Mere Re-Classification of Loss Nature Can’t be Considered as Under-Reporting of Income: ITAT
The Income Tax Appellate Tribunal (ITAT), Mumbai, deleted a penalty under section 270A, ruling that just a reclassification of loss does not mean the assessee has under-reported their income.
The assessee, Glorishine Impex Pvt. Ltd., filed its income tax return (ITR) for AY 2017-18, declaring a loss of Rs 79,20,80,085. The loss was related to the settlement of a forward contract with M/s Ruchi Soya Industries Ltd and other entities for the sale of palmolein and other goods. The company had treated this loss as a normal business loss and claimed it accordingly.
During the assessment proceedings, the AO reclassified the loss as a speculative loss under Section 43(5) of the Income Tax Act, as there was no actual delivery of the goods. This reclassification did not affect the tax liability, as it was assessed at Nil. The AO did not dispute the genuineness or quantum of the loss. The AO claimed that the assessee had under-reported income and, holding the same, he levied a penalty under section 270A at 50% of the reclassified loss.
The assessee challenged this decision before the National Faceless Appeal Centre (NFAC), which observed that the assessee had fully disclosed the facts in its return. The appellate authority deleted the penalty, holding that just a reclassification of a disclosed claim without any suppression or misrepresentation does not mean the assessee has under-reported income. Aggrieved by the order, the revenue filed an appeal before the Income Tax Appellate Tribunal (ITAT), Mumbai.
The Tribunal agreed with the NFAC order, saying that mere reclassification of the loss does not result in under-reporting of income under Section 270A. It noted that the tax liability remained nil and there was no suppression of facts.
“Where the assessee has laid all cards on the table and the Revenue has merely rearranged them under a different label without establishing any falsity or suppression, the rigorous and quantified penalty envisaged by section 270A has no application,” the Tribunal said.
Accordingly, the penalty imposed under section 270A was deleted.
Case Citation: ACIT-4(2)(1) Vs Glorishine Impex Pvt. Ltd (ITAT Mumbai); ITA No.2209/Mum/2025; 14/11/2025; 2017-18
