Income Tax Penalty FAQs — Section 270A, 271AAB & 276C

These questions are drawn from real GST compliance scenarios, litigation, and common queries from practitioners. Answers reflect the law as amended up to Finance Act 2024.

• 1 What is the difference between under-reporting and mis-reporting under Section 270A?

  Under-reporting under Section 270A(2) includes: income assessed being greater than returned income; deemed total income under MAT/AMT being higher; and income assessed for the first time. The penalty is 50% of tax on the under-reported income. Mis-reporting under Section 270A(9) is a more serious category covering: misrepresentation of facts; failure to record investments in books; claim of expenditure not substantiated; recording false entry in books; failure to report any international transaction; and use of forged documents. The penalty for mis-reporting is 200% of tax on the mis-reported income.

• 2 Can penalty under Section 270A be avoided by paying tax voluntarily?

  Yes, partially. Section 270AA provides immunity from Section 270A penalty and Section 276C prosecution if the taxpayer: (1) pays the tax and interest demanded within 30 days of the assessment order; (2) does not file an appeal against the order. The immunity application is made in Form 68 to the AO. Immunity is NOT available if the case involves mis-reporting (the more serious category).

• 3 What is the penalty in search and seizure cases under Section 271AAB?

  Section 271AAB prescribes penalties on undisclosed income found during search: (1) 30% of undisclosed income if the taxpayer admits the income during the search, specifies how it was earned, pays tax and interest on it, and files a return declaring it; (2) 60% of undisclosed income in all other cases (denial, non-payment, or non-disclosure). The AO has no discretion on the rate once the condition is met.

• 4 When does income tax prosecution under Section 276C apply?

  Section 276C applies when a person wilfully attempts to evade payment of tax, penalty, or interest. Wilful evasion is a factual determination — mere non-payment is not sufficient; there must be active concealment or falsification. Punishment: if tax evaded exceeds ₹25 lakh — rigorous imprisonment of 6 months to 7 years + fine; otherwise 3 months to 2 years + fine. Prosecution under 276C can proceed concurrently with penalty proceedings.

• 5 Is penalty automatic when an addition is made in an assessment order?

  No. Penalty under Section 270A is not automatic. The AO must initiate penalty proceedings separately (usually flagged in the assessment order). The taxpayer must be given an opportunity to be heard. The burden is on the Revenue to show that the case falls within Section 270A. The AO must pass a separate penalty order with reasons. Merely making an addition in the assessment order does not by itself establish under-reporting or mis-reporting.

• 6 Can Section 270A penalty be levied where the addition is made under MAT (Section 115JB)?

  Yes. Section 270A(2) specifically covers situations where the deemed total income under Section 115JB (MAT) or Section 115JC (AMT) as assessed is greater than the deemed total income as per the return. In such cases, under-reporting includes the excess of the assessed MAT/AMT base over the returned MAT/AMT base, and the 50% penalty applies on the tax on such excess.

• 7 What is the limitation period for levying penalty under Section 270A?

  Under Section 275, the order of penalty under Section 270A must be passed before the expiry of the financial year in which the proceedings for penalty are initiated, or within six months from the end of the month in which the assessment or appellate order is received by the CIT — whichever is later. If penalty proceedings arise out of an order of the ITAT, the time is 6 months from the end of the month of the ITAT order.

• 8 What defences are available against a Section 270A penalty notice?

  Common defences include: (1) the case falls under Section 270A(6) — bona fide reliance on a Supreme Court or High Court decision, or a CBDT circular, or previous assessment practice, or absence of guidance on the point — these provide immunity; (2) the addition is debatable and based on a legal interpretation dispute, not under/mis-reporting; (3) there is no positive act of mis-reporting — mistake is not suppression; (4) the income was disclosed elsewhere in the return; (5) the AO has not followed the procedure (no SCN, no opportunity of hearing).