s.270A — Penalty for under-reporting and misreporting of income
A penalty of fifty per cent of the tax on under-reported income is imposed, rising to two hundred per cent where the under-reporting results from one of the six kinds of misreporting listed in sub-section (9).
Sub-section (11A), barring penalty on income on which additional income-tax is paid under section 140B(3A), was inserted by the Finance Act, 2026 (Act No. 4 of 2026) with effect from 1 March 2026, and the same Act substituted sub-sections (1) to (3A) of section 270AA from that date. The counterpart in the Income-tax Act, 2025 is section 439; penalty for any tax year beginning before 1 April 2026 may still be imposed under the 1961 Act by section 536(2)(d).
Income-tax Act, 1961
s.270A
Income-tax Act, 2025
s.439
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 270A of the Income-tax Act, 1961 allows the Assessing Officer, the Joint Commissioner (Appeals), the Commissioner (Appeals) or the Principal Commissioner or Commissioner, during any proceeding under the Act, to direct a person who has under-reported his income to pay a penalty in addition to tax. Sub-section (2) defines under-reporting by comparison: income assessed greater than income determined under section 143(1)(a), or than the maximum amount not chargeable where no return was filed or one was first filed under section 148; income reassessed greater than income previously assessed; parallel tests for deemed income under sections 115JB and 115JC; and an assessment that reduces a loss or converts it into income. Sub-section (6) excludes, among other things, an amount for which the assessee offers an explanation that the authority finds bona fide and has disclosed all the material facts to substantiate it. The penalty is fifty per cent of the tax on under-reported income under sub-section (7), and two hundred per cent under sub-section (8) where the under-reporting is in consequence of misreporting, which sub-section (9) confines to misrepresentation or suppression of facts, failure to record investments in the books, a claim of expenditure not substantiated by evidence, a false entry, failure to record a receipt having a bearing on total income, and failure to report a transaction to which Chapter X applies. Sub-section (11) bars a second penalty on the same addition, and sub-section (11A), from 1 March 2026, bars penalty on income on which additional income-tax is paid under section 140B(3A). Income under sections 68 to 69D carries section 271AAC instead. Section 270AA offers immunity or waiver on conditions, but not where prosecution under Chapter XXII has been initiated. The counterpart in the Income-tax Act, 2025 is section 439, with the rates in sub-sections (9) and (10) and the misreporting cases in sub-section (11). The Finance Act, 2026 added clause (g) to that list from 1 April 2026, income referred to in section 195(1)(b), so that unreturned unexplained income under sections 102 to 106 is misreporting; it omitted section 443, the ten per cent penalty that had applied to such income in place of section 439, and substituted section 440, which allows waiver of a clause (g) penalty on payment of additional income-tax of 120 per cent of the tax, against 100 per cent for the other cases.
What the provision does
Converts an addition into a penalty measured by tax: fifty per cent for under-reporting and two hundred per cent where the under-reporting results from one of six listed kinds of misreporting. It does not penalise an addition resting on a bona fide explanation with full disclosure, it does not apply under the 1961 Act to income under sections 68 to 69D or to years before assessment year 2017-18, and it does not survive the deletion of the addition on which it rests.
Threshold questions
- Does the income assessed exceed the income determined under section 143(1)(a), or the earlier assessment where the order is a reassessment
- Do the notice and the order say whether the charge is under-reporting or misreporting, and which limb of sub-section (9) is invoked
- Has the assessee offered a bona fide explanation and disclosed all the material facts to substantiate it
- Is the addition under sections 68 to 69D, which carries section 271AAC and not section 270A
- Does the addition on which the penalty rests survive in appeal
- Is immunity or waiver under section 270AA available on accepting the order and paying the tax and, in a misreporting case, additional income-tax equal to the tax on the under-reported income, with no prosecution initiated
In practice
The recurring disputes.
Redevelopment receipts and the misreporting rate
Assessing Officers have levied penalty at the misreporting rate on additions in redevelopment cases. Haresh Damji Shah, a tenant of a Dadar building at a monthly rent of Rs 77.49, did not answer a show-cause notice, and the Assessing Officer added Rs 1,82,96,708 under section 56(2)(x) for the ownership flat, parking, hardship compensation and other benefits he received for surrendering the tenancy; by an order of 3 December 2021 he then levied a penalty of Rs 1,26,80,260 for misreporting, which the Tribunal's order describes as levied under section 270A(9). The Mumbai Tribunal deleted the additions in the quantum appeal (ITA 4445/Mum/2025, 13 October 2025), and in the penalty appeal (ITA 1934/Mum/2026, assessment year 2018-19, 19 May 2026) quashed the penalty order because the foundation addition did not survive. It kept open, as academic, his grounds that the issue was a debatable legal question, that he was not properly served, and that the whole value had been taxed in his hands though the tenancy was held equally with his wife. In Seema Hasmukh Shah (July 2026) the quantum and penalty appeals were heard together and both the addition and the penalty were deleted. The member's wider argument is that treating hardship compensation, transit rent or a new flat as capital is a disclosed legal position within sub-section (6)(a), not a misrepresentation or suppression of facts. The Revenue's argument is that a member who leaves the agreement and the receipt out of the return has suppressed facts. No order sustaining a penalty on a member's hardship compensation or transit rent was found.
An order that does not name the limb
In Urmila Dhelia (ITA 4204/Mum/2025, assessment year 2018-19, 20 January 2026) the Mumbai Tribunal quashed a penalty of Rs 1,18,144 levied for misreporting after a reassessment, because neither the notice under section 274 nor the penalty order of 7 August 2023 specified the limb of sub-section (9), and the limb could not be discerned from the order read as a whole. It held that the Assessing Officer must show that the misreporting falls within one of the listed cases before levying two hundred per cent under sub-section (8), following a coordinate Bench in Hi-Tech Engineers (ITA 3165/Mum/2025, known only as cited in that order). This is a separate order from the same member's hardship compensation appeal for assessment year 2011-12 (ITA 4259/Mum/2025, 6 January 2026), where the ground against initiation of penalty under section 271(1)(c) was dismissed as premature. The penalty order does not say what the 2018-19 addition was, so it is authority on the limb and not on redevelopment receipts. The Revenue's answer is that the assessment order and the facts recorded make the charge plain and the assessee was not misled; the Tribunal's test leaves room for that only where the limb is unambiguously discernible from the penalty order itself.
Unexplained investment additions under the two Acts
Where a registered agreement or stamp duty information leads to an addition under section 69 for money paid for a flat or extra area, section 271AAC(2) keeps section 270A out under the 1961 Act, and the penalty is ten per cent of the tax under section 115BBE(1)(i), unless the income was returned and that tax paid by the end of the previous year. For years before assessment year 2017-18 neither section applies and the penalty provision is section 271(1)(c). In Paresh Mulayamchand Panday (May 2026) an addition of Rs 1.25 crore under section 69 was deleted because the member proved bank payments, and in Naresh Bansilal Jain (October 2025) the Tribunal said that if the claim of prior occupation failed, cash paid above the stamp duty value might need examination under section 69A, and left it to the remand. Under the 2025 Act, section 439(11)(g), inserted by the Finance Act, 2026 from 1 April 2026, treats income referred to in section 195(1)(b), the counterpart of section 115BBE(1)(b), as misreporting, which carries the two hundred per cent rate, and the ten per cent penalty in section 443 that had displaced section 439 was omitted from the same date. The Revenue will rely on the words; the assessee will say that the clause reaches only tax years from 2026-27, since section 536(2)(d) keeps earlier years under the 1961 Act, and that the penalty still fails if the addition does.