Analysis of Section 270A and

270AA of Income Tax Act,1961

• Penalty for under-reporting and misreporting of income &
• Immunity from imposition of penalty and initiation of proceedings u/s
276C or 276CC

CA NIHAR JAMBUSARIA
 Introduction
Imposition of penalty for under-
reporting and misreporting of income.

Background • In the Finance Act of 2016, a

significant amendment was made

Sec 270A by introducing a new section, 270A,

which became applicable from
Assessment Year 2017-18. Section
270A governs penalty provisions in
cases of 'under-reporting’ and
‘misreporting’ of income."
 Key Provisions

Under-reporting of Income [270A(2) & 270A(3)]

• Occurs when the income assessed is greater

Objective
than the income declared by the taxpayer.
• If income is under-reported due to any
circumstances other than misreporting, then the
penalty shall be 50% of the tax payable on under-
The primary objective of Section 270A is to
reported income (as per section 270A(7)
deter taxpayers from under-reporting or
misreporting their income and to ensure tax
Misreporting of Income [Sec 270A(9)]
compliance.
• Occurs when the taxpayer provides inaccurate
information or conceals particulars of income.
• If income is under-reported due to misreporting
of income, then penalty shall be levied at 200%
of tax payable on such under-reported income.
Section 270A(1)
The AO/CIT(A)/CIT or Pr. CIT may during the course of any proceedings under this Act, direct that any person
who has under-reported his income shall be liable to pay a penalty in addition to tax.

When a person shall be considered to have Quantum of under-reported income [Section

under-reported his income [Section 270A(2)] 270A(3)]

The difference between the amount of

a) The income assessed is greater than
income assessed and the amount of
the income determined in the return
income determined under section
processed under section 143(1)(a)
143(1)(a);
 A) The amount of income assessed, in the
case of a company, firm or local authority;
b) Where no return of income has been and
furnished and the income assessed is B) The difference between the amount of
greater than the maximum amount not income assessed and the maximum amount
chargeable to tax; not chargeable to tax, in the case of an
assessee other than a company, firm or local
authority;

The difference between the amount of

income reassessed or recomputed and the
c) The income reassessed is greater than amount of income assessed, reassessed or
the income assessed or reassessed recomputed in a preceding order:
immediately before such reassessment; Explanation: “Preceding order” means an
order immediately preceding the order
during the course of which the penalty under
section 270A(1) has been initiated.
d) The amount of deemed total income The calculation of under-reported income is
assessed or reassessed as per the determined by the following formula:
provisions of section 115JB or 115JC,as (A – B) + (C – D)
the case may be, is greater than the
deemed total income determined in the The total income assessed as per the
return processed under section 143(1)(a); provisions other than the provisions
contained in section 115B or section
115C(herein called “general provisions”).
A = Total income assessed according to the
general provisions of the Act
e) Where no return of income has been
B = Total income assessed according to the
furnished and the amount of deemed total
general provisions of the Act minus the
income assessed as per the provisions of
amount of under-reported income
section 115JB or section 115JC is greater
than the maximum amount not chargeable
C = Total income assessed under the
to tax;
provisions of section 115JB or section
115JC
 D = Total income assessed under the
f) The amount of deemed total income provisions of section 115JB or section
reassessed as per the provisions of 115JC minus the amount of under-reported
section 115JB or section 115JC, as the income
case may be, is greater than the deemed In cases where an amount is considered
total income assessed or reassessed under both normal provisions and Minimum
immediately before such reassessment; Alternate Tax (MAT) or Alternate Minimum
Tax (AMT), it shall not be subtracted from
the total income assessed when
determining the amount under item D.

g) The income assessed or reassessed

has the effect of reducing the loss or The amount of under reported income is the
converting such loss into income difference between the loss claimed and the
income or loss, as the case may be assessed
or reassessed.
Tax payable 1. In cases where no return of income has been
furnished and the income has been assessed for

in respect of
the first time, the amount of tax calculated on the
under-reported income is increased by the
maximum amount not chargeable to tax, as if it
were the total income.

the under- For example:

If the under-reported income is Rs. 8 Lacs and the

reported
maximum amount not chargeable to tax is Rs. 2.5
Lacs, the tax on under-reported income is
calculated as tax on Rs. (8 + 2.5) Lacs minus tax

income : S.
on Rs. 2.5 Lacs.

2.In situations where the total income determined

under section 143(1)(a) or assessed, reassessed,

270A(10) or recomputed in a preceding order results in a

loss, the amount of tax calculated on the under-
reported income is as if it were the total income.
Tax payable 3. In another scenario, the under-reported income
is determined according to the formula (X-Y),

in respect of
where:

• X represents the amount of tax calculated on

the under-reported income, increased by the

the under- total income determined under section

143(1)(a) or assessed, reassessed, or
recomputed in the preceding order, as if it were

reported
the total income.
• Y represents the amount of tax calculated on
the total income determined under section

income : S.
143(1)(a) or assessed, reassessed, or
recomputed in the preceding order.

For example: In a specific case:

270A(10) Tax on under-reported income = Tax on Rs. (5.5 +

3) 8.5 Lacs minus Tax on Rs. 3.00 Lacs.
 • Section 270A(4) stipulates that subject to
the provisions of section 270A(6) if a
receipt, deposit, or investment claimed in

SECTION 270A an assessment year was previously

added to income or deducted while

(4) & (5)

computing loss in a preceding
assessment year without incurring a
penalty, then the under-reported income

(Intangible
shall include such amount to cover said
receipt, deposit, or investment.

Additions) • Moreover, Section 270A(5) clarifies that

the amount under subsection (4) shall
primarily be sourced from the
immediately preceding assessment year,
followed by the year preceding that, and
so forth.
 a. The amount of income in respect of

Exceptions in
which the assessee offers an explanation
and the AO/CIT or Pr. CIT/CIT(A) is satisfied
that the explanation is bona fide

certain and
the assessee has disclosed all the material

instances -
facts to substantiate the explanation
offered

Section 270A(6) b. The amount of under-reported income is

determined on the basis of an estimate, if
the accounts are correct and complete to
(Under-reported income shall not include the the satisfaction of the AO/ CIT(A)/ CIT or Pr.
instances referred herein) CIT, as the case may be, but the method
employed is such that the income cannot
properly be deduced therefrom.
 c. the amount of under-reported income is
determined on the basis of an estimate, if the
assessee has, on his own, estimated a lower
amount of addition or disallowance on the

Exceptions in
same issue and has included such amount in
the computation of his income and has
disclosed all the facts material to the

certain addition or disallowance

instances -
d. The amount of under-reported income is
represented by any TP addition made in
conformity with the ALP(arms length price)

Section 270A(6) determined by the TPO, where the assessee

had maintained information and documents
as prescribed under section 92D, declared the
(Under-reported income shall not include the international transaction under Chapter X,
instances referred herein) and, disclosed all the material facts relating
to the transaction

e. The amount of undisclosed income

referred to in section 271AAB
 Misreporting

Background
Section 270A(8) states that if the
under-reporting is due to misreporting,
the exceptions mentioned in

Sec 270A(9)
subsection (6) do not apply.
Additionally, the penalty will be
imposed at 200% of the tax payable on
the under-reported income.
Cases of Misreporting of Income
1 2 3
Failure to record Claim of expenditure not
Misrepresentation or
investments in the books substantiated by any
suppression of facts
of account evidence

4 5 6
Failure to report any
international transaction or any
Recording of any false Failure to record any receipt transaction deemed to be an
entry in the books of in books of account having international transaction or any
account a bearing on total income specified domestic transaction,
to which the provisions of
Chapter X apply.
IMMUNITY
FROM CATEGORY I
Conditions to be fulfilled by the Assessee

IMPOSITION
OF PENALTY, CATEGORY II
AO shall grant immunity subject to the following

ETC. –[Section conditions

270AA] CATEGORY III

Certain Other points w.r.t. 270AA
CATEGORY 1 1) Payment of tax and interest as per the
assessment or reassessment order under sections
143(3) or 147, respectively, must be made within
the specified period mentioned in the demand
notice.
Conditions to be 2) There should be no appeal filed against the
fulfilled by the aforementioned order.

Assessee 3) The application under section 270AA should be

submitted within one month from the end of the
month in which the order under section 143(3) or
147 is received, adhering to the prescribed form
and procedure.
CATEGORY 2
1) Taxes and interest have been paid in
accordance with the order under sections 143(3) or
147.

AO shall grant 2) The time limit for filing an appeal under section
249(2) has expired.
immunity subject to 3) Immunity under section 270AA will not be
the following granted if the 'under-reporting' is due to
'Misreporting'.
conditions
 1) The Assessing Officer must issue an order either

CATEGORY 3
accepting or rejecting the application within one month
from the end of the month in which the application is
received.

2) The Assessing Officer's decision under this section

is final.

Other significant 3) Once the application under Section 270AA is

accepted, no appeal under Section 246A or revision

points to be application under Section 264 against the assessment

or reassessment order will be entertained.

considered w.r.t 4) If the application is rejected, the assessee will be

Section 270AA provided with an opportunity to be heard.

5) Additionally, the assessee retains the right to file an

appeal against the assessment order. The period from
the date of filing the application until the rejection of
the application by the Assessing Officer will be
excluded when calculating the thirty-day limit under
Section 249(2).
 In case of Natarajan Anandh Kumar
v. Deputy Commissioner of
Income-tax (159 taxmann.com 637
dt. 23-01-2024), Madras High Court
Legal ruled that

precedents “Where Competent Authority rejected assessee's

application filed under section 270AA requesting for

and
immunity from imposition of penalty on grounds that
assessee paid amount demanded beyond period specified
and application was not made within specified period, since

judgments
gross total income and total tax liability disclosed by
assessee in return were accepted in assessment order,
delay of 30 days in filing application deserved to be
condoned.”
 In case of Rohit Kapur v. Principal
Commissioner of Income-tax (148
taxmann.com 397 dt. 14-03-2023),
Delhi High Court held that
Legal
precedents “Where assessee's application for immunity under section
270AA was rejected on ground that same was filed beyond

and
stipulated period available for filing the said application,
however, no opportunity of being heard was granted to
assessee, matter was to be remanded to concerned officer

judgments to consider assessee's application under section 270AA

afresh.”
 In case of Prem Brothers
Infrastructure LLPv. National
Faceless Assessment Centrex (142
taxmann.com 38 dt. 31-05-2022),
Legal Delhi High Court held that

precedents “Where penalty was levied on assessee under section 270A

alleging misreporting of income, however, fact that
assessee had furnished all details of transactions relating

and to disallowance made under section 14A and Assessing

Officer as well as assessee had used same details to arrive

judgments
at different quantum of disallowances, this by no stretch of
imagination could be held to be 'misreporting’ and further, in
absence of details as to which limb of section 270A was
attracted, impugned penalty order was to be quashed and
revenue was to be directed to grant immunity under section
270AA.”
 In case of Chambal Fertilizers and
Chemicals Ltd. v. Office of the
Principal Commissioner of Income-
tax (158 taxmann.com 184 dt. 4-01-
Legal 2024), Rajasthan High Court held
that
precedents “Where GST Input Credit was mistakenly merged with

and expenses and same was suo motu surrendered by

assessee by revising return, however revenue imposed
penalty under section 270A, since revenue wasn't sure

judgments whether it was a case of misrepresentation or suppression

of facts or claim of expense sub-clauses (a) and (c) of
section 270A(9) were not attracted and, thus, assessee was
to be granted immunity under section 270AA.”
 In case of IBS Software (P.) Ltd.
v.Union of India (158 taxmann.com
209dt. 19-12-2023), Kerela High
Court held that
Legal
precedents “Where assessee's application for immunity under section
270AA was rejected on ground that same was filed beyond

and
stipulated period available for filing said application,
however, no opportunity of being heard was granted to
assessee, matter was to be remanded to concerned officer

judgments to consider assessee's application under section 270AA

afresh.”
 In case of GE Capital US Holdings
Inc. v. Deputy Commissioner of
Income-tax (International Taxation)
(163 taxmann.com 146 dated 31-
Legal 05-2024) Delhi High Court held that

precedents “The notices themselves sought to take a wholly ambivalent

and
stance while alleging that the petitioner had indulged in "under-
reporting/misreporting". We thus have no hesitation in holding
that the impugned SCNs’ are rendered unsustainable on this

judgments
short ground alone.”

“Since there was a clear and apparent failure on the part of

the respondents to base the impugned proceedings on a
contravention relatable to section 270A(9), the application
for immunity could not have been rejected.”
 In case of Ravindra Madhukar
Kharche v. Assistant Commissioner
of Income-tax (161 taxmann.com
712 dated 16-04.2024) Nagpur
Legal Tribunal held that

precedents “The tax authorities failed to appreciate the facts and

circumstance of the present case holistically and further in

and
right spirit of law, but dealt therewith without application of
mind and perfunctory imposed / confirmed the penalty at
the accelerated rate of 200 per cent under section 270A in

judgments unwarranted case like this.”

 In case of Saltwater Studio LLP
(I.T.A. No.13/Mum/2023 dated 22-
05-2023) Mumbai Tribunal held that

Legal “Since AO failed to bring the addition/disallowance he made in

precedents
quantum assessment, under the ken of (a) to (f) of the sub
section(9) of section 270A of the Act, the penalty levied for
misreporting @ 200% cannot be sustained because it is trite

and
law that penalty provisions have to be strictly interpreted. We
find that the levy of penalty by the AO u/s 270A of the Act
suffers from the vice of non application of mind as well as

judgments
violates principles of natural justice and cannot be sustained.”
 In case of Alrameez Construction
(P.) Ltd. v. CIT/NFAC, Delhi (I.T.A.
No.13/Mum/2023 dated 12-06-
2023) Mumbai Tribunal held that
Legal
precedents “Penalty was initiated and imposed under section
270A of the Act for misreporting of income is not only
erroneous but also arbitrary and bereft of any reason as in the

and penalty notice the Revenue have failed to specify the limb -
"underreporting" or "misreporting" of income, under which the
penalty proceedings had been initiated.”

judgments
 In case of Mohd. Sarwar (ITA
No.238/Hyd/2024 dated 02-04-
2024) Hyderabad Tribunal held that

Legal
precedents “In my view, once the assessee himself admitted the fact that
there was under-reporting of income which was also accepted
by the Assessing Officer then the penalty should have been

and levied only on account of under reporting of income and not

for mis-reporting of income.”

judgments
 In case of Sree Navaladiyan
Finance (161 taxmann.com
641dated 23-02-2024) Chennai
Tribunal held that
Legal
precedents “In the present case, the Assessing Officer has not at all
applied his mind or he is in a confused state of mind for that
the penalty under section 271(1)(c) for concealment of income

and or may be furnishing of inaccurate particulars of income

because no case is made out for that. Hence, the penalty is
deleted in all these assessment years.”

judgments
 In case of Jaina Marketing &
Associates (162 taxmann.com 439
dated 20-03-2024) Delhi Tribunal
held that
Legal “Different rates of penalty are prescribed for 'under reporting of
income' alone and for 'under reporting' in consequence of

precedents 'misreporting of income'. Hence, it is all the more essential to

mention in the show cause notice itself as to which of the
offence is committed by the assessee for which explanations

and are being sought for by the Assessing Officer. In fact two
notices were issued by the Assessing Officer and in both the
notices, the Assessing Officer had only directed the assessee

judgments
to reply with regard to 'under reporting of income'. But the
penalty had been levied ultimately for both 'underreporting'
and 'misreporting of income' at the rate of 200% in terms of
section 270A(9) for which showcause notice was never issued
to the assessee. Hence, the Assessing Officer is directed to
delete the penalty levied undersection 270A.”
 In case of Enrica Enterprises P. Ltd.
(163 taxmann.com 105 dated 06-
03-2024) Chennai Tribunal held that

Legal “Penalty levied by the AO under section 270A, is unsustainable

in law on two counts, i.e. for failure to specify in the notice
issued under Section 274 r.w.s.270A, as to under which limb of

precedents sub- section, 270A, penalty is initiated, i.e. ‘under reporting of

income’ or ‘misreporting of income’, the penalty proceedings
are initiated. Further, the AO accepted income admitted by the

and
assessee with categorical statement without any allegation
against the income admitted or incorrectness of the books of
accounts or evidence for the expenditure. In our considered

judgments
view, income voluntarily admitted by the assessee does not
constitute ‘under reporting of income’ or ‘misreporting of
income’, and thus, penalty levied under Section 270A is
unsustainable in law on merits, and thus, the order passed by
the AO imposing penalty under section 270A(9) is quashed.”
 In case of Smt. Saroj Shrivastava
(164 taxmann.com 1409 dated 31-
05-2024) Raipur Tribunal held that

Legal
precedents
“In backdrop of the aforesaid facts of the present case , the
Penalties imposed by the Assessing Officer, vide order under
section 270A cannot be approved, on account of no
satisfaction in the assessment order or with recording of

and satisfaction but without specifying the relevant reason / Limb

for which the penalties have been initiated / imposed.
Therefore, the impugned order of the Commissioner (Appeals)

judgments
is liable to be set aside and penalties forced on the assessee
are directed to be deleted.
THANK YOU

CA NIHAR JAMBUSARIA
+91 9987117681
[email protected]