The Income Tax Appellate Tribunal (ITAT), Mumbai, deleted a ₹1,23,71,443 penalty after finding that Cyqurex Systems had disclosed the software-development expenditure and its accounting treatment, while the dispute concerned whether the expenditure was capital or revenue in nature. The decision does not make every disallowed claim immune from penalty: the tribunal’s conclusion rested on the facts recorded in this case, including the absence of findings that the expenditure was fictitious or inflated or that primary facts were false.
What the ITAT Mumbai decided
In Cyqurex Systems Private Limited v. Deputy Commissioner of Income-Tax, Central Circle-2(3), Mumbai, ITA Nos. 297, 3499 and 4637/Mum/2026, for assessment year 2023–24, the ITAT Mumbai C Bench pronounced its order on 30 September 2026. It allowed ITA No. 297/Mum/2026 and directed deletion of the ₹1,23,71,443 penalty imposed under Section 270A. The other two appeals, which arose from the same order and contained identical grounds, were dismissed as withdrawn.
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The full order text is available through IndiaKanoon. LiveLawBiz reported the decision on 5 October 2026 and quoted the tribunal’s observation.
Why the penalty was imposed
Cyqurex Systems, a cyber-security and software-development company, claimed ₹7,41,16,000 as revenue expenditure relating to software-development projects in assessment year 2023–24. The assessing officer treated the amount as a capital loss, disallowed the claim and imposed a penalty of ₹1,23,71,443 for under-reporting income. The Commissioner of Income-tax (Appeals) upheld the penalty before the company appealed to the tribunal.
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The order breaks the claim into two components:
- ₹5,88,40,000 for impairment of the internally developed Saife IP asset.
- ₹1,52,76,000 for development costs for the Blackbox and Command Control Operating Platform, which continued to be carried as capital work-in-progress.
The company said the components and their accounting treatment were disclosed in Notes 42 and 43 to its audited financial statements.
Why disallowance did not settle the penalty question
The tribunal distinguished the rejection of a tax claim from proof that the taxpayer reported false particulars. The dispute was whether the software-related expenditure should be treated as capital or revenue expenditure—a characterization requiring examination of the facts and applicable legal principles. The tribunal found that the expenditure and its accounting treatment had been disclosed. It also found no indication in the record that the expenditure was fictitious or inflated, and no finding that the company concealed a receipt or asset or furnished false primary facts.
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The bench, comprising Judicial Member Challa Nagendra Prasad and Accountant Member G. M. Doss, observed: “The fact that the claim of the assessee was not accepted in the assessment proceedings does not, by itself, establish that the assessee had furnished any false particulars or that the explanation offered by it was not bona fide.”
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Repair Windows errors before they cause bigger problemsFix Now →Scan for outdated or missing drivers - takes under a minuteDriver Scan →The phrase “by itself” matters: the tribunal did not rule that a rejected claim can never attract a penalty. Its reasoning linked the outcome to disclosure, the nature of the capital-versus-revenue dispute and the absence of the adverse factual findings described in the order.
How Section 270A(6)(a) fits in
Section 270A provides for a penalty in cases of under-reported income. Section 270A(6)(a) excludes an amount from under-reported income where the taxpayer gives a bona fide explanation and discloses all material facts necessary to substantiate it. The Income Tax Department’s Section 270A text sets out the statutory wording.
The tribunal relied on Bombay High Court decisions including G.M. Modular (P.) Ltd. v. Principal Commissioner of Income-tax and Trigent Software Ltd., as described in its own order. The decision’s account of those authorities should not be read as a broader independent statement of their holdings.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What taxpayers can take from this decision
For a different Section 270A matter, the decision points to questions that must be assessed on that case’s evidence and applicable statutory wording:
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Repair common Windows errors and clear accumulated junk for a smoother, more stable PC - no reinstall needed.Free scan · no reinstall- Were the material facts and the accounting treatment disclosed?
- Was the taxpayer’s explanation bona fide and supported by the record?
- Is the dispute about a legal characterization, or about whether a factual assertion is true?
- Is there evidence of fictitious or inflated amounts, concealed receipts or assets, or false primary particulars?
- Does the same statutory subsection and version apply?
These are relevant considerations, not a guarantee that another taxpayer will obtain the same result. The ruling concerns Cyqurex Systems’ disclosed software expenditure and the findings recorded in its appeal.
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