s.270AA — Immunity from penalty, and waiver of one already levied

Currently operative

Income-tax Act, 1961

s.270AA

Income-tax Act, 2025

s.440

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 270AA allows an assessee who accepts an assessment under section 143(3) or a reassessment under section 147, pays the tax and interest within the period specified in the notice of demand and files no appeal, to obtain immunity from penalty under section 270A and from prosecution under sections 276C and 276CC. Until 1 March 2026 the closing words of sub-section (3) withheld the grant where penalty had been initiated under the misreporting circumstances in section 270A(9). The Finance Act, 2026 (Act No. 4 of 2026) substituted sub-sections (1), (2), (3) and (3A) for sub-sections (1), (2) and (3). Misreporting is no longer a disqualification; it is priced, at additional income-tax of one hundred per cent of the tax payable on the under-reported income, in lieu of the penalty, which is half the two hundred per cent that section 270A(8) would charge. The relief now extends to waiver of a penalty already levied, and the penalty order is itself a trigger for the one-month period in sub-section (2). The only remaining bar of its kind is sub-section (3A), which refuses the grant where any proceeding has been initiated under Chapter XXII. The corresponding provision in the Income-tax Act, 2025 is section 440, which is not a copy: it commences on 1 April 2026 for tax year 2026-27 onwards with no backward reach, it is confined to waiver of a penalty already levied, and it charges one hundred and twenty per cent where the misreporting is of income determined under section 195(1)(b).

What the provision does

Offers a statutory composition for a section 270A penalty, and immunity from two named prosecutions, in exchange for the tax, the interest, where misreporting is alleged a further one hundred per cent, and the assessee's own right of appeal and revision against the assessment. It does not touch the department's power of revision under section 263, and it reaches no penalty other than one under section 270A.

Threshold questions

Is the order one of assessment under section 143(3) or reassessment under section 147; an original assessment under section 144 and an intimation under section 143(1) are outside section 270AA(1)(a)
Is the penalty actually under section 270A; section 271AAC(2) keeps income under sections 68 to 69D out of section 270A, and a block assessment carries section 158BFA instead
Were the tax and interest paid within the period specified in the notice of demand
Where misreporting is alleged, was additional income-tax of one hundred per cent of the tax on the under-reported income paid within the demand period
Has an appeal been filed against the assessment order or the penalty order; either defeats section 270AA(1)(c)
Is the application within one month from the end of the month in which the later of the two orders was received
Has any proceeding been initiated under Chapter XXII

The recurring disputes.

How far back the widening reaches

The substituted sub-sections carry no restriction by assessment year, and the Memorandum to the Finance Bill, 2026 says the amendment takes effect from 1 March 2026 for assessment year 2026-27 or any earlier assessment year. Against that, clauses (a) and (b) of section 270AA(1) require payment within the period specified in the notice of demand, which for an old order has closed and is a condition of eligibility rather than a period of limitation. No circular and no judgment has settled it.

Whether the grant is mandatory

Sub-section (3) says the officer shall grant. In Farah Khurshed Titina the Bombay High Court held on 5 October 2026 that once the sub-section (1) conditions are fulfilled the grant is mandatory. The Revenue's answer is that sub-section (4) empowers the officer to reject and surrounds rejection with a hearing, which implies something to decide, and that sub-section (3A) sits outside sub-section (1) and must also be satisfied. Against that stands a change made in the substitution itself: sub-section (3) opened with "shall, subject to fulfilment of the conditions" and now opens with "shall, on fulfilment of the conditions".

Whether a second application is competent

Farah Khurshed Titina holds that the amendment created a fresh cause of action, because the penalty order is a trigger that did not exist before, so a rejection under the old law does not bar a fresh application. The counter is sub-section (5), which makes the earlier order final. The reasoning helps only where the ground of the first rejection is one the amendment has removed.

What happens to the one hundred per cent if the application fails

The payment under section 270AA(1)(b) is neither tax on income nor a penalty. The section does not provide for its refund, nor for its adjustment against the penalty demand if the penalty survives, and the refund machinery in section 237 does not obviously reach it. No decision has considered it, and a client should be told so before he pays.

The form has moved ahead of the rules

The application is made in Form No. 68 under rule 129. The form published in Appendix II is still the 2016 form, built around the assessment order, but the utility the e-filing portal serves has been rebuilt for the amended section: it asks for the section, date and date of service of the penalty order and its Document Identification Number, splits out the income falling under section 270A(9) and the penalty levied or leviable, and takes a challan row for each payment. Sub-section (2) requires the application to be made in the prescribed form, so a divergence between the notified form and the utility is a statutory question and not merely an inconvenience. Two traps follow: the printed declaration is now keyed to the penalty order, so the annexure must separately declare that no appeal has been filed against the assessment order, and field 6(a)(ii) is not the base for the hundred per cent, which is the tax under section 270A(10) and equals exactly half the penalty at field 5(b) where the penalty is at two hundred per cent.

Frequently asked.

Can immunity be claimed where the penalty is for misreporting?

For applications governed by the section as substituted on 1 March 2026, yes, on payment of additional income-tax of one hundred per cent of the tax payable on the under-reported income. Before that date the closing words of sub-section (3) withheld the grant in such cases, and a rejection on that ground was good.

Does section 270AA help against a penalty on a cash credit addition?

Not under the Income-tax Act, 1961. Income under sections 68 to 69D carries a penalty under section 271AAC, and section 271AAC(2) provides that no penalty under section 270A shall be imposed on that income, so there is nothing for section 270AA to waive. The position changes under the Income-tax Act, 2025, which folds the same income into misreporting under section 439(11)(g).

What is given up by accepting immunity?

The assessee's own remedies against the assessment. Sub-section (6) bars an appeal under section 246 or section 246A and a revision application under section 264 against the assessment order once the application has been accepted. It does not bar rectification under section 154, and it does not bar the Commissioner from revising the same assessment under section 263.

How long does the officer have to decide?

Three months from the end of the month in which the application is received, the period having been raised from one month by Act No. 7 of 2025 with effect from 1 April 2025. He cannot decide before the appeal period in section 249(2)(b) has run. No order rejecting the application may be passed without giving the assessee an opportunity of being heard.