Bombay High Court Allows Section 270AA Penalty Waiver Despite Misreporting After Finance Act 2026

Farah Khurshed Titina Vs ITO (Bombay High Court)

Amended Section 270AA Permits Waiver of Misreporting Penalty: Earlier Rejection Does Not Bar a Fresh Application

The legal principle

The Bombay High Court held that, following the Finance Act, 2026 amendment to section 270AA with effect from 1 March 2026, an assessee can seek waiver of penalty even where it has been imposed for under-reporting consequent upon misreporting of income.

The Court further held that rejection of an earlier immunity application under the unamended provision does not bar a fresh application following a penalty order under the amended provision. The amendment created a fresh statutory opportunity, and once the prescribed conditions were fulfilled, granting relief was mandatory.

The background

The petitioner’s return for Assessment Year 2024–25 was selected for scrutiny. While collecting information for the assessment proceedings, she discovered that certain deductions under Chapter VI-A had been claimed erroneously.

She submitted a revised computation and voluntarily paid ₹2,67,500 towards additional tax and interest on 22 September 2025. The assessment was completed on 25 November 2025, accepting the revised total income.

However, the Assessing Officer initiated penalty proceedings under section 270A, treating the discrepancy as under-reporting consequent upon misreporting. A notice under section 274 read with section 270A was issued accordingly.

The petitioner applied for immunity under section 270AA in Form 68 on 23 December 2025. The application was rejected on 1 January 2026, since the provision then excluded cases involving misreporting. Subsequently, a penalty of ₹4,72,442 was imposed by an order dated 29 June 2026.

The amendment and fresh application

Meanwhile, section 270AA had been amended by the Finance Act, 2026. As explained in the judgment, the amended provision extended relief to cases involving misreporting and permitted waiver of a penalty already imposed.

For misreporting cases, the amended section required payment of additional income-tax equal to 100% of the tax payable on the under-reported income, within the prescribed demand period, in lieu of the penalty.

Relying on this amendment, the petitioner paid ₹2,36,221 as additional income-tax on 21 July 2026 and filed a fresh application in Form 68 on 22 July 2026.

The Assessing Officer rejected it the following day. He repeated that relief was unavailable for misreporting and further maintained that section 270AA did not permit a second application after the first had been rejected.

Misreporting was no longer an absolute bar

The High Court found that the Assessing Officer had applied the pre-amendment restriction despite the changed statutory position.

Under the earlier provision, immunity was unavailable where penalty proceedings had been initiated in the circumstances specified in section 270A(9). The amended provision, however, permitted relief even in such cases, subject to compliance with its conditions, including payment of the stipulated additional income-tax.

Consequently, misreporting alone could no longer justify rejection of the petitioner’s application.

Significantly, the Court did not decide whether the erroneous deduction claims actually constituted misreporting. That controversy was unnecessary because the amended provision allowed relief even on the Department’s classification.

Earlier rejection did not exhaust the amended remedy

The Court also rejected the contention that the earlier application prevented a second application.

Before the amendment, the application period was linked to receipt of the assessment or reassessment order. The amended provision also provided an opportunity linked to receipt of the penalty order.

The Court held that this change created a fresh cause of action. The petitioner’s application dated 22 July 2026 was within one month from the end of the month in which the penalty order dated 29 June 2026 had been received.

Accordingly, rejection of the December 2025 application under the earlier law did not extinguish the subsequent right arising under the amended provision.

Relief was mandatory once conditions were fulfilled

The Revenue did not dispute that the petitioner had fulfilled all conditions under section 270AA(1).

The Court held that section 270AA(3) made granting immunity or waiver mandatory upon fulfilment of the statutory conditions, after expiry of the prescribed appeal period. It therefore declined the Revenue’s alternative request to remand the application for reconsideration.

The rejection order was quashed. The Assessing Officer was directed to grant waiver of the section 270A penalty and immunity from initiation of proceedings under sections 276C or 276CC, within four weeks of the judgment being brought to his attention.

Author’s comments

A statutory amendment cannot be defeated by repeating a rejection reason that the amendment has removed. The Assessing Officer’s approach effectively treated the earlier law as continuing unchanged.

Equally important is the distinction between repeating an unsuccessful application on identical grounds and invoking a new statutory entitlement. Here, the amended provision and subsequent penalty order supplied the fresh opportunity.

The judgment also demonstrates that “shall grant” is a binding statutory command, once eligibility is established. Relief under section 270AA is not an unrestricted administrative favour.

Nevertheless, the decision does not establish that every erroneous deduction claim is free from misreporting consequences. That issue was left undecided. Applicants must also observe the payment, application and no-appeal requirements, while accounting for section 270AA(3A), which bars relief where proceedings under Chapter XXII have already been initiated.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. Rule. Respondents waive service. With the consent of the parties, Rule made returnable forthwith and heard finally.

2. By way of this Writ Petition, the Petitioner challenges the impugned letter/ order dated 23rd July 2026, by which the application made by the Petitioner on 22nd July 2026 under Section 270AA of the Income Tax Act, 1961 (“the Act”) seeking waiver of penalty was rejected by Respondent No. 1 – Assessing Officer (“AO”).

3. Briefly stated, the facts giving rise to the present Writ Petition are as under:

a. The Petitioner’s case was selected for scrutiny for the Assessment Year 2024-25. While collecting details which would be required during the assessment proceedings, the Petitioner realised that she had inadvertently made certain erroneous claims for deduction under Chapter VI-A of the Act. The Petitioner, on realising the error, re-computed her income for the year, filed a revised computation of income and voluntarily paid a sum of Rs. 2,67,500 being the tax and interest that was payable on account of the aforesaid error vide challan dated 22nd September 2025.

b. Respondent No. 2, after noting that the Petitioner had paid the additional tax and interest, completed the assessment and passed the Assessment Order dated 25th November 2025, accepting the revised total income determined by the Petitioner. However, Respondent No. 2 initiated penalty under Section 270A of the Act for under-reporting of income which is in consequence of misreporting and issued a notice dated 25th November 2025 under Section 274 read with Section 270A of the Act asking the Petitioner to show cause as to why an order imposing penalty under Section 270A of the Act should not be passed.

c. The Petitioner made an application under Section 270AA(2) of the Act in Form No. 68 on 23rd December 2025 seeking immunity from imposition of penalty under Section 270A of the Act.

d. The above application was rejected by the AO vide order dated 1st January 2026, on the basis that immunity could not be granted if the penalty is initiated for under-reporting of income in consequence of misreporting of income.

e. Thereafter, Respondent No. 2 passed an order dated 29th June 2026 under Section 270A of the Act imposing a penalty of Rs. 4,72,442.

f. The Petitioner, placing reliance upon the amendment made in Section 270AA of the Act by the Finance Act, 2026 by which an application for waiver of penalty could now be made even in case of misreporting of income, filed a second application seeking waiver of the said penalty in Form No. 68 on 22nd July 2026. The Petitioner also made a payment of Rs. 2,36,221 being additional income-tax on 21st July 2026, as was required under the amended provisions of Section 270AA(1)(b) of the Act.

g. The AO, in his impugned letter/ order dated 23rd July 2026 rejected the Petitioner’s second application for waiver, inter alia, repeating his view that waiver cannot be granted in cases of under-reporting of income which is in consequence of misreporting of income. The AO further stated that the Petitioner had already availed of the remedy under Section 270AA by filing an earlier application and that Section 270AA does not provide for filing of a second application, as neither a fresh cause of action was created nor a fresh right conferred upon the Petitioner.

4. In light of the above factual background, Mr. Mistri, learned Senior Advocate who appeared on behalf of the Petitioner, referring to the amendments made by the Finance Act, 2026 in Section 270AA of the Act w.e.f. 1st March 2026 pointed out that, an Assessee was now permitted to file a waiver application even after the passing of a penalty order under Section 270A of the Act, and further, even in cases where penalty is levied for under reporting of income which is in consequence of misreporting of income.

5. Mr. Mistri, therefore, submitted that in light of this amendment, it is not necessary to go into the question as to whether the AO was right in categorizing the Petitioner’s case to be that of misreporting of income and not mere under-reporting of income.

6. Mr. Mistri submitted that the AO, in complete disregard to the amendments made by Finance Act, 2026, had referred to Section 270AA(3) of the Act as was applicable prior to its amendment and wrongly rejected the Petitioner’s application for waiver of penalty on the basis that penalty was levied on account of misreporting of income. He further submitted that all the three conditions specified in sub-section (1) of Section 270AA of the Act (as amended) were satisfied by the Petitioner and, once that was the case, the AO was bound to grant waiver of penalty as per the clear language of Section 270AA(3) of the Act. Mr. Mistri further contended that the second application for waiver of penalty was filed by the Petitioner in light of the amendments made by the Finance Act, 2026 which gave rise to a new and different cause of action, and could not be rejected simply on the basis that the first application was rejected, on the basis of the pre-amended provision existing at the time when the statute did not permit filing of waiver application in cases of misreporting of income.

7. On the other hand, Ms. Omle, learned Advocate who appeared on behalf of the Respondents, referred to the order dated 1st January 2026 passed by the AO and contended that the AO had correctly rejected the first waiver application and denied immunity to the Petitioner. Ms. Omle submitted that once the first waiver application was rejected, the Petitioner was precluded from filing a second waiver application under Section 270AA of the Act. Without prejudice to the above argument, she submitted that, if the Court was not inclined to accept her argument, then she requested that the impugned letter/order be set aside and the AO be directed to decide the second waiver application filed by the Petitioner in light of the amendments made by the Finance Act, 2026.

8. We have heard both the parties and have also perused the material on record. At the outset, we set out sub-sections (1) to (3) of Section 270AA as were applicable prior to the amendments made by the Finance Act, 2026 and sub-sections (1) to (3A) which were introduced by the Finance Act, 2026 w.e.f. 1st March 2026 substituting the earlier sub-sections (1) to (3):

(emphasis supplied)

9. From a plain reading of Section 270AA(3) of the Act as was applicable prior to the amendment by the Finance Act, 2026, it is clear that immunity from penalty could not be granted where the proceedings for penalty under Section 270A of the Act had been initiated under the circumstances referred to in Section 270A(9) of the Act i.e. in cases where penalty is levied for under-reporting of income which is in consequence of misreporting of income. However, we note that the position has changed considerably as a result of the amendments made by the Finance Act, 2026 w.e.f. 1st March 2026. As is evident from the amendments made, an application for waiver of penalty already levied, can now be made and the same will have to be considered by the AO even in circumstances where penalty is levied for under-reporting of income which is in consequence of misreporting of income. In such cases where penalty has been imposed on account of misreporting of income, Section 270AA(1)(b) of the Act [as now applicable] requires the Assessee to pay additional income-tax amounting to one hundred per cent of the amount of tax payable on the under-reported income within the period specified in the notice of demand, in lieu of such penalty.

10. In view of the above, we are of the opinion that there is no doubt that an application seeking waiver of penalty can be filed even in circumstances where penalty has been levied or is leviable under the circumstances referred to in Section 270A(9) of the Act i.e. misreporting of income (after the amendments made by the Finance Act, 2026). Consequently, we hold that the AO was wrong in rejecting the application filed by the Petitioner on 22nd July 2026 seeking waiver of penalty on the basis that penalty had been levied on account of misreporting of income.

11. We now deal with the other aspect on which the waiver application was rejected by the AO, i.e., the Petitioner had already availed the remedy under Section 270AA of the Act by filing an earlier application on 23rd December 2025 and, therefore, the second application filed on 22nd July 2026 could not be accepted. As can be seen from the provisions of Section 270AA(2) of the Act as were applicable prior to the amendment made by Finance Act, 2026, an application for waiver of penalty could be made within one month from the end of the month in which the order of assessment or reassessment was received by the Assessee.

12. Post amendment by the Finance Act, 2026, we note that Section 270AA(2) of the Act permits a waiver application to be made within one month from the end of the month in which the order referred to in Clause (a) of Section 270AA(1) of the Act [i.e. the order of assessment or reassessment], and the order referred to in Clause (b) of Section 270AA(1) of the Act [i.e. the penalty order], is received by the Assessee.

13. We hold that in view of the above amendment, a fresh cause of action has arisen in as much as, an application for waiver can now be filed within one month from the end of the month in which the penalty order is received by the Assessee which was not earlier possible. We, therefore, hold that the Petitioner was well within her rights to file an application for waiver on 22nd July 2026, which was within one month from the end of the month in which penalty order dated 29th June 2026 was received by the Petitioner and that the earlier waiver application, which was filed on 23rd December 2025 does not bar the second application. The fact that all the conditions specified in Section 270AA(1) have been satisfied by the Petitioner is not disputed by Ms. Omle. Having regard to the same, we see no purpose in sending the matter back to the AO to decide the matter afresh.

14. This is moreso when we agree with the submission canvassed by Mr. Mistri to the effect that, it is clear from a reading of Section 270AA(3) of the Act that once all the conditions specified in sub-section 270AA(1) are fulfilled, it is mandatory on the part of the AO to grant immunity from imposition or waiver of penalty under Section 270A as well as initiation of proceedings under Sections 276C or 276CC of the Act, after the expiry of the period of filing the appeal specified in Section 249(2)(b) of the Act.

15. In light of the above discussion, we quash the impugned letter/ order dated 23rd July 2026 and direct Respondent No. 1 to allow the application filed by the Petitioner and grant waiver of penalty under Section 270A of the Act and immunity from initiation of proceedings under Section 276C or Section 276CC of the Act within a period of 4 weeks from the date of this order being brought to the attention of the AO.

16. Rule is made absolute in the aforesaid terms and the Writ Petition is also disposed of in terms thereof. However, there shall be no order as to costs.

17. This order will be digitally signed by the Private Secretary / Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.