Is Penalty u/ 270A leviable on the Deduction claimed for Political Party Donation u/s 80GGC which is disallowed by the AO.

A Disallowed 80GGC Claim Is Not “Misreporting”: ITAT Ahmedabad Deletes Penalty Under Section 270A

Case: Sunny Vinodkumar Varyani v. Income Tax Officer, Ward-1(1)(3), Ahmedabad

ITA No.: 76/AHD/2026   |   Bench: ITAT Ahmedabad

Coram: Dr. B.R.R. Kumar, Vice President and Shri Rahul Chaudhary, Judicial Member

Date of Order: 30 July 2026

Citation: 2026 (8) TMI 281 – ITAT Ahmedabad

Assessment Year: 2019-20

1. Why This Decision Matters

Over the last three years, the Department has reopened a very large number of assessments where deduction was claimed under Section 80GGC in respect of donations to certain unrecognised political parties.

In a majority of these cases the assessee — faced with a modest quantum and the prospect of prolonged litigation — has withdrawn the claim in the return filed under Section 148 and accepted the addition.

The real dispute has therefore shifted from the quantum stage to the penalty stage. Assessing Officers have routinely invoked Section 270A treating the disallowance as under-reporting in consequence of misreporting, which attracts penalty at 200% of the tax on under-reported income under Section 270A(8) and also shuts out immunity under Section 270AA.

The Ahmedabad Bench has now held, following its own earlier decisions, that a disallowance of an 80GGC claim — standing alone — cannot sustain a charge of misreporting.

2. Facts in Brief

• The assessee filed his return for AY 2019-20 declaring total income of ₹4,13,890, after claiming a deduction of ₹2,00,000 under Section 80GGC in respect of a donation to Rashtriya Samajwadi Party (Secular).
• Following search and seizure action under Section 132 in the cases of certain political parties and charitable organisations, information was circulated within the Department that a group of persons was using certain unrecognised political parties to solicit bogus donations in lieu of commission, with the donation amount ultimately being routed back to the donor.

• The Assessing Officer initiated reassessment under Section 147 and issued notice under Section 148 on 17.04.2023.
• In response, the assessee filed a return declaring total income of ₹6,13,890, thereby withdrawing the 80GGC deduction of ₹2,00,000.
• The assessment under Section 147 r.w.s. 144B was completed on 20.12.2024, accepting the income returned under Section 148. Penalty proceedings under Section 270A were initiated in respect of the original claim.
• Penalty of ₹56,232 was levied by order dated 23.06.2025. The NFAC/CIT(A) dismissed the appeal on 11.11.2025. The assessee carried the matter to the Tribunal.

3. The Tribunal’s Reasoning

Both sides fairly conceded before the Bench that the issue stood covered by the Ahmedabad Tribunal’s decision in Hiro Mulchand Tanwani v. ITO [ITA No. 110/AHD/2026, dated 15.05.2026], which the Bench extracted and applied. The following propositions emerge in the above case of Hiro Mulchand which was follows by Tribunal in the present case also. :

(a) Non-filing of appeal against the quantum addition is not an admission of misreporting

The Assessing Officer’s contention that the assessee had “accepted” the addition by not appealing cannot, by itself, be a valid basis for concluding that there was misreporting. Where the assessee chooses not to challenge a relatively small quantum addition in order to avoid prolonged litigation, that choice does not amount to an admission of concealment or of furnishing false particulars.

(b) Penalty proceedings are independent of assessment proceedings

It is well settled that penalty proceedings are distinct and independent from assessment proceedings, and the findings recorded in the assessment order are not conclusive for the purpose of levying penalty.

(c) A disclosed claim, later found inadmissible, is not misreporting

The assessee had duly disclosed the donation in the return and claimed the deduction on the belief that the payment qualified. The disallowance arose only because the Assessing Officer was not satisfied about the genuineness or eligibility of the donation. There was no material on record to establish that the assessee had furnished false evidence, suppressed facts, or made any deliberate misrepresentation.

(d) The burden lies on the Revenue

A claim of deduction made in the return, even if ultimately found inadmissible, does not automatically lead to the conclusion that income has been misreported. Unless the Revenue demonstrates with cogent evidence that the claim was bogus and knowingly made on the basis of false particulars, penalty for misreporting cannot be sustained.

(e) Even under-reporting must be independently established

At best, the case might fall within the ambit of under-reporting — but even that would require the Assessing Officer to establish that the conditions prescribed under Section 270A are satisfied. In the absence of any finding that the assessee deliberately furnished inaccurate particulars or fabricated documents, the higher penalty prescribed for misreporting is not legally tenable.

6. Held

Finding no change in the factual matrix or the legal proposition, and following the Co-ordinate Bench decisions, the Tribunal deleted the penalty of ₹56,232 levied under Section 270A. Grounds 1 and 2 were allowed and the appeal was allowed in full.

7. The Line of Ahmedabad Decisions

This ruling is the third in a consistent line from the Ahmedabad Bench:

1. Hiro Mulchand Tanwani v. ITO, ITA No. 110/AHD/2026, dated 15.05.2026 — reported at 2026 (6) TMI 214 – ITAT Ahmedabad. Penalty of ₹93,600 on an 80GGC donation of ₹1,50,000 to Manvadhikar National Party deleted.

2. Siddharth Laxmikant Vaderkar v. ITO, Ward-4(2)(3), Ahmedabad, ITA No. 1072/AHD/2026, dated 07.07.2026 — reported at 2026 (8) TMI 179 – ITAT Ahmedabad, following Tanwani.

3. Sunny Vinodkumar Varyani v. ITO (the present case), dated 30.07.2026.

8. Practical Takeaways for Practitioners

For assessees currently facing 270A penalty notices on 80GGC disallowances:

1. Attack the charge, not merely the quantum. The threshold question is whether the show-cause notice and the penalty order identify the specific clause of Section 270A(9) alleged to be attracted. A bare recital that the case is one of “under-reporting in consequence of misreporting” is unlikely to survive scrutiny.

2. Emphasise disclosure. Where the donation is reflected in the return, supported by a receipt, and routed through banking channels, the foundational ingredient of “suppression” or “misrepresentation” is absent.

3. Meet the “acceptance” argument head-on. The Bench has expressly held that withdrawal of the claim in the 148 return, or the decision not to appeal the quantum addition, is a commercial choice and not a confession.

4. Insist on the Revenue’s burden. Departmental information emanating from a Section 132 action on the donee party is, without more, material against the party — not proof that this particular donor knowingly made a false claim. General investigation findings must be translated into case-specific evidence.

5. Consider Section 270AA where appropriate. Since immunity under Section 270AA is unavailable for misreporting but available for under-reporting, successfully downgrading the charge has consequences well beyond the difference between 50% and 200%.

A word of caution: These decisions turn on the absence of material demonstrating a knowing false claim. Where the Department does bring on record evidence of cash-back, commission payments, or the assessee’s participation in the arrangement, the outcome may well differ. The ruling is a check on mechanical penalty orders, not a blanket immunity.

Source

Full text of the order: https://www.taxtmi.com/caselaws?id=796408 (2026 (8) TMI 281 – ITAT Ahmedabad)