Decoding penalty for Misreporting and Under-reporting of Income – Section 270A of Income Tax Act

Section 270A has been inserted by the Finance Act, 2016 w.e.f. AY 2017-18 introducing a new concept of levying penalty under the Income Tax Act.


Following is a summarization of section 270A of the Income Tax Act, 1961


There are 2 legs of this section.


  • Penalty on under reporting of income
  • Penalty on misreporting of income


What is Under Reporting of Income?


A person shall be considered to have under reported his income if


In Case Return is FiledIn case Return is not filed
The assessed income u/s 143(1) is more than the returned incomeThe assessed income is more than the maximum amount not chargeable to tax
The deemed total income u/s 115JB or 115JC assessed u/s 143(1) is more than the returned incomeThe deemed total income u/s 115JB or 115JC assessed is more than maximum amount not chargeable to tax
If the reassessed deemed total income u/s 115JB or 115JC is more than the preceding assessed income
The assessed loss is less than the returned loss


Exceptions of Under Reporting of Income


In following cases, the income will not be considered as under reported if


 Assessee offers an explanation and the income tax authority is satisfied with that and all the facts have been discloses
Such under reported income is determined on the basis of an estimate.
Assessee on his own estimated a lower amount of addition or disallowance on issue and has included such amount in the computation of income
Assessee has maintained all the documents, information and records specified in section 92D
Where the undisclosed income is on account of a search operation and penalty is leviable u/s 271AAB


What is Quantum of Penalty on under reporting of income?


  • In case of under reporting of income, penalty is payable @ 50% of tax payable on under reported income.


What is Misreporting of Income?


The following cases will be considered as misreporting of income.


·         Misrepresentation or suppression of facts
·         Failure to record investments in books of accounts.
·         Claim of expenditure not substantiated by evidence
·         Recording of any false entry in the books of accounts
·         Failure to record any receipt in the books of accounts having an impact on the income
·         Failure to report any international transaction or any specified domestic transaction



What is Quantum of Penalty on misreporting of income?


  • In case of misreporting reporting of income, penalty is payable @ 200% of tax payable on misreported income.



What is the remedy available to assessee?


Section 270AA provides the provisions relating immunity from levy of penalty u/s 270A (underreporting or misreporting of income) on following conditions.


  • Assessee to make an application to AO for grant of immunity from penalty u/s 270A.
  • This benefit is only available if assessee pays tax and interest payable as per order of assessment within the period specified in such notice of demand.
  • Assessee does not prefer an appeal against said order.
  • Such application is made within 1 month from the end of the month in which the order of assessment is received.


Course of action of Assessing Officer after receipt of application u/s 270AA


  • The assessing officer, on fulfillment of above conditions and after the expiry of period of filing appeal, shall grant immunity from penalty / prosecution.
  • Assessing officer is required to pass the order in writing of such acceptance or rejection.
  • Rejection order cannot be passed before providing the opportunity of being heard.
  • No appeal u/s 246A or revision u/s 264 is admissible against the order in case the immunity is granted.



CA Amit Mundhra


The author is a Fellow Member of Institute of Chartered Accountants of India. He can be reached at Mobile : 9 8 2 9 0 1 0 1 7 2

Author: Amit Mundhra CA
Amit Mundhra FCA is a Fellow member of the Institute of Chartered Accountant of India. He is senior partner in Karnani & Co., Chartered Accountants. He is having 20+ years of experience in Income Tax, GST, VAT, Accounting, Audit and Assurance field.

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