Section 270AA after the Finance Act 2026: waiver in misreporting cases

In one line. For nine years the one assessee who most needed relief from a penalty, the one charged at two hundred per cent for misreporting, was the only assessee section 270AA would not help; Parliament has now let that assessee in and charged him half the penalty for the privilege, and the first court to apply the change has held that an officer satisfied of the conditions has no discretion to refuse.

The Bombay High Court decided Farah Khurshed Titina v. Income Tax Officer, Ward 22(1)(6), Mumbai & Ors., Writ Petition No. 4002 of 2026, on 5 October 2026. A Division Bench of B. P. Colabawalla and Farhan P. Dubash JJ quashed an order of 23 July 2026 refusing waiver of a penalty of Rs 4,72,442 under section 270A, and directed the Assessing Officer to allow the application, grant the waiver and grant immunity from prosecution under sections 276C and 276CC, within four weeks. Mr J. D. Mistri, Senior Advocate, appeared with Mr Harsh Kothari for the petitioner; Ms Mamta Omle for the Revenue.

Its procedural posture should be noted before it is relied on. It is a “P.C.” order, disposed of at the first effective hearing: Rule was issued, service waived, the Rule made returnable forthwith and the petition heard finally by consent, with no affidavit in reply, no case law cited by either side, and no order as to costs. The Revenue did not dispute that the statutory conditions were satisfied. It is a considered order on a pure question of construction, but it is not a reserved judgment on a contested record, and its weight should be put to a court as what it is.

That said, it is, so far as research discloses, the first judicial application of the Finance Act, 2026 rewrite of section 270AA, and it decides three things that will be argued in every penalty matter now pending.

The text of both sections as they now stand, including the pre-amendment and post-amendment columns of section 270AA, is set out in an annexure to this note: Sections 270A and 270AA as they stand after the Finance Act, 2026.

Key points

• The misreporting exclusion is gone. Sub-sections (1), (2), (3) and (3A) were substituted for sub-sections (1), (2) and (3) by the Finance Act, 2026 with effect from 1 March 2026. Misreporting is no longer a disqualification; it is priced at one hundred per cent additional income-tax.
• Waiver, not merely immunity. The substituted sub-section (3) speaks of granting “immunity from imposition or, as the case may be, waiver of penalty”. A penalty already imposed can now be undone, which the old section could not do.
• The penalty order is now a limitation trigger, and that is what made the second application in Farah competent. It is also a window with a sunset: the same Finance Act amends section 274 so that for assessments made on or after 1 April 2027 the penalty is imposed inside the assessment order and there is no separate penalty order at all.
• Two limits that decide more files than the amendment does. The section reaches only orders under section 143(3) and section 147. And section 271AAC(2) keeps income under sections 68 to 69D outside section 270A, so unexplained credits and investments are outside this scheme entirely under the 1961 Act. Both are set out below, early, because both are capable of wasting a month of work.
• The checklist is in the section “What to do now, in order” below, and its first step is not to file the appeal.

How the references in this note work. Unless another provision is named, a reference to “sub-section (1)”, “sub-section (3)” and so on is to that sub-section of section 270AA, and a reference to “clause (a)”, “clause (b)” or “clause (c)” is to that clause of section 270AA(1). The three clauses of section 270AA(1) are the conditions of eligibility: clause (a), payment of the tax and interest on the assessment or reassessment within the period specified in the notice of demand; clause (b), payment of additional income-tax of one hundred per cent of the tax payable on the under-reported income where a penalty has been levied or is leviable for misreporting; and clause (c), that no appeal has been filed against either order. Clauses of section 270A(9), section 249(2) and the Income-tax Act, 2025 are named with their own provision wherever they appear.

What section 270AA is for, and the bargain it offers

Section 270AA was inserted by the Finance Act, 2016 alongside section 270A, which replaced the old section 271(1)(c) regime of concealment and inaccurate particulars with the twin concepts of under-reporting and misreporting. The new penalty was meant to be more mechanical than its predecessor: under-reported income is defined arithmetically in section 270A(2) and (3), the rate is fixed by sub-section (7) at fifty per cent of the tax payable on it, and sub-section (8) raises that to two hundred per cent where the under-reporting is in consequence of misreporting as described in sub-section (9).

Mechanical penalties generate volume. Section 270AA was the valve. An assessee who accepted the assessment, paid the tax and the interest within the time allowed by the notice of demand, and did not appeal, could apply to the Assessing Officer and obtain immunity from the penalty and from prosecution under sections 276C and 276CC.

The bargain is explicit, and it is worth being precise about what each side gives. The assessee gives up his own remedies against the assessment: sub-section (6) shuts out an appeal under section 246 or section 246A and a revision under section 264 against the assessment order, once the application has been accepted. The department gives up the penalty and the two prosecutions named. It does not give up its power to revise the same assessment under section 263, a point developed below that materially affects how good the bargain is.

For a case of genuine under-reporting the trade is often sensible. The addition may be small, the penalty at fifty per cent is a real cost, the appeal will take years, and the assessee who was never going to win on quantum can close the file for the tax and the interest alone.

Its limit was in the closing words of sub-section (3). The officer was directed to grant immunity “where the proceedings for penalty under Section 270A has not been initiated under the circumstances referred to in sub-section (9) of the said Section 270A”. That was not a proviso; it was part of the operative sentence, and the distinction matters to the argument that followed. An assessee charged with misreporting could apply, but could not succeed. That assessee faced a penalty of two hundred per cent and the realistic prospect of prosecution, had the sharpest incentive of anyone to settle, and was the one person the settlement provision excluded.

The result filled the writ lists. Because the gateway turned on a label, the label became the battleground. Assessing Officers wrote “under-reporting in consequence of misreporting” into show cause notices without saying which of the six limbs in section 270A(9) was alleged, and rejected immunity applications in a line. The High Courts spent four years correcting that, case by case, in the line of authority discussed below.

Which assessments the section reaches, and who is shut out

This section exists because a reader can otherwise spend an hour on the amendment and only then discover that his file is outside it. Two exclusions do most of the damage, and neither is obvious from the amendment itself.

The order has to be under section 143(3) or section 147. Clause (a) of sub-section (1), in the old text and the new, is confined to “the order of assessment under sub-section (3) of Section 143 or reassessment under Section 147”. The consequences:

• An original best judgment assessment under section 144 is not within clause (a) of section 270AA(1). A reassessment framed ex parte is a different matter: it is made under section 147 read with section 144 and remains a reassessment under section 147, which clause (a) expressly covers.
• An intimation under section 143(1) is not within clause (a). An adjustment at processing stage generates no section 270AA application.
• Search assessments. Whether an order under section 153A or section 153C read with section 143(3) answers the description of “an order of assessment under sub-section (3) of section 143” is arguable, and no decision closes it. Those orders are made under section 153A or 153C read with section 143(3), and the argument that they are therefore within clause (a) is a real one; so is the argument that clause (a) names two sections and not four. The point is open and should be pleaded rather than assumed.
• For a search initiated on or after 1 September 2024 the question does not arise, because the assessment is a block assessment under section 158BC and the penalty is the block penalty under section 158BFA, not a penalty under section 270A. Section 158BF puts it beyond argument: “No interest under section 234A, 234B or 234C or penalty under section 270A shall be levied or imposed upon the assessee in respect of the undisclosed income assessed or reassessed for the block period.” Section 270AA has nothing to operate on.

Unexplained income is outside section 270A altogether. This is the exclusion most likely to be missed, and it is decisive for a practice built on search and cash credit additions.

Where the income determined includes income referred to in section 68, 69, 69A, 69B, 69C or 69D, the penalty is the ten per cent penalty under section 271AAC(1), computed on the tax payable under section 115BBE(1)(i). Section 271AAC(2) then provides: “No penalty under the provisions of section 270A shall be imposed upon the assessee in respect of the income referred to in sub-section (1).”

So for that class of income there is no section 270A penalty at all, and section 270AA has nothing to waive. An assessee with an unexplained cash credit addition cannot buy out his section 271AAC penalty under section 270AA, however attractive the amendment looks. See section 115BBE for the charging side of the same income.

Three refinements, because the real file is rarely as clean as the proposition.

The proviso to section 271AAC(1) excludes the penalty altogether where the income under sections 68 to 69D was included in the return furnished under section 139 and the tax under section 115BBE(1)(i) was paid on or before the end of the relevant previous year. In a survey matter where the income is declared in the return, that proviso, and not section 270AA, is the operative provision.

Section 271AAC(1) is permissive, the officer “may direct”, and in practice penalties on additions under sections 69A and 69C are not infrequently framed under section 270A(9) at two hundred per cent instead. Where that has happened, what is on the file is a section 270A penalty order, and section 270AA formally reaches it. The assessee then has a choice the headline does not disclose: resist the penalty on the ground that section 271AAC(2) forbids it, which is a complete answer and costs nothing, or buy it out under section 270AA at one hundred per cent. The first is the better course in almost every case, and it should be considered before the second.

A mixed assessment carries both penalties. Section 270AA reaches the section 270A penalty on the ordinary additions and leaves the section 271AAC penalty on the unexplained income where it stands. The exclusion is of a class of income, not of a file.

This is also the key to the Income-tax Act, 2025 changes discussed near the end of this note, which bring precisely this income into the misreporting and waiver regime for the first time. Under the 1961 Act it was never in it.

Two smaller points of eligibility. Several other penalties are untouched by any section 270AA application, including section 271AAB in search cases, section 271AAD for false entries, sections 271D and 271E on cash loans and repayments, and section 271B. And sub-section (1) speaks of “an assessee”, which leaves unexamined the position of a legal heir, a dissolved firm, a company in liquidation and a representative assessee; no decision addresses any of them.

The section as it stood before 1 March 2026

The old text still governs every application made before 1 March 2026 and every proceeding arising from one, so it is worth stating compactly.

Sub-section (1) allowed an application for immunity from imposition of penalty under section 270A and initiation of proceedings under sections 276C and 276CC, on two conditions: payment of the tax and interest per the section 143(3) or section 147 order within the period specified in the notice of demand, and no appeal filed against that order. Sub-section (2) required the application within one month from the end of the month in which the clause (a) order, that is the assessment or reassessment order, was received, in Form No. 68 prescribed by rule 129 of the Income-tax Rules, 1962. Sub-section (3) directed the grant, after expiry of the appeal period in section 249(2)(b), subject to the misreporting carve-out set out above. Its opening words were “The Assessing Officer shall, subject to fulfilment of the conditions specified in sub-section (1)”, and those words matter, because the 2026 substitution changed them.

Three features of that text repay attention. The operative verb was always “shall”; the officer was never given a discretion to refuse a qualifying applicant, and the only question was who qualified. The only relief available was immunity from imposition, which is why sub-section (2) ran from the assessment order alone: the application was meant to be made before any penalty order existed. And the misreporting exclusion sat in sub-section (3), as a condition on the grant, rather than in sub-section (1) as a condition of eligibility. That drafting is what generated the argument, accepted in several High Courts, that the officer had to make a reasoned finding that a specific limb of section 270A(9) was engaged before he could refuse.

Three further sub-sections, all untouched by the 2026 amendment, complete the picture. Sub-section (4) requires an order accepting or rejecting the application, with a proviso that no order rejecting it shall be passed unless the assessee has been given an opportunity of being heard. Sub-section (5) makes that order final. Sub-section (6) is the appeal bar.

One thing about sub-section (4) is routinely stated incorrectly, including in judgments delivered this year. The period is no longer one month. Act No. 7 of 2025 substituted three months for one month with effect from 1 April 2025. Every reported decision on the time limit was decided on the one-month text, because every one of them concerned an earlier application.

What the Finance Act 2026 substituted, clause by clause

Clause 15 of the Finance Bill, 2026 substituted sub-sections (1), (2) and (3) with new sub-sections (1), (2), (3) and (3A). The Act is Act No. 4 of 2026 and the substitution takes effect from 1 March 2026, as the Department’s own footnote to the section records.

Sub-section (1) now permits an application “to grant immunity from imposition or, as the case may be, waiver of penalty under Section 270A and immunity from initiation of proceedings under Section 276C or Section 276CC”, on three conditions:

• clause (a) of section 270AA(1), unchanged in substance: the tax and interest payable as per the order of assessment under section 143(3) or reassessment under section 147 has been paid within the period specified in the notice of demand;
• clause (b), entirely new: “where penalty has been levied or, as the case may be, leviable under the circumstances referred to in sub-section (9) of Section 270A, additional income-tax amounting to one hundred per cent of the amount of tax payable on under-reported income has been paid within the period specified in the notice of demand, in lieu of such penalty”;
• clause (c), the former clause (b) widened: “no appeal has been filed against the order referred to in Clauses (a) and (b).”

Sub-section (2) now runs the one month “from the end of the month in which the order referred to in Clause (a) and Clause (b) of the said sub-section has been received by the assessee”. The old text referred only to the clause (a) order.

Sub-section (3) now reads: “The Assessing Officer shall, on fulfilment of the conditions specified in sub-section (1) and after the expiry of the period of filing the appeal as specified in Clause (b) of sub-section (2) of Section 249, grant immunity from imposition or, as the case may be, waiver of penalty under Section 270A and initiation of proceedings under Section 276C or Section 276CC.”

Two changes are buried in that sentence and neither is cosmetic. The relief is widened from immunity to immunity or waiver, which is the subject of the next section. And the opening words have changed: the old sub-section (3) read “The Assessing Officer shall, subject to fulfilment of the conditions specified in sub-section (1)”, and the new one reads “shall, on fulfilment of the conditions”. “Subject to” qualifies the command; “on” supplies its trigger. Parliament has made the alteration in the very words whose force was in dispute, and it has made the duty read as the consequence of satisfaction rather than a power exercisable where the conditions happen to be met. The point is not taken in Farah, which quotes only the new text, but it is available to anyone arguing the question, and both forms of words appear in the comparative table in the annexure.

Sub-section (3A), new in the substitution, reads: “No immunity or, as the case may be, waiver under sub-section (3) shall be granted where any proceedings has been initiated under Chapter XXII.”

Both columns are reproduced in full in the annexure, together with sub-sections (4), (5) and (6), which the amendment left untouched.

Three drafting observations, because an officer reading the bare words may take them literally.

Sub-section (3) does not repeat the words “immunity from” before “initiation of proceedings”, so on a strict reading it offers “waiver of … initiation of proceedings”, which is meaningless. Sub-section (1) is drafted correctly and the Court in Farah read sub-section (3) sensibly, but the defect is there.

Sub-section (2) is conjunctive: the month runs from receipt of the clause (a) order “and” the clause (b) order. Where no penalty order ever issues, because the penalty is merely “leviable”, there is no clause (b) order and the month must run from the assessment order alone. Where both exist, the sensible reading, and the one the Court adopted, is that time runs from the later. Whether the assessment-order limb also continues to run independently, so that an assessee who lets it lapse may still rely on the penalty-order limb, is the proposition on which Farah rests, and it is a reading rather than something the words compel.

Sub-section (3A) is not one of the conditions in sub-section (1), yet sub-section (3) commands the grant “on fulfilment of the conditions specified in sub-section (1)”. So the duty is expressed to be triggered by sub-section (1) alone and is then overridden by a provision outside it. That mismatch is a point against the proposition that the duty is self-executing, and it is dealt with below.

The word that does the work: waiver

The old section could only prevent a penalty. The new section can also undo one. That change in vocabulary is what makes the rest of the scheme coherent.

Clause (b) of sub-section (1) speaks of a case “where penalty has been levied or, as the case may be, leviable”. The first limb contemplates a penalty order already on the file. Sub-section (2) runs limitation from receipt of the clause (b) order, which can only be the penalty order. Sub-section (1)(c) requires that no appeal has been filed against either. The whole structure assumes the assessee may come to the officer after the penalty has been imposed, which the old section did not allow.

This is the point on which the Bombay High Court was most explicit. At paragraph 12 the Court recorded that, post amendment, sub-section (2) permits an application within one month from the end of the month in which the order referred to in clause (a), the order of assessment or reassessment, and the order referred to in clause (b), the penalty order, is received by the assessee. At paragraph 10 it held 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)”.

The practical consequence is large and is not confined to misreporting. Under the old scheme an assessee who let the one-month window pass after the assessment order had lost the remedy, subject to condonation. Under the new scheme the penalty order opens a fresh window measured from a different event.

The price: one hundred per cent, and what it replaces

Clause (b) fixes the additional income-tax at one hundred per cent of the tax payable on the under-reported income, payable within the period specified in the notice of demand, “in lieu of such penalty”. The phrase matters: this is not a penalty, and it is not tax on further income. It is a statutory composition, computed on the same base as the penalty it displaces.

	Under-reporting	Under-reporting in consequence of misreporting
Penalty if you fight and lose	50 per cent of tax on under-reported income, section 270A(7)	200 per cent of tax on under-reported income, section 270A(8)
Cost of waiver under section 270AA	Nil beyond tax and interest; clause (b) is not engaged	100 per cent of tax on under-reported income, section 270AA(1)(b)
Prosecution under sections 276C and 276CC	Immunity granted	Immunity granted
Your appeal against the assessment	Forfeited, section 270AA(6)	Forfeited, section 270AA(6)
Departmental revision under section 263	Unaffected	Unaffected

The figures in Farah illustrate the relationship. The penalty imposed on 29 June 2026 was Rs 4,72,442. The additional income-tax paid on 21 July 2026 was Rs 2,36,221, precisely half. The judgment does not state the rate at which the penalty was computed or the quantum of under-reported income, so the inference has to be drawn rather than read: the two figures are exactly consistent with a penalty at two hundred per cent and a composition at one hundred per cent of the same base. The tax and interest on the revised computation, paid much earlier on 22 September 2025, was a separate Rs 2,67,500.

Two cautions. For under-reporting simpliciter the amendment changes nothing about cost: clause (b) is conditioned on the section 270A(9) circumstances, so where the penalty is a fifty per cent penalty under sub-section (7) the clause is not engaged and immunity costs nothing beyond the tax and interest already owed. Anyone told that section 270AA now carries a one hundred per cent price tag in all cases has been misinformed.

And a straight comparison of two hundred against one hundred overstates the attraction. The real comparison is between a certain one hundred per cent, plus the loss of your own appeal, plus immunity from two named prosecutions, on one side, and on the other an uncertain two hundred per cent discounted by the prospect of success, where the assessee keeps the quantum dispute and keeps his exposure. Where the addition is seriously contestable, the surrender under sub-section (6) may be the dominant consideration.

Paying the hundred per cent: the questions the section does not answer

Before advising a client to pay half the penalty, it is worth being clear about how much of the mechanics Parliament has left unstated. Five questions arise on the face of clause (b) of section 270AA(1) and none of them has an answer in the section, in any rule, or in any decision.

Which notice of demand? Clause (b) requires payment “within the period specified in the notice of demand”. No order raises a demand for the additional income-tax, because the amount is not assessed by anybody. The only sensible reading is the demand notice accompanying the penalty order, which gives thirty days from service, and both the dates in Farah and the revised Form No. 68, which asks at field 7 for the due date under that notice, are consistent with it. But the section does not say so.

How is it computed? Clause (b) is one hundred per cent of “the amount of tax payable on under-reported income”. A penalty order under section 270A is not required to state that figure separately, and many do not. The assessee has to derive it, and if he derives it differently from the officer, his clause (b) condition fails.

Under what head is it paid? There is no minor head or challan description for additional income-tax under section 270AA(1)(b). This is the first practical obstacle a chartered accountant will meet, and it is not addressed anywhere.

What if the penalty is only “leviable”? Clause (b) covers a penalty “levied or, as the case may be, leviable”. An assessee applying after the assessment order but before any penalty order, which is the pre-2026 pattern and is still open to him, has to compute and pay one hundred per cent of a penalty nobody has quantified, within the period specified in a notice of demand that does not exist for it. On its face the condition is incapable of literal compliance in that situation.

Is it refunded if the application is refused? Nothing says. It is not tax on income and it is not a penalty, so the refund machinery in section 237 does not obviously reach it, and the section does not provide for adjustment against the penalty demand if the penalty survives. A client should be told this before he pays, not after.

A sixth question arises where an assessment is mixed. Clause (b) requires one hundred per cent “of the amount of tax payable on under-reported income”, not of the tax on the under-reported income that is in consequence of misreporting. Where part of an addition is misreporting and part is under-reporting simpliciter, the literal words appear to require one hundred per cent on the whole once the clause is triggered at all. That is almost certainly not intended, and section 270A(8) uses the same loose formulation and is applied by bifurcation in practice. The revised Form No. 68 points the same way, because it requires the income falling under section 270A(9) to be separated from the rest of the assessed income and the tax on it to be shown separately; but a utility cannot settle the construction of the section, and nothing yet decides it.

Farah: the timeline, and where the Assessing Officer went wrong

The facts are compact and every date earns its place. Two respondents feature and the judgment keeps them apart: Respondent No. 2 made the assessment, issued the section 274 notice and passed the penalty order; Respondent No. 1, the Income Tax Officer, Ward 22(1)(6), passed both rejections and is the officer the operative direction is addressed to.

The petitioner’s return for assessment year 2024-25 was selected for scrutiny. While assembling details she realised that she had inadvertently made certain erroneous claims for deduction under Chapter VI-A. She re-computed her income, filed a revised computation, and paid Rs 2,67,500 as tax and interest by challan dated 22 September 2025, before any order was made.

On 25 November 2025 the assessment order was passed, accepting the revised total income she herself had determined. On the same day a notice under section 274 read with section 270A was issued, proposing penalty for under-reporting in consequence of misreporting.

On 23 December 2025 she applied in Form No. 68 for immunity. On 1 January 2026 the application was rejected, on the ground that immunity could not be granted where penalty was initiated for under-reporting in consequence of misreporting. On the law as it then stood that rejection was, on its face, within the closing words of sub-section (3). The first refusal was not obviously wrong when it was made.

On 29 June 2026 the penalty order was passed, imposing Rs 4,72,442. By that date the Finance Act, 2026 had been in force for nearly four months, and the words on which the first refusal had rested no longer existed.

On 21 July 2026 she paid Rs 2,36,221 as additional income-tax. On 22 July 2026 she filed a second Form No. 68, seeking waiver. On 23 July 2026, the following day, it was rejected, on two grounds: that waiver cannot be granted in misreporting cases, and that the remedy had already been availed, the section making no provision for a second application, so that neither a fresh cause of action nor a fresh right had arisen.

One feature of the petitioner’s case deserves more attention than it has received. At paragraph 5 the Court recorded Mr Mistri’s submission that, in light of the 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”. The petitioner therefore abandoned the misreporting argument and paid the one hundred per cent rather than contest whether section 270A(9) was made out at all.

It is worth asking whether she had to. An assessee who finds her own error, discloses it, re-computes and pays the tax before any order is passed has, on the face of it, a strong case that this is under-reporting and not misreporting, and a strong case under section 270A(6)(a), which takes out of under-reported income any amount in respect of which the explanation is bona fide and all material facts have been disclosed. The authorities discussed below, in which an officer who alleged misreporting without identifying a limb was held to have acted arbitrarily, would have been directly in point. On these facts the one hundred per cent may have been a price that did not need to be paid. The Court was not asked to consider it, and decided nothing about it.

The first holding: the misreporting carve-out is gone

At paragraph 9 the Court set out the pre-amendment position and held that “the position has changed considerably as a result of the amendments made by the Finance Act, 2026 w.e.f. 1st March 2026”. An application for waiver of a penalty already levied can now be made and must be considered even where the penalty is levied for under-reporting in consequence of misreporting, and in such cases section 270AA(1)(b) requires payment of additional income-tax of one hundred per cent.

At paragraph 10 it concluded that there was no doubt such an application can be filed, and held that the officer “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”.

What deserves emphasis is the nature of the error. This was not a debatable construction. The words on which the refusal rested had been removed from the statute book nearly four months before the penalty order. An officer rejecting an application in July 2026 by reference to the misreporting carve-out was applying language that no longer existed.

That is a pattern worth watching for. Where a provision is substituted mid-year, departmental practice, order templates and the e-filing utilities lag the statute. The assessee’s protection is to plead the amendment expressly, by Act number and commencement date, in the application itself.

The second holding: why a second application is competent

The Revenue’s primary answer was procedural. Ms Omle contended that the officer had correctly rejected the first application by the order of 1 January 2026 and that the petitioner was therefore precluded from a second. Without prejudice, she asked that the matter be sent back for the second application to be decided in light of the amendments.

The Court’s reasoning at paragraphs 11 to 13 is more precise than the headline suggests. It did not hold that a change in the law entitles a litigant to re-agitate a concluded matter. It held that the amendment created a new limitation trigger attached to a new event. At paragraph 11 it noted the pre-amendment position, that the month ran from receipt of the assessment or reassessment order. At paragraph 12 it noted the post-amendment position, that the month runs from receipt of the section 270AA(1)(a) order and the section 270AA(1)(b) order. At paragraph 13 it concluded:

“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.”

The petitioner was therefore within her rights to apply on 22 July 2026, within one month from the end of the month in which the penalty order of 29 June 2026 was received, and the earlier application did not bar it.

The structure of that reasoning is what practitioners should take from the case. The second application is not a request for reconsideration of the first. It is an application under a different limb of a rewritten provision, made within a period running from a different order, seeking a different relief that did not exist in law when the first was made.

Two limits follow, and both are important. The window is not open indefinitely: the month runs from receipt of the penalty order, not from 1 March 2026 and not from the date of this judgment. And the reasoning only helps where the ground of the first rejection is one the amendment has removed. Where the first application was rejected for delay, or because the tax was not paid in time, or because an appeal had been filed, the second application fails on the same condition and the fresh cause of action does nothing.

The third holding: the grant is mandatory, and why the Court did not remit

Having found the officer wrong on both grounds, the Court had a safe course available, namely to quash and remit, which is what the Revenue had asked for in the alternative. It declined.

At paragraph 13 it recorded that “[t]he fact that all the conditions specified in Section 270AA(1) have been satisfied by the Petitioner is not disputed by Ms. Omle”, and saw no purpose in sending the matter back. At paragraph 14, agreeing with Mr Mistri’s submission, it held:

“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.”

The direction at paragraph 15 quashed the order of 23 July 2026 and directed the officer “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”.

So far as research discloses, this is the first judgment to state in terms that the grant under sub-section (3) is mandatory. The proposition was always available on the language, which has used “shall” throughout, and courts have acted on it without saying so: in Ultimate Infratech Private Limited v. NFAC, W.P.(C) 6305/2022, decided on 20 April 2022, the Delhi High Court held that on satisfaction of the conditions the petitioner had acquired a right to immunity.

There is a textual argument the Court did not use, and it is stronger than the one it did. The Finance Act, 2026 did not only widen the relief in sub-section (3); it changed the words that govern the duty, from “shall, subject to fulfilment of the conditions specified in sub-section (1)” to “shall, on fulfilment of the conditions specified in sub-section (1)”. On the old text the Revenue could at least say that the conditions were a qualification on a power. On the new text, fulfilment is the event that attracts the obligation. Where Parliament amends the very phrase on which a construction was contested, the amendment is a legitimate guide to what the provision now requires, and this amendment points one way only.

Anyone relying on paragraph 14 should know exactly what he is relying on. The passage is introduced as an additional reason (“This is moreso when”), the primary reason for not remitting being the concession at paragraph 13. It is framed as agreement with counsel’s submission on a point the Revenue did not contest. It is ratio, because the Court adopted it, but it is a single sentence in an unreserved order on an uncontested point. It will be put that way by the Revenue, and a practitioner should not be surprised by it.

Three further qualifications. What is mandatory is the consequence of satisfaction, not the finding of satisfaction; where the conditions are in dispute, the officer plainly has to determine them. The Court directed the grant without any recorded finding on sub-section (3A), the one surviving statutory bar, which was not mentioned in the order at all. And the order of 1 January 2026 rejecting the first application was never quashed; only the order of 23 July 2026 was.

The Revenue’s answers, and how good they are

Every proposition above will be met, and a note that does not set out the answers is not much use. Here are the three best arguments against the article’s own conclusions, put at their strongest, and what can be said to each.

Against the grant being mandatory: sub-section (4). The statute requires the officer to “pass an order accepting or rejecting such application”, and the proviso requires a hearing before rejection. If sub-section (3) were self-executing there would be nothing to reject and no reason to build a natural justice safeguard around the rejection. Parliament has expressly contemplated refusal on the merits. Add to that the mismatch identified above, that sub-section (3A) sits outside sub-section (1) and must also be satisfied, so the officer must form a view on a matter sub-section (3) does not mention. And Farah is, on its own terms, a concession case.

The answer is that sub-section (4) confers a power to reject for want of the conditions, not a general discretion to refuse an applicant who meets them. Read any other way, “shall” in sub-section (3) does no work at all, and the hearing proviso is explained by the fact that the officer has findings of fact to make on each of clauses (a), (b) and (c) of section 270AA(1), and now on sub-section (3A), each of which the assessee is entitled to address. That is a real adjudicative function and it needs a hearing, without implying a discretion at the end of it. There is a further answer available only on the amended text: in the same substitution Parliament replaced “subject to fulfilment” with “on fulfilment”. Whatever force the sub-section (4) argument had before 1 March 2026, it now has to contend with words that make the grant the consequence of fulfilment rather than a power conditioned by it.

Against a second application: sub-section (5). The order under sub-section (4) “shall be final”. The rejection of 1 January 2026 was never challenged and was never quashed; it stands, and it stands as a final order. Where a statute declares an order final the authority is functus officio, and a second application on the same assessment is in substance a review for which no power is conferred. Nothing in the Finance Act, 2026 contains a transitional or savings provision reviving applications already rejected, and an amendment does not of itself reopen concluded proceedings. There is a second limb to this: if the penalty order independently opens a window, an assessee who deliberately let the assessment-order window lapse revives his remedy by doing nothing, which drains the clause (a) limit of content.

The answer is the one the Court gave, and it is a good one. The second application is not the same application. It is made under a limb that did not exist, on an order that did not exist, seeking a relief, waiver of a levied penalty, that the statute did not then provide. Finality attaches to the adjudication that was made, not to every future application the legislature may authorise. As to the second limb, the answer is that Parliament has chosen to attach a window to the penalty order, and an assessee who waits bears the risk that no penalty order is passed, that a Chapter XXII proceeding starts first, or, from April 2027, that there is no separate penalty order at all.

Against backward reach: the notice of demand condition. This is the strongest Revenue argument and it is not about assessment years at all. Clauses (a) and (b) of section 270AA(1) both require payment “within the period specified in the notice of demand”. For an order served in, say, 2023, that period expired years ago. It is not a period of limitation that a court can condone; it is a substantive condition of eligibility keyed to a window that has closed and cannot be reopened. A condition incapable of satisfaction for old orders suggests Parliament intended the scheme to operate where the demand notice was live on or after 1 March 2026. On that reading, “with effect from 1 March 2026” is given work to do, and the Memorandum’s reference to earlier assessment years means only that the scheme is not assessment-year-linked for applications made after commencement, not that closed matters revive. To which may be added that an explanatory memorandum cannot enlarge a section, and that a substituted provision ordinarily operates from the date of substitution unless the contrary appears.

The answer is partial, and it should be presented as partial. Where the tax and interest were in fact paid within the original demand period, clause (a) is satisfied on its own terms whenever the order was made, and the only open question is clause (b), for which the demand notice is the one accompanying the penalty order. Where nothing was paid in time, the argument is a good one and the assessee is in difficulty. Against it stands the principle that a provision conferring a benefit without imposing a burden is more readily applied to pending matters, and the point that this provision operates on an application made after commencement rather than on a liability crystallised before it, so that applying it is not retrospective operation at all. None of this has been tested.

The limb cases, what survives of them, and what relief they get

The body of authority built up between 2022 and 2026 addressed a single recurring failure: an officer who refused immunity because the penalty was for “misreporting” without identifying which of the six circumstances in section 270A(9) was alleged, or how it was made out.

Schneider Electric South East Asia (HQ) Pte Ltd v. ACIT, W.P.(C) 5111/2022 (Delhi High Court), decided on 28 March 2022, set the pattern. The penalty notice did not say whether it was for under-reporting or misreporting; the rejection order did not say which limb applied or how the ingredients of sub-section (9) were met; the assessment order recorded that the income had been offered voluntarily to buy peace. The Court held the denial erroneous and arbitrary and contrary to the legislative intent of section 270AA, and directed the grant.

Prem Brothers Infrastructure LLP v. NFAC, W.P.(C) 7092/2022 (Delhi High Court), decided on 31 May 2022, added the substantive point. There was “not even a whisper” as to which limb applied, and under-reporting arising from a larger disallowance under section 14A was not misreporting, because the assessee had furnished all the relevant details and the officer and the assessee had simply reached different figures from the same material. A difference of opinion on a disclosed set of facts is not misrepresentation.

GE Capital US Holdings Inc v. DCIT, W.P.(C) 1646/2022 and W.P.(C) 3312/2022 (Delhi High Court), decided on 31 May 2024, is the fullest treatment. The Court held that under-reporting and misreporting are separate and distinct, that the assessment orders contained no finding under sub-section (9), that the show cause notices failed to indicate the specific charge and were unsustainable on that ground alone, and that it was incumbent on the officer to come to a firm conclusion that misreporting applied. Its relief, however, is often misdescribed: the Court quashed the rejection orders and quashed the show cause notices issued under section 270A, and held that there existed no justification for the immunity applications being either pursued or remitted. It did not direct the officer to grant immunity, because once the notices went there was no penalty proceeding left. Cite it for quashing the notice, not for a mandamus to grant.

G R Infraprojects Limited v. ACIT, D.B. Civil Writ Petition No. 5594/2023 (Rajasthan High Court, Jodhpur), decided on 2 January 2024, carried the line to Rajasthan, holding that where neither the assessment order nor the show cause notices nor the impugned order identified the applicable part of section 270A(9), initiation of penalty was nonest, and adding an independent ground, that the officer had failed to decide within the period in sub-section (4). Shanaji Becharji Baraiya v. Income Tax Office, Circle 1(3)(1), Ahmedabad, R/Special Civil Application No. 12968 of 2023 (Gujarat High Court), decided on 12 August 2025, carried it to Gujarat, holding that none of the six circumstances applied and directing the grant.

What relief these cases produce. There is a pattern here that is worth naming, although it is an observation about the cases rather than a distinction the cases themselves draw. Where the court concluded that there was nothing on which the officer could lawfully have refused, it has directed the grant outright: Schneider Electric, Prem Brothers, G R Infraprojects, Shanaji Becharji Baraiya and now Farah. Where the complaint was that the officer did not hear the assessee before refusing, the courts have set the order aside and sent it back: Rohit Kapur v. PCIT-7, W.P.(C) 3059/2023 (Delhi High Court), decided on 14 March 2023, where a rejection founded on a forty-eight day delay was set aside solely for want of a hearing, with no observation on the delay or on condonation; SBL Energy Limited v. DCIT, heard with Special Blasts Limited, WPT Nos. 162, 164 and 165 of 2026 (Chhattisgarh High Court), decided on 21 September 2026, where a notice of 28 July, a reply due on 29 July and a rejection on 30 July were held not to give sufficient opportunity; and Civil Technologies India Private Limited v. ITO, ITA No. 282/Bang/2026 (Income Tax Appellate Tribunal, Bangalore), decided on 31 August 2026, where the application was restored to the officer to verify the conditions and, if in order, to grant immunity.

Ultimate Infratech does not sit cleanly on either side, which is why the pattern is offered as a pattern and not a rule: the complaint there was the Revenue’s failure to decide in time, which is a defect of process, and the Court nevertheless directed the grant, holding that no prejudice can be caused to any assessee on account of delay or default on the part of the Revenue.

The practical lesson for drafting holds even so. A petition that leads with the absence of a hearing invites a remand to an officer who has already made up his mind. A petition that establishes that the conditions are satisfied and that nothing lawfully stood in the way invites the relief the assessee actually wants. Plead the hearing point second.

What survives the amendment. The limb question has moved out of the gateway: from 1 March 2026 an officer cannot refuse waiver merely because the case is one of misreporting. But the line is not spent. It governs every application made before that date. It still decides the money, because whether the penalty is fifty or two hundred per cent, and whether clause (b) of section 270AA(1) requires one hundred per cent or nothing, turns entirely on whether a circumstance in sub-section (9) is made out. And its reasoning is administrative law rather than a gloss on section 270AA: an order that records a conclusion without the finding that supports it is bad whatever the provision.

The other side: Spunwell Syntex

A note that only reports the cases the assessee won is not worth reading. There is a decision the other way, it is recent, and the Revenue’s case in it is better than it is usually made to look.

In Spunwell Syntex Private Ltd v. Income Tax Officer, Delhi & Anr., D.B. Civil Writ Petition No. 3897/2022, neutral citation [2026:RJ-JD:40808-DB], a Division Bench of the Rajasthan High Court at Jodhpur comprising Dr Pushpendra Singh Bhati and Praveer Bhatnagar JJ dismissed a writ petition on 25 August 2026 for assessment year 2018-19. It held that “cases involving misreporting of income fall outside the scope of Section 270AA”, that “[t]he exemption outlined in section 270AA(3) completely bars the petitioner from seeking immunity for misreporting income”, that “[t]he absence of explicit mention of the sub-category in the notice does not, by itself, constitute arbitrariness” where the substance of the notice and the assessment order made the basis clear, and that the statutory provisions do not require immunity applications in misreporting cases to be decided within the prescribed period.

Take those three propositions in turn, because on the law as it stood the Revenue has the better of at least two of them.

On misreporting, the result is not merely defensible, it is right. The closing words of the old sub-section (3) said what they said.

On the notice, the orthodox position is closer to Spunwell than the weight of authority suggests. The old sub-section (3) asked what the penalty proceedings had been initiated under. That is a question of fact about the initiation, not an invitation to the officer deciding a Form No. 68 application to adjudicate the merits of misreporting. An assessee told in the assessment order that he had failed to produce his accounting records, and then served with a notice alleging under-reporting in consequence of misreporting, knows the case he has to meet. Natural justice is about notice in substance, not citation of sub-clauses. The contrary line requires the officer to make a positive, reasoned limb finding before he may refuse, and the old sub-section (3) did not say that in terms.

On the time limit, Spunwell is arguably the orthodox view and not the outlier. Sub-section (4) prescribes a period and attaches no consequence to breach, and a time limit on a public authority with no stated consequence is ordinarily directory. Ultimate Infratech and G R Infraprojects reach the assessee’s result by shaping relief, not by holding the period mandatory, and as noted below there is no authority at all for a deemed immunity.

Five criticisms are nonetheless fairly available, and they go to the weight of the judgment rather than to the correctness of its first proposition. The petitioner cited G R Infraprojects and Chambal Fertilizers and Chemicals Ltd, both decisions of the same High Court, along with Schneider Electric, Prem Brothers Infrastructure and CIT v. Reliance Petroproducts Pvt Ltd, and the judgment does not discuss, distinguish or follow any of them; GE Capital is not mentioned. The hearing proviso to sub-section (4) is not addressed anywhere in the reasoning, which confines its natural justice discussion to the specificity of the notice. The provision is cited in places by numbers that do not exist or do not fit, including “Section 270(4)”. And the version of sub-section (4) reproduced reads three months while the argument proceeded on one month, without the court reconciling the two or noting that the three-month text comes from an Act post-dating the application before it.

Most significantly for a reader today: a judgment delivered on 25 August 2026 makes no mention of the Finance Act, 2026 substitution, which had by then been in force for almost six months and which deleted the very exclusion the judgment turns upon. Whether it was cited to the Bench does not appear from the order.

One structural point that is usually missed. Spunwell and G R Infraprojects are coordinate Division Benches of the same High Court reaching opposite conclusions on the notice point, the later one without reference to the earlier. That is not a difference of view between two High Courts; it is a conflict within one, and the proper course is a reference. An assessee in Rajasthan is presently faced with two binding decisions pointing in opposite directions.

Where an officer relies on Spunwell in a post-1 March 2026 matter, the short answer is that the provision it construes has been substituted, and that the judgment itself proceeded without reference to the substitution.

Section 270A, because the limb still decides the money

Since the limb question has moved from eligibility to price, the content of section 270A deserves setting out.

Under-reporting is defined in sub-section (2) by seven arithmetical comparisons, of which the common ones are that the assessed income exceeds the income determined under section 143(1)(a), that income is assessed where no return was furnished and exceeds the maximum amount not chargeable to tax, that reassessed income exceeds the income previously assessed, and that an assessment reduces a loss or converts it into income. Sub-section (3) computes the quantum and sub-section (10) the tax payable on it. The rate is fifty per cent under sub-section (7).

Sub-section (8) displaces sub-sections (6) and (7) and imposes two hundred per cent where the under-reported income is in consequence of misreporting. Sub-section (9) lists the six circumstances exhaustively:

• (a) misrepresentation or suppression of facts;
• (b) failure to record investments in the books of account;
• (c) claim of expenditure not substantiated by any evidence;
• (d) recording of any false entry in the books of account;
• (e) failure to record any receipt in books of account having a bearing on total income;
• (f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction to which Chapter X applies.

Equally important, and chronically under-used, is sub-section (6), which takes certain amounts outside under-reported income altogether:

• an amount in respect of which the assessee offers an explanation and the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate it;
• an amount determined on the basis of an estimate, where the accounts are correct and complete to the satisfaction of the authority but the method employed is such that the income cannot properly be deduced therefrom;
• an amount determined on the basis of an estimate, where the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included that amount in the computation of his income and has disclosed all the facts material to the addition or disallowance;
• the amount of under-reported income represented by an addition made in conformity with the arm’s length price determined by the Transfer Pricing Officer, where the assessee had maintained the information and documents prescribed under section 92D, declared the international transaction under Chapter X and disclosed all the material facts relating to it;
• undisclosed income referred to in section 271AAB.

The fourth of these is narrower than it is often stated to be: the exclusion attaches to an addition made in conformity with the Transfer Pricing Officer’s arm’s length price, not to every transfer pricing adjustment where documentation was kept. It was applied in Verizon Data Services India Private Limited v. DCIT, W.P. No. 18377 of 2024, neutral citation 2026:MHC:586 (Madras High Court), decided on 6 February 2026, where the Court held that a transfer pricing adjustment involves estimating an arm’s length price and cannot be equated with concealment or misrepresentation under sub-section (9)(a), that there was no aggravated form of under-reporting or deliberate evasion, and that the petitioner was entitled to immunity. The judgment states the pre-amendment position that immunity is available only for under-reporting simpliciter, and does not mention the Finance Act, 2026, which came into force three weeks after it was delivered.

One further sub-section is directly operative in a multi-year matter and is easily overlooked: sub-section (11) provides that no addition or disallowance may found a penalty under section 270A if it has formed the basis of a penalty in the same or any other assessment year.

The practical point for a post-amendment application is that an assessee facing a misreporting charge now has two separate lines and should run both: that sub-section (9) is not made out, or that sub-section (6) takes the amount out of under-reported income altogether, so that there is no two hundred per cent penalty and no section 270AA(1)(b) payment; and, in the alternative, that even if it is made out, waiver must follow on payment of one hundred per cent. The first line is now worth the whole of the clause (b) amount.

Two clocks, and the hearing the officer must give

Section 270AA runs on two periods that are routinely confused, and one procedural requirement that is routinely breached.

The assessee’s period is in sub-section (2): one month from the end of the month in which the relevant order or orders are received. It is short, it is not expressed to be extendable, and the Revenue’s standard position is that there is no power to condone. That position has not prevailed. In Natarajan Anandh Kumar v. DCIT, W.P. No. 29829 of 2023, neutral citation 2024:MHC:5928 (Madras High Court), decided on 23 January 2024, an assessment order of 9 March 2023 was followed by an application on 31 May 2023, which the Revenue said was a month late. The Court held it a fit case to condone the delay of thirty days, the accepted income and tax liability matching the return, quashed the rejection and the consequent penalty order, and directed reconsideration on the merits. It has been cited repeatedly since; in Civil Technologies India the Tribunal distinguished it on the facts, while directing the officer to consider it if the application were to be rejected for delay in filing Form No. 68.

The officer’s period is in sub-section (4): three months from the end of the month in which the application is received, since 1 April 2025. Three questions arise.

What if the officer decides late, or not at all? In Ultimate Infratech the Delhi High Court held that the failure to pass an order within the statutory timeline could not prejudice the petitioner, set aside the penalty order and directed the Assessing Officer to grant immunity. In G R Infraprojects the Rajasthan High Court treated the failure as an independent ground for setting the penalty aside. Against that stands Spunwell Syntex. The conflict is unresolved, and as noted it is a conflict within one High Court.

Is there a deemed immunity if the period expires? No authority says so. The courts have reached the assessee’s result by quashing the penalty or directing the grant as relief, not by deeming, and an argument built on deemed immunity should expect to meet that point.

Is an order passed after the period void or merely irregular, and can the period be extended? There is no decision either way, and none applying the three-month text at all.

The officer cannot act too early either. Sub-section (3) requires him to wait until the appeal period in section 249(2)(b), thirty days from the date of service of the notice of demand, has expired, as the Chhattisgarh High Court noted in SBL Energy.

The hearing. The proviso to sub-section (4) is one line and it is unqualified: “Provided that no order rejecting the application shall be passed unless the assessee has been given an opportunity of being heard.” It attaches to rejection, not acceptance, and contains no exception for applications the officer regards as hopeless. The authorities set out above are consistent that breach vitiates the order and that the consequence is a remand. Return to the dates in Farah: an application filed on 22 July 2026 and rejected on 23 July 2026 leaves no room for an opportunity of being heard. The Court did not take the point, because the petitioner was seeking a direction to grant rather than a remand, and the omission is instructive rather than critical.

What immunity costs you, and what the bar does not reach

Sub-section (6) provides that where an order has been made under sub-section (4) accepting the application, notwithstanding anything contained in any other provision of the Act, no appeal under section 246 or section 246A, and no application for revision under section 264, shall be admissible against the order of assessment or reassessment referred to in clause (a) of sub-section (1).

Read with clause (c) of sub-section (1), the choice between immunity and appeal must be made at the outset. Two consequences follow that are easy to get wrong.

An assessee who has already filed his appeal against the assessment order, as most assessees do within thirty days without waiting to see whether a penalty order arrives, is out of section 270AA on clause (c). Whether an appeal filed and subsequently withdrawn is an appeal that “has been filed” is unsettled, the language is unpromising, and nothing decides it. The time to decide is before the appeal is filed.

And the bar is not symmetrical. It removes the assessee’s appeal and his revision application. It does not touch rectification under section 154. It does not touch the Commissioner’s power of revision under section 263, so the department may still revise the very assessment the assessee has accepted and enhance it, generating fresh under-reported income and a fresh penalty. What the assessee buys is not finality. It is the loss of his own remedy in exchange for the penalty and two prosecutions.

The bar also has limits in the assessee’s favour. In Haren Textiles Private Limited v. Pr. CIT-4 & Ors., Writ Petition No. 1100 of 2021, the Bombay High Court held on 8 September 2021 that sub-section (6) operates only where the application has been accepted under sub-section (4), and bars only a challenge to the assessment or reassessment order. It does not bar an assessee from challenging an order rejecting the application, and the Principal Commissioner had been wrong to throw out a section 264 revision on that footing.

An assessee refused immunity therefore has three routes, not two: revision under section 264 against the rejection, an appeal under section 246A against the penalty order itself, since the sub-section (6) bar operates only on acceptance and only against the assessment order, and Article 226. The High Court cases in this field have all proceeded under Article 226 without objection, and sub-section (5), which makes the order under sub-section (4) final, has not been held to oust that jurisdiction; the point does not appear to have been argued.

Several years at once. A multi-year scrutiny or search matter is the normal case, and the section operates year by year: one Form No. 68 for each assessment year, and the choice can be made differently for different years. Circular No. 5/2018 dated 16 August 2018, F. No. 370149/155/2018-TPL, clarifies that where an assessee makes an application seeking immunity under section 270AA it shall not preclude him from contesting the same issue in any earlier assessment year, and that no adverse view is to be taken in penalty proceedings for an earlier year on that account. That materially softens the calculus for a multi-year matter. What the circular does not and cannot address is that the accepted assessment stands on the record for the settled year and will be relied on by the department in the contested years as a matter of fact.

The strategic question is therefore not whether the appeal is barred, because it plainly is, but whether the quantum dispute is worth more than the penalty, net of the risk that the department revises the accepted assessment anyway. Where the addition is one the assessee himself initiated, as in Farah, or one he cannot realistically contest, the appeal has little value. Where the addition is a disputed estimate, a transfer pricing adjustment or a disallowance turning on an open question of law, the appeal may be worth several times the penalty.

Chapter XXII, sub-section (3A), and what the immunity does not buy

In place of the misreporting carve-out, Parliament has inserted a single objective disqualification. Sub-section (3A) provides that no immunity or waiver under sub-section (3) shall be granted where any proceedings has been initiated under Chapter XXII, which in the 1961 Act is “Offences and Prosecutions” and begins at section 275A.

The bar is objective in a way the old one was not. It asks whether a proceeding has been initiated, a question of fact, rather than whether the case is one of misreporting, a question of characterisation. That is a gain in certainty for both sides.

It interacts directly with the relief sought. What the section offers is immunity from initiation of proceedings under sections 276C and 276CC. If such a proceeding has already begun, the immunity is worthless as to it, and sub-section (3A) refuses the waiver of penalty as well. Where prosecution is a live risk, the application should be made at the earliest moment the section allows.

The words are “any proceedings has been initiated under Chapter XXII”, not “any prosecution has been launched”. Chapter XXII is wide and the sub-section does not define initiation. A sanction under section 279(1), a show cause notice preceding sanction and the filing of a complaint are different events, and no decision has considered which of them engages sub-section (3A).

What the immunity does not buy is worth listing, because “immunity from prosecution” will otherwise be taken at face value:

• Only sections 276C and 276CC are covered. Section 277 (false statement in verification), section 277A, section 278 (abetment), section 276B on tax deducted at source, section 276BB on tax collected at source and section 276CCC are not.
• Section 278B deems the company and every person who, at the time the offence was committed, was in charge of and responsible to the company for the conduct of its business guilty of an offence by the company, subject to a defence of want of knowledge and due diligence, and sub-section (2) separately reaches a director, manager, secretary or other officer with whose consent or connivance, or by reason of whose neglect, the offence was committed. Section 270AA grants immunity to “the assessee”; nothing in it says the immunity runs to those persons, and no decision addresses the question.
• On the penalty side, sections 271AAB, 271AAC, 271AAD, 271D, 271E, 271B and 272A all survive a section 270AA application untouched.

If section 270AA is closed: section 273A and compounding

An assessee defeated by the one-month window, by the clause (a) or clause (b) payment condition in section 270AA(1), by clause (c) because an appeal was filed, or by sub-section (3A), is not necessarily out of remedies, and a note on waiver that mentions only one waiver provision is incomplete.

Section 273A(1) empowers the Principal Commissioner or Commissioner, in his discretion and whether on his own motion or otherwise, to reduce or waive the amount of penalty imposed or imposable under section 270A where the assessee has voluntarily and in good faith made full and true disclosure of the particulars of his income prior to its detection, has co-operated in the enquiry, and has paid or made satisfactory arrangements for payment of the tax or interest. Section 273A(4) separately allows reduction or waiver where the Commissioner is satisfied that payment would cause genuine hardship and the assessee has co-operated in recovery.

Three features make this worth remembering. Neither sub-section carries a one-month window. Neither requires the assessee to forfeit his appeal. And section 279(1A) provides that a person shall not be proceeded against for an offence under section 276C or section 277 in relation to an assessment year in respect of which the penalty imposed or imposable under section 270A has been reduced or waived by an order under section 273A.

The limits matter as much as the power, and they are stiff. Section 273A(3) provides that once an order has been made under sub-section (1) in favour of a person, “he shall not be entitled to any relief under this section in relation to any other assessment year at any time after the making of such order”, so sub-section (1) relief is available once and once only, and the bar is expressed as relief “under this section”. Sub-section (2)(b) requires the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General where the income in respect of which the penalty is imposed or imposable exceeds five hundred thousand rupees, and the proviso to sub-section (4) requires the same approval where the penalty or the aggregate of penalties exceeds one hundred thousand rupees. Sub-section (4A) gives the Commissioner twelve months from the end of the month of receipt to decide a sub-section (4) application. The relief is discretionary where section 270AA is mandatory, and it is rationed. For the assessee whose section 270AA route has closed it is the next door, but a narrower one.

Where a prosecution has already been initiated, so that sub-section (3A) applies, compounding under section 279(2) is the remaining route, on the Board’s prevailing compounding guidelines.

How far back does the widening reach

This is the question on which most readers will have come, and it has to be answered by separating what the material establishes from what it suggests.

What the statute says. The substituted sub-sections contain no restriction by assessment year, none by the date of the assessment order and none by the date of the penalty order. The only temporal limit on the face of the section is the one month in sub-section (2), and the only payment limits are the two demand-period conditions.

What the Notes on Clauses say. The note to clause 15 of the Finance Bill, 2026 records that the section is being amended so as to extend immunity to cases where penalty is initiated for under-reporting in consequence of misreporting, on payment of the tax and interest together with additional income-tax of one hundred per cent, and states: “This amendment will take effect retrospectively from 1st day of March, 2026.” The Bill’s own commencement words to the same effect are that the sub-sections “shall be substituted and shall be deemed to have been substituted with effect from the 1st day of March, 2026”.

What the Memorandum says. The Memorandum explaining the provisions of the Finance Bill, 2026, at page 40, under the heading “Expanding the scope of immunity from imposition of penalty or prosecution under section 270AA”, states: “This amendment will take effect from the 1st day of March, 2026 for AY 2026-27 or any earlier Assessment years.”

Those two sentences do different jobs. “Retrospectively from 1st day of March, 2026” in the Notes on Clauses is, on its face, doing the narrow work of backdating the substitution to a date before the Finance Act received assent; it says nothing about assessment years. The Memorandum’s sentence carries the assessment-year point, and carries it expressly.

What has not happened. The Board has issued no circular, instruction, press release or frequently asked question on the temporal reach of the amendment. No court has decided the point. Farah did not: the penalty order there was dated 29 June 2026, after commencement, so the Court applied the amended text to a post-amendment order and had no occasion to discuss retrospectivity. It is not authority on the question either way.

Two obstacles, not one. The assessment year is the lesser of them. The section imposes no assessment-year condition, the Memorandum says earlier years are covered, and on principle a provision that operates on an application made after commencement, rather than on a liability crystallised before it, is not applied retrospectively merely because the underlying assessment is old. The greater obstacle is the pair of payment conditions. Clause (a) is satisfied, whenever the order was made, if the tax and interest were in fact paid within the original demand period; where they were not, the condition has failed for good and no court can condone it, because it is a condition of eligibility and not a period of limitation. Clause (b), for an assessee relying on the penalty order, is keyed to the demand notice accompanying that order, which for a recent penalty is live. Sub-section (2) is then a limitation question on which Natarajan Anandh Kumar is available.

So the honest answer has three parts. An old assessment with the tax paid in time and a recent penalty order is the strong case, and the assessment year should not defeat it. An old penalty order is weak on sub-section (2) and needs condonation. An assessment where the tax was never paid within the demand period is not a candidate at all. None of this has been tested in court, and a client should be told that he is first in the queue rather than following a path someone else has cleared.

The form, by contrast, has caught up, and in a way that is easy to miss. The Form No. 68 published in Appendix II is still the 2016 form, but the utility the e-filing portal serves has been rewritten around the penalty order and now requires the misreported income and the tax on it to be shown separately. That is dealt with in detail below, under “Filling in Form No. 68 when what you want is a waiver”, together with the one field most likely to be filled in wrongly.

The second window has a sunset: the section 274 amendment

Everything said above about the penalty order as a second limitation trigger depends on there being a separate penalty order. The same Finance Act has provided that, in time, there will not be one.

The Memorandum explaining the provisions of the Finance Bill, 2026 carries, at page 36, a heading “Imposition of penalty for under-reporting or misreporting of income within Assessment Order”. The amendment moves the section 270A penalty into the assessment order itself, in place of the present sequence of initiation, separate show cause notice and separate penalty order, with similar amendments proposed to section 274, to section 220 on interest, and to a third provision the Memorandum prints as “section 234MA”, a section number that does not exist in the 1961 Act and that could not be reconciled from the Budget documents. For the 1961 Act the amendment comes into force on 1 March 2026 but is effective from 1 April 2027, applying where a draft order under section 144C is made, or an assessment under section 143 or reassessment under section 147 is made, on or after that date. The Income-tax Act, 2025 mirror comes into force on 1 April 2026 with the same 1 April 2027 effective date.

The consequence for section 270AA is structural. Once the penalty is imposed inside the assessment order there is no “order referred to in clause (b)” of section 270AA(1) arriving later, and the two triggers in the substituted sub-section (2) collapse into one, because the single composite order is both. The Farah fresh-cause-of-action reasoning therefore has a defined shelf life: it is available for assessments and reassessments made before 1 April 2027, and for the penalty orders that follow them, and not afterwards. For assessments made on or after that date the application will have to be made within one month of the end of the month in which the single composite order is received, and the second bite disappears.

That has an immediate planning consequence as well as a long one. An assessee whose assessment is framed in the window between now and 1 April 2027 has, for a limited period, two separate opportunities to come within the section. It is worth knowing that the window is a window.

The Income-tax Act, 2025: section 440, and why it is not a copy

Everything above concerns the Income-tax Act, 1961, which will continue to govern every matter currently in litigation, because section 536(2)(c) of the Income-tax Act, 2025 preserves the 1961 Act for earlier tax years. But the successor provision has also been rewritten, from a different date and not in the same terms.

The map is straightforward. Section 270A becomes section 439, with the fifty per cent rate in sub-section (9), the two hundred per cent misreporting rate in sub-section (10) and the list of misreporting circumstances in sub-section (11). Section 270AA becomes section 440. Sections 276C and 276CC become sections 478 and 479, in Chapter XXII of the new Act, “Offences and Prosecution”, which runs from section 473 to section 498. The appeal period in section 249(2)(b) becomes section 358(3)(a). Section 115BBE becomes section 195, and sections 68 to 69D become sections 102 to 106, the 2025 Act grouping unexplained money and investments not fully disclosed into a single section on unexplained assets.

The Finance Act, 2026 amended both provisions, by clause 84 for section 439 and clause 85 for section 440, in each case with effect from 1 April 2026 and for tax year 2026-27 and subsequent years. There are three differences from the amended section 270AA, not one, and the third is the one that matters most.

Commencement and reach. The Memorandum states that the section 440 amendment “will take effect from the 1st day of April, 2026 for tax year 2026-27 and subsequent tax years”. There is no equivalent of the “or any earlier Assessment years” language that accompanies section 270AA. So the 1961 Act provision commences on 1 March 2026 with express backward reach, and the 2025 Act provision commences on 1 April 2026 with none. The one-month gap between the two dates has the effect of closing the interval between the Finance Act taking effect and the new Act coming into force.

Waiver only. Substituted section 440(1) permits an application “to grant waiver of penalty levied under section 439 and immunity from initiation of proceedings under section 478 or 479”. The “immunity from imposition or, as the case may be, waiver” formula of section 270AA is not reproduced, and the section’s heading was substituted to match. On the face of it the pre-penalty route disappears from tax year 2026-27, and an application cannot be made until a penalty has been levied. Substituted sub-section (2) correspondingly runs the month from “the order referred to in the said sub-section” in the singular, dropping the two-order formula.

A change of regime for unexplained income, not a change of rate. Clause 84 adds to the misreporting circumstances in section 439(11) a new clause (g), income referred to in section 195(1)(b). Clause 85 then prices waiver at one hundred per cent where the misreporting falls in clauses (a) to (f) of section 439(11), and at one hundred and twenty per cent where it falls in clause (g) of that sub-section. Read with the separate rationalisation at page 38 of the Memorandum, which reduces the tax rate on income under sections 102 to 106 from sixty per cent to thirty per cent and omits the standalone penalty in section 443, the picture is this: income that under the 1961 Act is charged at sixty per cent under section 115BBE, carries a ten per cent penalty under section 271AAC and is expressly excluded from section 270A by section 271AAC(2), will from tax year 2026-27 be charged at thirty per cent, carry no separate penalty, and instead be exposed to the two hundred per cent misreporting penalty under section 439, with waiver available at one hundred and twenty per cent.

That is not twenty percentage points added to an existing scheme. It is the migration of the entire unexplained-income class from a ten per cent penalty regime that section 270AA could not reach into a two hundred per cent penalty regime that section 440 can. For a practice built on search assessments and cash credit additions it is the most consequential line in the amendment, in both directions: the tax halves, the penalty exposure multiplies, and a waiver route opens where none existed.

One limit on the new clause (g) of section 439(11) is worth knowing because it is the clearest planning point in the new regime. Section 195(1)(a) covers unexplained income reflected in the return furnished under section 263; section 195(1)(b) covers such income as determined by the Assessing Officer and not covered by clause (a) of that sub-section. Section 439(11)(g) is confined to section 195(1)(b). Unexplained income that the assessee declares in his own return is therefore outside clause (g) of section 439(11), outside the misreporting limb it creates and outside the one hundred and twenty per cent price.

Filling in Form No. 68 when what you want is a waiver

Rule 129 of the Income-tax Rules, 1962, which continues to govern applications under the 1961 Act notwithstanding the notification of the Income-tax Rules, 2026 with effect from 1 April 2026, prescribes Form No. 68 for an application under section 270AA(2). Both were inserted by Notification No. 90/2016, S.O. 3150(E), dated 5 October 2016, the Income-tax (25th Amendment) Rules, 2016, with effect from 1 April 2017. This is not a formality: sub-section (2) requires the application to be made “in such form and verified in such manner, as may be prescribed”, so the prescribed form is a condition of the application. Electronic furnishing is mandated separately, by rule 131 read with Notification No. 03/2022 of the Directorate of Income Tax (Systems) dated 16 July 2022, which lists Form No. 68 at serial 12 of its table and requires the listed forms to be “furnished electronically and … verified in the manner prescribed under sub-rule (1) of Rule 131”.

The utility has been rewritten, and it has moved ahead of the notified form. This matters because the two are not the same document. The Form No. 68 published in Appendix II, and still served from the Department’s own forms page, is the 2016 form: it is built around the assessment order, it has no field for a penalty order, and it does not use the word waiver. The form the e-filing portal actually serves and accepts is a different and much better document. It still carries the heading “FORM NO. 68”, the rule reference “[See rule 129]” and the description “Form of application under section 270AA(2) of the Income-tax Act, 1961”, but its content has been reworked for the amended section. No notification substituting the form in Appendix II has been traced, so for the present the practitioner should work from the portal version and should not be thrown by a published form that looks nothing like it.

What the revised form actually asks

Personal information. Name, permanent account number, Aadhaar, full address, telephone and email, drawn from the profile.

Document Identification Number. A new field at the head of the second block, and it takes the DIN of the penalty order, not the assessment order. In a misreporting case it will read in the ITBA penalty series.

1. Assessment Year.

2. Section under which penalty order is passed. This is the single most important change. The old field asked for the section under which the assessment or reassessment order was passed. The field now asks for the penalty section, and in a misreporting case the entry is 270A(9).

3. Date of the penalty order, and 4. Date of service of the penalty order. Both fields have moved from the assessment order to the penalty order. Enter the date of service accurately: the one month in sub-section (2) runs from the end of the month of receipt, and this field is now the only place the form records it.

5(a)(i). Total amount of income assessed as per the assessment or reassessment order, and 5(a)(ii). Out of (a)(i), income assessed and falling under the categories mentioned in section 270A(9). The form now requires the misreported slice to be separated from the rest of the assessed income. That is a significant change, because it means the utility itself contemplates a mixed assessment in which only part of the addition is misreporting.

5(b). Amount of penalty levied or leviable. The form takes both cases, which tracks the “levied or, as the case may be, leviable” language of section 270AA(1)(b).

6(a)(i). Total tax payable as per the notice of demand, and 6(a)(ii). Out of (a)(i), tax related to the income falling under the categories mentioned in section 270A(9). 6(b). Interest payable as per the notice of demand. 6(c). Penalty payable under section 270A(9). The form then computes an aggregate demand of 6(a)(i) plus 6(b).

7. Due date for payment as per the notice of demand.

8. Details of amounts paid, in a table of BSR code, date of deposit, challan serial number and amount, with rows that repeat as needed rather than the three fixed rows of the 2016 form, and an aggregate of the amounts paid.

Declaration and verification. The applicant declares that what is stated is true, that no appeal has been filed in respect of the order mentioned in column 2, and undertakes that no appeal shall be filed in respect of that order before the expiry of the period specified in section 270AA(4), and states the capacity in which he applies. On submission the form records the IP address, place and date, and generates an acknowledgement number recording the time of submission and the mode of verification, in practice an electronic verification code generated through Aadhaar one time password.

The three things the revised form gets right, and the three to watch

The improvements are real. The form is now built around the penalty order, which is the order a waiver application answers. It requires the misreported income and the tax on it to be separated out, which is the computation the whole section turns on. And the challan table takes as many rows as the payments require, so the section 270AA(1)(a) payment and the section 270AA(1)(b) payment can both be shown.

Three things still need care.

The declaration has swung to the other order. The printed declaration and undertaking are keyed to “the order mentioned in column 2”, and column 2 is now the penalty order. Under the 2016 form the declaration covered the assessment order and said nothing about the penalty; under the revised form it covers the penalty order and says nothing about the assessment. Section 270AA(1)(c) requires that no appeal has been filed against either. The gap has simply moved, and it still has to be closed by a line in the annexure confirming that no appeal has been filed against the assessment or reassessment order either, and that none will be.

The assessment order has dropped out of the form. Fields 2, 3 and 4 now capture the penalty order alone. The assessment or reassessment order survives only as the source of the figure in 5(a)(i). Yet section 270AA(1)(a) is keyed to that order and to payment within the period specified in its notice of demand. Nothing on the form evidences that payment having been made in time, so the annexure has to carry the assessment order’s date, its date of service, the due date under its notice of demand and the challan by which it was paid.

Field 6(a)(ii) is not the base for the hundred per cent, and it is the easiest mistake on the form. Section 270AA(1)(b) requires one hundred per cent of “the amount of tax payable on under-reported income”, which is computed under section 270A(10). Field 6(a)(ii) asks for something different: the tax, within the demand raised by the assessment, that relates to the income falling in the section 270A(9) categories. Those two figures are not the same, because the demand is struck after credit for advance tax, tax deducted at source and self-assessment tax, while the section 270A(10) computation is not. In a real filing the two can differ by a wide margin, and an assessee who pays the 6(a)(ii) figure will have underpaid and failed section 270AA(1)(b).

The reliable check is the penalty itself. Where the penalty has been levied at two hundred per cent, the tax payable on the under-reported income is exactly half the penalty in field 5(b), and the amount to be paid under section 270AA(1)(b) is that half. On illustrative figures: income assessed of Rs 40,00,000, of which Rs 12,00,000 falls under section 270A(9); tax on that income of Rs 3,74,400; penalty levied at two hundred per cent of Rs 7,48,800; additional income-tax payable under section 270AA(1)(b) of Rs 3,74,400, which is one half of the penalty. The tax payable as per the notice of demand on the assessment might be Rs 1,80,000 on the same facts, and that is the section 270AA(1)(a) figure, not the section 270AA(1)(b) figure. Two challans, two different numbers, two different clauses.

What still goes in the annexure

Much less than before, but not nothing:

1. The assessment or reassessment order: its date, its date of service, the due date under its notice of demand and the challan by which the tax and interest were paid, so that compliance with section 270AA(1)(a) is apparent.
2. A declaration that no appeal has been filed against the assessment or reassessment order and that none will be filed, which the printed declaration no longer covers.
3. The computation of the additional income-tax: the tax payable on the under-reported income under section 270A(10), and one hundred per cent of it, with the working shown and reconciled to the penalty in field 5(b), so that the officer can see why the challan is the amount it is and not the figure at 6(a)(ii).
4. A statement that the application is made under section 270AA, sub-sections (1), (2), (3) and (3A) whereof were substituted by Act No. 4 of 2026 with effect from 1 March 2026, and that it seeks waiver of the penalty levied as well as immunity from initiation of proceedings under sections 276C and 276CC.
5. A statement that no proceeding has been initiated under Chapter XXII, which is the bar in sub-section (3A).
6. A request for the opportunity of being heard that the proviso to sub-section (4) requires before any rejection.
7. Where the application is late, the reasons and a request for condonation, relying on Natarajan Anandh Kumar.

Filing it, and what to do if the portal will not take it

The form is filed by the assessee logging in to the e-filing portal and going to the income tax forms option under the e-File menu, selecting Form No. 68 and the assessment year. Verification is in the manner prescribed by rule 131(1), and in practice the portal completes it by an electronic verification code, which may be generated through Aadhaar one time password. On submission the portal issues an acknowledgement number and records the date, time, IP address and mode of verification on the face of the form. Keep that acknowledgement: it is the proof that the application was made within the month, and the period it starts is what the second proviso to section 249(2) excludes from the appeal limitation.

Where a representative is to file, the facility has to be enabled for the form and the representative authorised and registered first.

If the portal refuses the filing, do not let the month run out while arguing with it. Capture the error, by screenshot and by downloading any error report the portal generates. File a signed physical copy of the form with the annexure before the jurisdictional Assessing Officer and obtain a dated acknowledgement, and upload the same set through the e-proceedings tab as a letter so that it sits on the record with a timestamp. There is authority that the assessee does not bear the consequences of a portal that will not accept his form. In Prathamesh Vivek Khot v. ITO, ITA No. 2602/Mum/2023 (Mumbai Bench, Vikas Awasthy JM and Prashant Maharishi AM), pronounced on 31 January 2024 for assessment year 2018-19, the assessee produced before the lower authorities the error report generated on attempting to file Form No. 68. The Tribunal held that “[n]o fault can be found with the assessee if on filing of form number 68 error reports are generated”, set the whole issue aside to the Assessing Officer with a direction to decide the availability of immunity first and to give the assessee an opportunity of being heard before rejecting the application, and allowed the appeal for statistical purposes. Note what it is and is not: the penalty was not cancelled, the matter was restored, and the Form No. 68 there had in any event not been filed within the month. It is authority that a portal error is not the assessee’s fault and that a hearing is mandatory, not that immunity follows.

What to do now, in order

Step zero, and it comes before everything. Do not file the appeal. Section 270AA(1)(c) requires that no appeal has been filed against the assessment order or the penalty order, and the instinct on receiving a demand is to file protectively. A protective appeal forecloses section 270AA. Within the thirty days given by section 249(2) you must therefore do one or the other: appeal, and give up the section, or apply, which is safe, because the second proviso to section 249(2) then excludes the period from the making of the application to service of any order rejecting it. What you must not do is let the thirty days pass having done neither.

One. Read the penalty order and identify the penalty section. If it is section 271AAC, or section 271AAB, or section 158BFA, section 270AA does not apply. If it is under section 270A but the income is of a kind described in sections 68 to 69D, do not reach for section 270AA at all: section 271AAC(2) forbids that penalty outright, and the answer is to resist it rather than to buy it. If the assessment is an original assessment under section 144, or the relief sought relates to an intimation under section 143(1), the section does not apply either. This costs five minutes and saves a month.

Two. Identify both orders and both dates of receipt. The month in sub-section (2) runs from the end of the month of receipt. Record the date of receipt, not the date of the order.

Three. Decide whether to apply now or wait for the penalty order. This is a genuine choice the amendment has created and it is not obvious. Applying after the assessment order stops a Chapter XXII proceeding before it starts, but requires paying one hundred per cent of a penalty nobody has quantified, with no demand notice for it. Waiting for the penalty order gives a known figure and a clean section 270AA(1)(b) demand notice, but risks sub-section (3A) in the interval and, for assessments made on or after 1 April 2027, there will be no second order to wait for.

Four. Establish whether clause (b) is engaged. For a fifty per cent penalty for under-reporting simpliciter, no additional income-tax is payable. For a two hundred per cent penalty, examine first whether sub-section (9) is actually made out and whether sub-section (6) takes the amount out of under-reported income. That examination is now worth the whole of the clause (b) amount.

Five. Check Chapter XXII. If any proceeding has been initiated, sub-section (3A) defeats the application and the remaining routes are section 273A and compounding under section 279(2).

Six. Pay within the notice period. Both clause (a) and clause (b) require payment “within the period specified in the notice of demand”. Payment afterwards is a condition failure on the face of the section and no decision excuses it. Keep the challans with the application.

Seven. File Form No. 68, and put in the annexure everything the form has no room for. The utility on the portal has been rebuilt around the penalty order, but it still has no room for three things: the computation showing how the hundred per cent was arrived at, the declaration that no appeal has been filed against the assessment order as well as the penalty order, which is what section 270AA(1)(c) requires and which the printed declaration no longer covers, and the ground on which the application is made where an earlier application was rejected under the old law. All three go into an annexure. Cite Act No. 4 of 2026 and the commencement date of 1 March 2026 expressly; do not assume the officer has the current text in front of him. Where the penalty was levied by a faceless unit and the application goes to the jurisdictional officer, identify both. The section above sets this out field by field.

Eight. Ask in the application for the hearing the proviso requires. It costs nothing and preserves the point.

Nine. Diarise three months from the end of the month of filing. If nothing has happened, the authorities on the officer’s inaction become available.

Ten. If refused, your appeal is still alive, and you have to choose. Work out the appeal date first, and do it properly: the second proviso to section 249(2) excludes the period from the date the application was made to the date the rejection was served, so what remains of the thirty days is whatever had not run when you applied. That is usually a real and usable window, and it is the single most valuable consequence of having applied rather than appealed.

Then choose, because you cannot do both. An appeal against the penalty order is an appeal against the clause (b) order, so filing it destroys the condition in section 270AA(1)(c) and with it any further claim under the section, since sub-section (3) commands the grant only on fulfilment of the conditions in sub-section (1). The appeal is the course for an assessee who has given up on the section, and where the quantum is worth fighting it is often the better course. An assessee who intends to press for a direction to grant must not file it: he should move at once under Article 226, or by revision under section 264 against the rejection, and ask for liberty to appeal if the challenge fails. In that challenge, lead on the proposition that the conditions in sub-section (1) are satisfied and the grant is therefore mandatory, relying on Farah at paragraph 14 and on Ultimate Infratech; cite GE Capital for quashing a notice that does not identify the limb, not for a direction to grant. Plead the absence of a hearing second, because that ground produces a remand.

For an older penalty, the same sequence applies with the addition that the application will be out of time under sub-section (2), and the request for condonation, supported by Natarajan Anandh Kumar, has to be made on the face of the application rather than left to be argued later.

What this note does not settle

A reader is better served by being told what is open than by being given a confident answer that will not hold. On this subject that list is long.

Whether the widening reaches penalties and assessment years before 1 March 2026 has not been decided by any court, and the Board has said nothing.

Whether the additional income-tax paid under section 270AA(1)(b) is refundable, or adjustable against the penalty demand, if the application is refused.

Whether section 270AA(1)(b) can be complied with at all where no penalty order exists and the penalty is merely “leviable”, there being no notice of demand for the amount.

Whether a mixed assessment attracts one hundred per cent on the whole of the under-reported income or only on the misreported part. The revised form assumes bifurcation; the section does not say so.

Whether an order of assessment under section 153A or section 153C read with section 143(3) is within section 270AA(1)(a).

Whether an appeal filed and later withdrawn satisfies section 270AA(1)(c).

Whether an order under sub-section (4) passed beyond the three-month period is void or merely irregular, and whether the period can be extended; no decision has applied the three-month period at all.

What counts as initiation of a proceeding under Chapter XXII for the purposes of sub-section (3A).

Whether immunity granted to an assessee company protects its directors and officers from proceedings under section 278B.

Whether the form in Appendix II will be substituted to match the portal utility, and what the position is for an assessee who cannot reach the portal version. The utility has been rewritten around the penalty order, but no notification substituting the notified form has been traced.

Two matters of sourcing should also be stated. The text of Circular No. 5/2018 dated 16 August 2018 is taken here from reproductions in the professional press, the Board’s own file having proved unreadable at the time of writing. And reported citations for several of the judgments discussed above appear in digests that could not be checked against the printed reporters, which is why each case is cited by court, case number and date rather than by volume and page. The coram in Haren Textiles could not be confirmed and is therefore not stated. One further caution for a reader who checks the position for himself: the Department’s website serves more than one page for some sections, and the page reached by the obvious address for section 270AA still carried the pre-2026 text when this note was written, including “one month” in sub-section (4) and the old sub-section (3). The amended text set out above is taken from the current departmental page with its amendment footnotes, from the Finance Bill, 2026 and from the comparative table reproduced by the High Court in the order itself, all three of which agree.

Where this leaves the subject

Section 270AA has been quietly transformed. For nine years it was a modest convenience for the assessee with a small, uncontested addition under section 143(3), and a closed door for the assessee facing the serious charge. It is now a composition provision across the range of section 270A, priced at half the penalty it displaces, carrying immunity from two prosecutions, and, on the first judgment to consider it, mandatory once the conditions are met.

What it is not is a general amnesty. It does not reach a best judgment assessment, it does not reach a block assessment, and under the 1961 Act it does not reach the unexplained credits and investments that make up much of what is actually in dispute, because section 271AAC(2) keeps them out of section 270A altogether. The reader who takes away only the headline will file the wrong form against the wrong penalty.

What has replaced the old argument, for those the section does reach, is a narrower and more practical set of questions: whether the month has run, whether the money went in within the demand period, whether anything has started under Chapter XXII, and whether the quantum dispute is worth more than the penalty, net of the department’s surviving power to revise. Those are questions of diary management and commercial judgment rather than statutory construction, which is probably what Parliament intended.

Three things remain genuinely contestable and all three are worth watching. How far back the widening reaches, where the Memorandum points one way, the payment conditions point the other, and nobody has decided. Whether the second application reasoning survives contact with sub-section (5) finality in a case where the Revenue argues it properly. And the divergence between the two Acts, where the 1961 Act prices every misreporting case at one hundred per cent and excludes unexplained income entirely, while the 2025 Act will bring that income in and price it at one hundred and twenty. An assessee whose matter straddles 1 April 2026 will want to know which regime he is in, and the answer, for now, is section 536(2)(c).

Order: Farah Khurshed Titina v. Income Tax Officer, Ward 22(1)(6), Mumbai & Ors., Bombay High Court, Writ Petition No. 4002 of 2026, 5 October 2026 | Indian Kanoon

This note is general commentary on the law as at 09 October 2026 and is not advice on any matter. The position in a particular case depends on its own facts.