Penalty under section 270A of the Income Tax Act for under-reporting and misreporting of income can be imposed by the Assessing Officer / the Commissioner (Appeals) / the Principal Commissioner / the Commissioner.

Under the current article, we would thoroughly understand the penalty provisions attached with the under-reporting and misreporting of income.

Understanding provisions of section 270A(1)

Provisions of section 270A(1) states as under –

1. The person who has under-reported the income shall be liable to pay the penalty.

2. The direction for payment of penalty can be given only by any of the following –

a. The Assessing Officer; or

b. The Commissioner (Appeals); or

c. The Principal Commissioner; or

d. The Commissioner.

3. The direction for payment of penalty can be given only during the course of any proceedings under the Act.

Thus from the above, it can be easily concluded, that the penalty under section 270A(1) comes into picture only and only if there is under-reported income. Thus, it is important the understand the term ‘under-reported income’, which is being explained in the below paras.

Tax evasion written on a paper. Financial concept.

Understanding the term under-reported income

The under-reported income shall be –

1. When an income tax return is furnished –

a. Income assessed is more than the income determined in return processed under section 143(1)(a).

b.  The amount of deemed total income assessed/ reassessed as per section 115JB (MAT) or section 115JC (AMT) is more than the deemed total income determined in return processed under section 143(1)(a).

2. When an income tax return is not furnished –

a. Income assessed is more than the maximum amount not chargeable to tax.

b. The amount of deemed total income assessed / reassessed, as per section 115JB (MAT) or section 115JC (AMT), is more than the maximum amount not chargeable to tax.

3. Re-assessment –

a. Income reassessed is more than the income assessed/ reassessed immediately before such reassessment.

b. The amount of deemed total income assessed/ reassessed as per section 115JB (MAT) or section 115JC (AMT) is more than the deemed total income assessed/ reassessed immediately before such reassessment.

c. The income assessed/ reassessed has the effect of reducing loss or converting the loss into the income.

What Under-reported income shall not include

1. The amount of income for which satisfactory explanation has been given by the assessee.

2. The amount of undisclosed income as referred in section 271AAB.

3. The amount of under-reported income arrived on the basis of the estimate –

If the accounts are complete and correct to the satisfaction of the concerned officer, however, the method employed is such that income cannot properly be deducted therefrom.

4. The amount of under-reported income representing addition due to the arm’s length price determined by the Transfer Pricing Officer, wherein, –

  • The assessee had duly maintained information and documents as required under section 92D,
  • The assessee had declared the international transaction under Chapter X, and
  • The assessee had disclosed all the material facts relating to the transaction.

5. The amount of under-reported income calculated on the basis of an estimate, wherein, the assessee has himself estimated a lower amount of addition / disallowance on the same issue. The assessee has included such amount in the computation of the income and has also disclosed all the material facts to the addition / disallowance.

Understanding the term misreporting of income

The penalty amount under section 270A increases in case the under-reported income is in consequence of any misreporting. The cases of such misreporting income shall be following –

  • Misrepresentation / suppression of facts.
  • Claim of expenses not supported by any proofs.
  • Failure to record investments in the books of accounts.
  • Failure to record receipt, affecting the total income, in the books of accounts.
  • Failure to record an international transaction / transaction deemed to be an international transaction / specified domestic transaction to which provisions of Chapter X apply.
  • Recording of false entry in the books of accounts.

Amount of penalty payable under section 270A

The penalty payable under section 270A is tabulated hereunder –

Particulars Amount of penalty payable
Where under-reported income is in consequence of any misreporting 200% of the amount of tax payable on under-reported income.
In any other case of under-reported income 50% of the amount of tax payable on under-reported income.

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