Immunity under Section 270AA of the Income Tax Act, 1961 – A comprehensive guide with practical way forward
1.Introduction
Section 270AA of the Income Tax Act, 1961, introduced by the Finance Act, 2016 (effective from 1st April 2017), is a significant taxpayer-friendly provision. It allows an assessee to seek immunity from penalty under Section 270A (for under-reporting of income) and prosecution under Sections 276C and 276CC, provided certain conditions are satisfied.
This provision is a legislative move towards a non-adversarial tax regime that encourages taxpayers to accept assessments and pay taxes voluntarily without resorting to prolonged litigation resulting in high costs as well as uncertainties.
2. Background and Legislative Intent – Why was Section 270AA introduced?
Before the introduction of Section 270AA, Taxpayers who accepted assessment orders and paid their taxes were still largely subject to penalties and prosecution (even though other provisions of the Act were in place for immunity). Therefore, there were no incentives available to the assessee’s willing to accept the assessment orders and in turn increased litigation.
The government aimed to reduce the litigation, enhance ease of doing business, and foster a trust-based tax system. Therefore, the scheme of Immunity was introduced aimed to achieving the same.
Section 270AA provides immunity where the assessee:
1. Accepts the assessment
2. Pays tax and interest promptly
3. Does not challenge the order in appeal.
This strikes a balance between enforcement with compliance.
3. Text of Section 270AA (Simplified Summary)
Section 270AA(1): Conditions for application for immunity
An assessee may apply to the Assessing Officer (AO) for immunity from:
- Penalty under Section 270A (for underreporting/misreporting of income), and
- Prosecution under Section 276C (willful attempt to evade tax) or Section 276CC (failure to furnish returns).
The following conditions must be fulfilled:
- Tax and interest payable under assessment/reassessment order under Section 143(3) or Section 147 has been fully paid within the period specified in the notice of demand.
- No appeal against the said order has been filed.
This provision enables the assessee to regularize tax disputes by promptly paying tax and refraining from litigation, in return for protection from penalty and prosecution. The benefit is conditional and discretionary, not automatic.
Section 270AA(2):Time limit and manner of application
Application must be:
- Filed within one month from the end of the month in which the assessment or reassessment order is received.
- Made in the prescribed form and verified as per prescribed manner under the Income-tax
As per Rule 129 of the Income Tax Rules, 1962, “an application to the Assessing Officer to grant immunity from imposition of penalty under section 270A and from initiation of proceedings under section 276C or section 276CC shall be made in Form No.68.” Steps for filing the above form are enumerated in the ensuing paragraphs.
Timely filing and compliance with procedural requirements is essential. Delay or incorrect form may lead to rejection. This sub-section links administrative compliance with eligibility for relief.
Section 270AA(3):AO’s power to grant immunity
The AO shall grant immunity, provided:
- Conditions under sub-section (1) are met, and
- The time limit for filing appeal under Section 249(2)(b) has expired, and
- Penalty under Section 270A has not already been initiated in circumstances covered by Section 270A(9) (i.e., misreporting of income).
Immunity is not available where the case involves misreporting, as per Section 270A(9). Immunity can only be granted after the appeal period lapses (30 days from the notice of demand).
Section 270AA(4): Time limit and process for AO’s decision
AO must pass an order accepting or rejecting the application:
- Within 3 months from the end of the month in which the application is received.
Proviso: AO cannot reject the application without giving the assessee an opportunity of being heard.
*substituted for “one month” by the Finance Act, 2025 w.e.f. 01/04/2025.
Section 270AA(5): Finality of AO’s order
The order made under sub-section (4) shall be final.
Section 270AA(6): Bar on appeal or revision after immunity
If the AO accepts the application and grants immunity:
- No appeal under Section 246 or 246A, and
- No revision under Section 264,
shall be admissible against the assessment or reassessment order referred to in 270AA(1)(a).
Key Notes and Interpretative Insights:
- Strategic Trade-off: The provision encourages voluntary compliance and discourages litigation. In exchange for not appealing and paying assessed tax/interest promptly, the assessee gets immunity from penalty and prosecution.
- No Immunity in Misreporting Cases: Section 270AA(3) excludes cases involving misreporting as per Section 270A(9), preserving the revenue’s right to penalize severe non-compliance.
- Final and Binding Nature: Once immunity is granted, the assessment becomes non-appealable and non-revisable, closing the matter conclusively.
4. Detailed Procedure for Seeking Immunity under Section 270AA
Step 1: Payment of Tax and Interest
Once the assessee has decided to move for immunity application, the assessee must pay the entire demand as per notice under section 156 (tax and interest) within the time specified in the notice.
Step 2: No Appeal Filing
The assessee should not file an appeal under section 246A against the assessment/reassessment order.
Step 3: Filing of Application
The application is to be made to the AO within one month from the end of the month in which the assessment order is received.
The steps for filing the Form 68 are as under:
- Step 1: Login to e-filing portal
- Step 2: Go to ‘e-file -> Income tax forms -> File income tax forms’.
- Step 3: Search for Form 68 and click ‘File now’.
- Step 4: Enter the details as per the Form.
- Step 5: Verify the form.
For better understanding, copy of Form 68 is also attached.
Step 4: Order by Assessing Officer
Post the application filed by the assessee, the AO shall:
- Verify the payment of tax and interest.
- Ensure that no appeal is filed.
- Check that the case is not of misreporting.
The AO shall pass an order accepting or rejecting the application within three months from the end of the month in which the application is received.
Opportunity of being heard must be provided before rejection.
Step 5: Consequences of Grant of Immunity
Once the immunity is granted by the AO, no penalty under section 270A shall be imposed and no prosecution proceedings under sections 276C and 276CC shall be initiated. The order becomes final and non-appealable.
5. Illustrative Example
Scenario: Assessment under section 143(3) results in addition of Rs. 10 lakhs due to under-reporting.
Tax and interest as per demand notice are Rs. 2.6 lakhs.
The assessee pays the amount within 30 days.
He does not file an appeal and files an application under section 270AA within one month from the end of the month in which the assessment order is received.
Outcome: AO verifies compliance. If the AO is satisfied that the conditions prescribed under the Act have duly been complied with the AO may grant immunity.
In case the immunity is granted the assessee is not liable to penalty under 270A or prosecution under 276C/276CC.
6. CBDT Circular No. 5/2018, dated 16.08.2018 – Clarification on the immunity provided u/s 270AA of the Income-tax Act, 1961.
With the above circular, the Income Tax Department emphasized on the above facility of immunity provided u/s 270AA of the Act. The circular reads as under:
1. “Section 270AA of the Income-tax Act, 1961 (the Act) inter alia provides that w.e.f. 1 st April, 2017, the Assessing Officer, on an application made by an assessee, may grant immunity from imposition of penalty under section 270A (not being penalty for misreporting) and initiation of proceedings under section 276C or section 276CC, subject to the conditions specified therein.
2. Apprehensions have been raised that where an assessee makes an application seeking immunity under section 270AA of the Act, and in the earlier year(s) penalty under section 271(1)(c) of the Act has been initiated on the same issue, the Income-tax Authority may contend that the assessee has acquiesced on the issue in such earlier year (s), by seeking immunity under section 270AA of the Act and therefore, take an adverse view in the proceedings for penalty under section 271(1)(c) of the Act.
3. In this matter, it is hereby clarified that where an assessee makes an application seeking immunity under section 270AA of the Act, it shall not preclude such assessee from contesting the same issue in any earlier assessment year. Further, the Income-tax Authority, shall not take an adverse view in the proceedings for penalty under section 271(1)(c) of the Act in earlier assessment years merely on the ground that the assessee has acquiesced on the issue in any later assessment year by preferring an immunity on such issue under section 270AA of the Act.”
From the above, one can gauge the intention of the income tax department of furthering and encouraging the immunity applications by the assessee by clarifying that application for immunity filed by the assessee can, in no manner, be regarded as an indication of acceptance of the addition by the assessee for any of the assessment years.
7. Recourse to assessee if immunity application is rejected by the AO
In case AO rejects the immunity application filed u/s 270AA of the Act the assessee can file appeal against penalty order passed by AO levying penalty u/s 270A of the Act in accordance with provisions of section 246A of the Act. Additionally, the assessee may also explore filing a belated appeal against quantum proceedings by seeking condonation of delay due to exploring the immunity process under section 270AA of the Act.
8. Strategic Considerations for Taxpayers
Pros of Applying for Immunity:
- Avoids lengthy litigation and legal expenses.
- Immunity from both penalty and prosecution.
- Shows good faith and improves rapport with tax authorities.
- Enables quick closure of assessment issues.
Cons / Caveats:
- Immunity once granted bars appeals/revision.
- No recourse if AO’s additions were unjustified.
- Must assess materiality of additions and strength of legal arguments.
9. Conclusion
Section 270AA is a progressive compliance-oriented provision that encourages assessees to accept valid tax liabilities without the fear of penal consequences, provided they act in good faith. It plays a crucial role in reducing tax litigation and expediting the resolution of tax disputes.
However, taxpayers must carefully evaluate whether to apply for immunity or pursue legal remedies, as appeal rights are forfeited upon application. A well-documented, timely application with proper legal and financial advice is essential to avail this benefit successfully.
*****
Disclaimer: The information given in this document has been made on the basis of the tax laws prevailing. It is based on the analysis and interpretation of applicable laws as on date. The information in this document is for general informational purposes only and is not legal advice or a legal opinion. You should seek the advice of the legal counsel of your choice before acting upon any of the information in this document. Under no circumstances whatsoever, we are not responsible for any loss, claim, liability, damage(s) resulting from the use, omission or inability to use the information provided in the document.
Author Bio
Sir, thanks for sharing article , very informative & useful