appeal is
already preferred before the first appellate authority and is pending or in a
case where the time limit to file an appeal has not expired, and the Assessee
does not waive his right to appeal, that the jurisdiction under Section 264
cannot be exercised. A plain reading of Section 264(4) will show that only in
the circumstances mentioned in clauses (a), (b) or (c) of the said Section that
the revisional jurisdiction cannot be exercised. Other than the said
exceptions, in all other cases, an order, even it may be an appealable order,
can be revised under Section 264 of the IT Act.
10. The upshot of the above discussion is that there is no statutory
mandate compelling an Assessee to file an appeals. The Assessee has the right
to choose its remedy and can opt either for a revision under Section 264 or an
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appeal under Section 246A. This issue is no longer res integra. In the case of
Swaminarayan Mandir Trust (supra), this Court held as under:
“16. Firstly, we are in agreement with the submission made by Mr.
Jain that the assessee has the discretion to either file an appeal
under the provisions of Section 246A of the IT Act before the
Commissioner of Income tax (Appeals) against an appealable
order or to apply for revision under Section 264 of the IT Act
before the prescribed authorities. There is nothing in the statute
which mandates the assessee only to pursue the appeal remedy
and deny the remedy under Section 264 (when no such appeal is
filed). In fact, this Court in the case of Kamal Pasricha As Trustee
of Kuldip Kaur Trust v. ITO [2025] 171 taxmann.com 620
(Bombay) dated 10-02-2025] and Aafreen Fatima Fazal Abbas
Sayed v. Asstt. CIT [2021] 127 taxmann.com 819
(Bombay)/[2021] 280 Taxman 429 (Bombay)/[2021] 434 ITR 504
(Bombay) has consistently held that the Revisional Authority
under Section 264 cannot refuse to exercise its revisional
jurisdiction on the ground that order impugned was appealable
before the appellate authority.”
11. Having held that the order under Section 270A of the IT Act
could be revised under Section 264 of the IT Act, we find that Respondent
No. 1 erred in not exercising the discretion vested in him under Section 264
of the IT Act. It is consistently held by this Court that the powers conferred
under Section 264 are very wide. Section 264(1) empowers the Commissioner
to pass such order as he thinks fit. Such order, of course, cannot be
prejudicial to the Assessee. Thus, the powers of the Commissioner are
expressed in very wide terms. Respondent No. 1 was duty-bound to examine
the merits of the penalty levied. This Court in Pramod R. Agrawal v.
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Principal Commissioner of Income-tax [2023] 156 taxmann.com
126 (Bombay), has held in paragraph 11 as under:
“11. The other submission of Mr. Suresh Kumar also cannot be
accepted in view of the wide powers conferred on respondent No.
1 under section 264 of the Act. As held by this court in Smita
Rohit Gupta (supra), section 264 confers wide jurisdiction on the
Commissioner. The proceedings under section 264 of the Act are
intended to meet a situation faced by an aggrieved assessee, who
is unable to approach the Appellate Authorities for relief and has
no other alternate remedy available under the Act. The
Commissioner is bound to apply his mind to the question whether
petitioner was taxable on that income and his powers are not
limited to correct the error committed by the subordinate
authorities but could even be exercised where errors are
committed by assessee. It would even cover situation where
assessee because of an error has not put forth legitimate claim at
the time of filing the return and the error is subsequently
discovered and is raised for the first time in an application under
section 264 of the Act…” (emphasis supplied)
12. Having held that the impugned order under Section 264 is
unsustainable, ordinarily, we would have remanded the matter back to
Respondent No. 1. However, considering the facts of the case and to prevent
further protraction of litigation, we deem it appropriate to decide the issue of
the penalty on merits here itself, as we are of the considered view that penalty
could not have been levied in the present case.
13. Firstly, a plain reading of Section 270A(1) of the Act indicates
that the Assessing Officer “may” direct that a person shall be liable to pay a
penalty. The use of the word “may” clearly shows that the levy of penalty is
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penalty is not an inevitable consequence in every case where an addition is
made. The Hon’ble Apex Court in the case of Dilip N. Shroff (supra), while
dealing the predecessor of Section 270A i.e., while dealing with Section 271(1)
(c) of the Act, has held that:
“37. The legal history of section 271(1)(c) of the Act traced from
the 1922 Act prima facie shows that Explanations were applicable
to both the parts. However, each case must be considered on its
own facts. The role of Explanation having regard to the principle
of statutory interpretation must be borne in mind before
interpreting the aforementioned provisions. Clause (c) of sub-
section (1) of section 271 categorically states that the penalty
would be leviable if the assessee conceals the particulars of his
income or furnishes inaccurate particulars thereof. By reason of
such concealment or furnishing of inaccurate particulars alone,
the assessee does not ipso facto become liable for penalty.
Imposition of penalty is not automatic. Levy of penalty not only is
discretionary in nature but such discretion is required to be
exercised on the part of the Assessing Officer keeping the relevant
factors in mind. Some of those factors apart from being inherent in
the nature of penalty proceedings as has been noticed in some of
the decisions of this Court, inheres on the face of the statutory
provisions. Penalty proceedings are not to be initiated, as has been
noticed by the Wanchoo Committee, only to harass the assessee.
The approach of the Assessing Officer in this behalf must be fair
and objective.”
(emphasis supplied)
14. Very recently, the Hon’ble Supreme Court in the case of K.
Krishnamurthy (supra), in the context of Section 271AAA of the IT Act, has,
in paragraphs 30 and 31, held thus:
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2-WP-378-2026.doc“30. This Court is of the view that Section 271AAA(1) of the Act
1961 stipulates that the Assessing Officer may, notwithstanding
anything contained in any other provisions of the Act 1961, direct
the Assessee, in a case where search has been carried out to pay
by way of a penalty, in addition to the tax, a sum computed at the
rate of 10% (Ten per cent) of the undisclosed income of the
specified previous year. However, the imposition of penalty is not
mandatory. Consequently, penalty under this Section may be
levied if there is undisclosed income in the specified previous
year.
31. This Court is of the view that though under Section
271AAA(1) of the Act 1961, the Assessing Officer has the
discretion to levy penalty, yet this discretionary power is not
unfettered, unbridled and uncanalised. Discretion means sound
discretion guided by law. It must be governed by rule, not by
humour, it must not be arbitrary, vague and fanciful. [See: Som
Raj v. State of Haryana (1990) 2 SCC 653 ].”
(emphasis supplied)
15. Secondly, we find merit in the Petitioner’s submission that in the
present case, there is no under-reporting of income. The
adjustment/disallowance regarding the employees’ contribution to PF/ESI
was already made by the Centralised Processing Centre (CPC) while
processing the return under Section 143(1)(a) of the IT Act. An intimation
issued under Section 143(1)(a) of the Act dated 08.05.2020 is placed on
record. On perusal of the same, it can be seen that against the returned
income of Rs. 70,11,00,620/-, the income determined is of Rs. 70,37,73,510/-
after adding a sum of Rs. 26,72,885/-, which was on account of disallowance
under Section 36(1)(va) of the Act. Further, the same addition was reiterated
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in the Assessment Order dated 17.08.2021, the relevant paragraph of which is
as under:
“2.CPC while processing of return of Income of assesse for A.Y.-
2019-20, had disallowed an amount of Rs. 26,72,885/- on account
of employee’s contribution in respect of provident fund. The said
disallowance is hereby made and added to the total income of the
assesse. Penalty proceedings u/s 270A of the Income Tax Act is
initiated for under reporting of Income.”
16. Relevant extract of Section 270A(2) is reproduced hereunder:
“(2) A person shall be considered to have under-reported his
income, if–
(a) the income assessed is greater than the income
determined in the return processed under clause (a) of sub-section
(1) of section 143;”
17. Thus, Section 270A(2)(a) provides that a person shall be
considered to have under-reported his income if the income assessed is
greater than the income determined in the return processed under clause (a)
of sub-section (1) of Section 143. It is undisputed that in the present case,
other clauses of Section 270A(2) of the Act do not apply.
18. Further, relevant extract of Section 270A(3) stipulates that:
“(3) The amount of under-reported income shall be,–
(i) in a case where income has been assessed for the
first time,–
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(a) if return has been furnished, the difference between
the amount of income assessed and the amount of income
determined under clause (a) of sub-section (1) of section 143;”
19. Thus, Section 270A(3)(i)(a) quantifies the under-reported
income as the difference between the amount of income assessed and the
amount of income determined under Section 143(1)(a). It is undisputed that
in the present case, other clauses of Section 270A(3) of the IT Act do not
apply
20. The present case does not fall within the ambit of the above-
referred provisions. As noted earlier, Respondent No. 2 in the assessment
order passed under Section 143(3) read with Section 153A merely reiterated
the addition that was already made in the Section 143(1)(a) intimation.
Therefore, the assessed income qua this specific addition does not exceed the
processed income. Consequently, the mandatory ingredients for invoking a
penalty for under-reporting of income under Section 270A(2) and (3) are not
satisfied. Therefore, this addition cannot be considered to be under-reported
income and therefore, on this ground alone, the penalty imposed has to be
deleted.
21. Thirdly, the issue of disallowance under Section 36(1)(va) of the
IT Act was settled in favour of the Petitioner at the time the Petitioner filed its
return of income. The Petitioner’s claim was supported by a binding decision
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of this Court (Jurisdictional High Court) in the case of Ghatge Patil
Transports Ltd (supra). It was only subsequently that the Hon’ble Supreme
Court settled the position of law in Checkmate Services Pvt. Ltd. (supra) and
reversed the view taken by this Court. When a claim is made relying upon a
binding judicial precedent, then certainly such an issue cannot invite any
penal consequences, just because the view was subsequently reversed.
22. Moreover, it is a well-established legal principle that no penalty
can be levied on a debatable issue or where a claim is made based on the
prevailing law of the land at the relevant time. In this regard reference can be
first made to the decision of the Punjab and Haryana High Court in the case
of CIT vs. Gurdaspur Co-operative Sugar Mills Ltd. (supra). In
paragraphs 4 and 5, the Court held as under:
“4. In the present case, there is no dispute about the quantum of
receipt of grant-in-aid from the State Government. The assessee
reflected the same as capital receipt, whereas it has been treated
as to be revenue receipt. The issue whether the amount of grant-
in-aid is capital receipt or a revenue receipt, is a debatable issue.
The findings returned in the judgment relied upon is on fact of
non-furnishing of details of expenses. The issue was not debatable
as in the present case. Therefore, the reliance on the Division
Bench judgment is misconceived.
5. In view of the above, we do not find any error in the findings
recorded by the Tribunal while setting aside the penalty.
Consequently, we do not find that the order of the Tribunal gives
rise to any substantial question of law for the opinion of this
court.”
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23. When the above matter was carried to the Hon’ble Supreme
Court in CIT vs. Gurdaspur Cooperative Sugar Mills (P.) Ltd. (supra), the
Revenue categorically held that the correct position in law has been stated by
the High Court. The relevant paragraph in this regard is as under:
“1. Mr. N Venkatraman, learned Additional Solicitor General, has
in his usual fairness stated the correct position of law as it exists
in the facts and circumstances of the case. Taking note of the legal
position, the Special Leave Petitions are dismissed.”
24. Lastly, this Court in CIT v. Nayan Builders & Developers
(supra) has held thus:
“1. Having heard Mr Ahuja, learned counsel appearing on behalf
of the appellant, we find that this appeal cannot be entertained as
it does not raise any substantial question of law. The imposition of
penalty was found not to be justified and the appeal was allowed.
As a proof that the penalty was debatable and arguable issue, the
Tribunal referred to the order on the assessee’s appeal in quantum
proceedings and the substantial questions of law which have been
framed therein. We have also perused that order dated September
27, 2010, admitting Income Tax Appeal No. 2368 of 2009. In our
view, there was no case made out for imposition of penalty and
the same was rightly set aside. The appeal raises no substantial
question of law, it is dismissed.”(emphasis supplied)
25. Thus, it is a settled position in law that when an issue is
debatable, no penalty cannot be imposed. The issue under consideration is
certainly debatable, as different High Courts had taken different views.
Moreover, as shown by Mr. Gandhi, even as late as on 27.01.2026, the
Hon’ble Supreme Court in Woodland (Aero Club) Private Limited vs.
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ACIT in SLP(C) No. 1532 of 2026, has again decided to revisit this issue.
This itself shows that the issue is debatable. In such a scenario, penalty
cannot be levied. This is another reason for us to interfere.
26. Lastly, the Petitioner’s case is squarely covered by the exception
provided under Section 270A(6)(a) of the IT Act. The same reads thus:
“(6) The under-reported income, for the purposes of this section,
shall not include the following, namely:–
(a) the amount of income in respect of which the assessee
offers an explanation and the Assessing Officer or the Joint
Commissioner (Appeals) or the Commissioner (Appeals) or the
Commissioner or the Principal Commissioner, as the case may be,
is satisfied that the explanation is bona fide and the assessee has
disclosed all the material facts to substantiate the explanation
offered;”
27. In the above context, it is very pertinent to note that the
Petitioner had disclosed all material facts in its return of income and the tax
audit report. The claim was made under a bonafide belief supported by a
jurisdictional High Court precedent. Thus, the Petitioner had offered an
explanation and such explanation was bonafide. In such a case, it cannot be
considered to be an under-reported income. In this regard, one can profitably
refer to the felicitous findings of the Hon’ble Supreme Court in CIT v.
Reliance Petroproducts (P.) Ltd. (supra). The Supreme Court in that case
held that the mere making of a claim which is not sustainable in law does not
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amount to furnishing inaccurate particulars. Relevant paragraphs in this
regard are as under:
“9. We are not concerned in the present case with the mens rea.
However, we have to only see as to whether in this case, as a
matter of fact, the assessee has given inaccurate particulars. In
Webster’s Dictionary, the word “inaccurate” has been defined as :
—
“not accurate, not exact or correct; not according to truth;
erroneous; as an inaccurate statement, copy or transcript.”
We have already seen the meaning of the word “particulars” in the
earlier part of this judgment. Reading the words in conjunction,
they must mean the details supplied in the Return, which are not
accurate, not exact or correct, not according to truth or
erroneous. We must hasten to add here that in this case, there is
no finding that any details supplied by the assessee in its Return
were found to be incorrect or erroneous or false. Such not being
the case, there would be no question of inviting the penalty under
section 271(1)(c) of the Act. A mere making of the claim, which is
not sustainable in law, by itself, will not amount to furnishing
inaccurate particulars regarding the income of the assessee. Such
claim made in the Return cannot amount to the inaccurate
particulars.
10. It was tried to be suggested that section 14A of the Act
specifically excluded the deductions in respect of the expenditure
incurred by the assessee in relation to income which does not
form part of the total income under the Act. It was further pointed
out that the dividends from the shares did not form the part of the
total income. It was, therefore, reiterated before us that the
Assessing Officer had correctly reached the conclusion that since
the assessee had claimed excessive deductions knowing that they
are incorrect; it amounted to concealment of income. It was tried
to be argued that the falsehood in accounts can take either of the
two forms; (i) an item of receipt may be suppressed fraudulently;
(ii) an item of expenditure may be falsely (or in an exaggerated
amount) claimed, and both types attempt to reduce the taxable
income and, therefore, both types amount to concealment of
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particulars of one’s income as well as furnishing of inaccurate
particulars of income. We do not agree, as the assessee had
furnished all the details of its expenditure as well as income in its
Return, which details, in themselves, were not found to be
inaccurate nor could be viewed as the concealment of income on
its part. It was up to the authorities to accept its claim in the
Return or not. Merely because the assessee had claimed the
expenditure, which claim was not accepted or was not acceptable
to the revenue, that by itself would not, in our opinion, attract the
penalty under section 271(1)(c). If we accept the contention of the
revenue then in case of every Return where the claim made is not
accepted by Assessing Officer for any reason, the assessee will
invite penalty under section 271(1)(c). That is clearly not the
intendment of the Legislature.”
(emphasis supplied)
28. Although this decision was rendered in the context of Section
271(1)(c) of the IT Act, the underlying principle that a bonafide claim fully
disclosed in the return does not warrant penal consequences applies with
equal force to the exceptions carved out under Section 270A(6)(a) of the IT
Act. Therefore, even by this logic, the penalty levied by Respondent No. 2 in
the present case has to be set aside.
29. In view of the foregoing discussion, the Writ Petition is allowed.
The impugned order dated 20.03.2025 passed by Respondent No. 1 under
Section 264 of the IT Act, as well as the penalty order dated 29.01.2024
passed by Respondent No. 2 under Section 270A of the IT Act, are hereby
quashed and set aside.
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MARCH 30, 2026
Darshan Patil
2-WP-378-2026.doc
30. Rule is made absolute in the above terms and the Writ Petition is
also disposed of in terms thereof. However, there shall be no order as to
costs.
31. This order will be digitally signed by the Private Secretary/
Personal Assistant of this Court. All concerned will act on production by fax
or email of a digitally signed copy of this order.
[FIRDOSH P. POONIWALLA, J.] [B. P. COLABAWALLA, J.]
Page 21 of 21
MARCH 30, 2026
Darshan Patil
Signed by: Darshan Patil
Designation: PA To Honourable Judge
Date: 01/04/2026 18:07:38
