Penalty under Section 270A: Under-Reporting and Misreporting of Income
Section 270A levies penalty at fifty per cent of the tax on under-reported income, rising to two hundred per cent where the under-reporting follows from misreporting. That distinction is the whole case: misreporting needs something more than a disallowed claim. Immunity can be sought under Section 270AA by paying the tax and interest and not appealing.
What is this notice?
Section 270A replaced the older Section 271(1)(c) regime for assessment years from 2017-18. Penalty is computed on the tax on under-reported income, defined by reference to differences between assessed and returned income. The statute also lists situations that are not to be treated as under-reporting, including a bona-fide estimate disclosed in the return.
Common reasons it is issued
- Assessed income exceeding the income determined in the return or the intimation
- A deduction, exemption or expenditure claim disallowed in assessment
- Income not returned at all for the year
- Transfer pricing adjustments, where the specific rules in the section apply
How to reply — step by step
- Establish which limb is invoked. A notice that merely asserts misreporting without specifying which of the statutory circumstances applies is vulnerable, and the difference is four times the penalty.
- Check the statutory exclusions: an estimate made bona fide, with all material facts disclosed, is not under-reported income, and the section says so expressly.
- Answer the penalty notice on its own merits. Penalty does not follow automatically from an addition; that proposition is well settled and still needs to be argued.
- Weigh immunity under Section 270AA where the addition is not worth contesting — it requires paying the tax and interest in the demand and not appealing the assessment, and must be applied for within the prescribed period.
- Where the assessment addition is itself under appeal, keep the penalty proceedings and the quantum appeal aligned, since the penalty stands or falls with the addition.
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Draft my reply free →Frequently asked questions
What is the difference between under-reporting and misreporting?
Under-reporting attracts fifty per cent of the tax; misreporting attracts two hundred per cent and requires one of the specified circumstances, such as misrepresentation or suppression of facts, false entries, or failure to record receipts. A disallowed claim is not automatically misreporting.
Is penalty automatic once an addition is made?
No. Penalty proceedings are separate, require their own notice and an opportunity of being heard, and the assessee's explanation has to be considered on its own.
What is immunity under Section 270AA?
Where the tax and interest in the demand are paid within the period allowed and no appeal is filed against the assessment, immunity from penalty under Section 270A and from prosecution may be granted on application, except in misreporting cases.
Does 270A apply to older years?
Section 270A applies from assessment year 2017-18. Earlier years remain governed by Section 271(1)(c).
Related notices
This page is general information, not legal advice. Every notice turns on its own facts — verify with a professional or draft a fact-checked reply on Yukti.