Whether the reclassification of business loss as speculation loss (due to contract settlement without actual delivery) constitutes “under-reporting of income” under section 270A justifying imposition of penalty, despite there being no change in overall loss or tax liability for the relevant year.

Case Citation

ACIT-4(2)(1), Mumbai vs. Glorishine Impex Pvt. Ltd 

ITA No. 2209/Mum/2025, ITAT Mumbai, Dated 14 November, 2025.

Statutory Provision Involved

•              Section 270A: Penalty for under-reporting and misreporting of income.

 

•              Section 43(5): Definition of speculative transaction.

•

•              Section 143(1)(a) & 143(3): Processing and assessment of return of income.

 

Facts:-Assessee was in the business of commodity trading.

•              Returned a loss of ₹79.2 crore, majorly due to “claims and settlement” from forward contracts.

•              Assessee treated this loss as normal business loss.

•              AO classified the loss as speculation loss under Section 43(5) (no delivery in forward contracts).

•              No change in assessed total income (remained nil); only nature and head of loss altered.

•              Penalty proceedings u/s 270A were initiated on the ground of “under-reported income” by way of reclassification.

 

Findings:-The appellate authority (NFAC) found that all facts and claims had been truly disclosed; there was no falsehood or suppression.

•              The only dispute was on the character (business vs. speculative) of the loss.

•              Section 270A penalty regime is strictly defined and requires foundational under-reported income, not just a classification change.

•              No “under-reporting” can arise where only the manner/head of set-off is affected and the tax base for the year remains unchanged.

•              Even if clause (g) of section 270A(2) is invoked for loss reduction, the assessee’s bona fide, well-explained disclosure brings it within the safe harbor of section 270A(6).

Analysis and Decision

•              The ITAT agreed there was no foundational under-reported income, nor culpable conduct by the assessee.

•              Change in character/head of loss without any suppression or misrepresentation does not trigger penalty under Section 270A.

•              The penalty was deleted and the revenue’s appeal dismissed.

 

Where complete disclosure has been made and the issue is essentially one of legal characterisation…the assessee’s explanation cannot but be regarded as bona fide and within the protection of section 270A(6)… Penalty cannot be the consequence of a mere semantic shift or classificatory exercise…”.

 

Conclusion: 

Mere reclassification of business loss as speculation loss, in the absence of tax evasion or misreporting, does not amount to “under-reporting” of income under Section 270A, and therefore, penalty proceedings were rightfully quashed.