When Mr Sharma from Sikar, near Jaipur, did not file any income tax return, the Income Tax Department sent him a tax notice. In response to this tax notice, Sharma filed an ITR declaring Rs 12.9 lakh income for AY 2018-19. However, the Income Tax Assessing Officer (AO) believed that if he had not sent a tax notice, Sharma’s Rs 12.9 lakh income would have escaped the tax net. So the AO initiated tax penalty proceedings under Section 270A. According to the law, the AO could have levied up to 200% of the tax owed. The tax payable on Rs 12.9 lakh unreported income came to Rs 1.99 lakh. So the AO levied Rs 3.99 lakh penalty on Sharma (200%).
The Commissioner of Appeals (CIT A) confirmed this penalty. Sharma then hired Advocate Shafi Mohammad Chouhan and Advocate Sahil Shafi Chouhan to appeal to the Income Tax Appellate Tribunal (ITAT) in Jaipur.
On September 23, 2026 Sharma won the case in ITAT Jaipur.
Why did Sharma win?
Pranshu G, Partner at Ashok Pranshu & Co, said to ET Wealth Online that Sharma succeeded because the Assessing Officer invoked the stringent 200% penalty for misreporting without identifying which specific clause of Section 270A(9) was allegedly violated. The ITAT held that neither the assessment order nor the penalty notice recorded this essential satisfaction, leaving Sharma unaware of the precise charge he had to defend.
Thus ITAT Jaipur following the Rajasthan High Court case in G.R. Infraprojects, treated the proceedings as vitiated and quashed the penalty against Sharma.
Importantly, the ITAT Jaipur quashed the proceedings; it did not remand the matter for issuing a fresh notice. In my view, the Department cannot ordinarily cure this foundational defect simply by starting afresh now. Any fresh action would additionally have to satisfy the statutory limitation requirements and cannot be assumed to revive merely because the original notice was defective
When is penalty under Section 270A imposed?
Pranshu says that Section 270A creates an important distinction between under-reporting and the more serious category of misreporting. Ordinarily, where income is under-reported, the penalty is 50% of the tax payable on such under-reported income. The enhanced 200% penalty applies only where the under-reporting results from one of the specified forms of misreporting under Section 270A(9), such as suppression or misrepresentation of facts, unrecorded investments or receipts, false book entries, expenditure unsupported by evidence, or failure to report specified transactions.
Therefore, a 200% penalty is not automatic merely because additional income is detected or offered.
Pranshu says: "The Assessing Officer must establish misreporting and clearly identify the specific statutory limb invoked. This distinction is significant because Section 270A also excludes certain bona fide explanations and specified estimation-related situations from under-reported income."
ITAT Jaipur discussion
Income Tax Department made a technical mistake
ITAT Jaipur said that when they reviewed the tax penalty notice sent to Sharma, it was apparent that it was not recorded under which part of Section 270A(9), Sharma was going to be charged/penalised.
ITAT Jaipur said: “Similarly, when we see the assessment order, again proper satisfaction has not been recorded by the Assessing Officer as to under which part of Section 270A(9), the Act stood violated.”
ITAT Jaipur said that it is a settled principle of law that when an assessee has not been informed under which the provisions of the law he is going to be charged or penalised, the subsequent penalty proceedings get vitiated.
ITAT Jaipur cited the case of the Hon’ble High Court of Rajasthan at Jodhpur in case of G.R. Infraprojects Limited vs. ACIT, D.B Civil Writ Petition No. 5594/2023 vide order dated 02.01.2024, where the court decided the identical issue by holding that when the Assessing Officer has failed to specify which part of the sub-Section (9) of Section 270A is attracted in the case of the petitioner-company, the specific initiation is nonest (incorrect).
ITAT Jaipur also cited a Coordinate Bench of ITAT Delhi’s decision which has also decided an identical issue in the case cited as Greenwoods Govt. Officers Welfare Society vs. DCIT 160 taxmann.com 105 (2024) (ITAT Delhi) by deleting the penalty on the grounds that when limb has not been specified, the penalty is not sustainable.
Similarly, Hon’ble Delhi High Court in case of GE Capital US Holding INC (2024) 163 taxmann.com 146 (Delhi) also held that when the show-cause notice does not specify the limb under which assessee is being charged/penalized, the order is liable to be quashed.
Sharma wins tax penalty case in ITAT Jaipur
ITAT Jaipur ruled that they are of the view that the AO failed to record the satisfaction while framing assessment as to under which of the limbs, Sharma was going to be penalised and the AO further failed to specify in the notice issued under Section 274 read with Section 270A, as to under which part of proceedings under Section 270A(9), which vitiated the entire penalty proceedings. Hence, the penalty levied by the AO and confirmed by the CIT(A) was not sustainable, and hence quashed.