If a taxpayer is not told which specific legal provision forms the basis of the proposed penalty, the subsequent penalty proceedings are vitiated. (Image for representative purpose only)
You don’t file your income tax return (ITR) and declare your income only when the Income Tax Department sends you a notice. You face a 200% penalty but the Income Tax Appellate Tribunal (ITAT) gives you relief on a technical ground.This is the case of a man in Jaipur who faced the situation, but got relief due to an error from the Income Tax Department. Let’s take a look:
What the case is about
The man in this case failed to file his income tax return, and the Income Tax Department issued him a notice. He subsequently responded by filing an ITR for assessment year (AY) 2018-19, reporting an income of Rs 12.9 lakh.However, the Income Tax Assessing Officer (AO) took the view that this income would have remained outside the tax net had the department not issued the notice to the man.
With this view, the AO, therefore, initiated penalty proceedings under Section 270A of the Income Tax Act.Also Read | She received Rs 9.04 lakh leave encashment on retiring from LIC; taxman allowed only Rs 3 lakh exemption, but ITAT Jaipur grants relief even after 1,277-day appeal delayWhat this provision does is it allows a penalty of up to 200% of the tax that is payable in cases which involve misreporting of income. In this case, the tax payable on the unreported income of Rs 12.9 lakh worked out to be around Rs 1.99 lakh. The AO consequently imposed the full 200% penalty of Rs 3.99 lakh.
The Commissioner of Appeals (CIT(A)) also upheld the penalty, prompting the man to approach ITAT in Jaipur.On September 23, 2026, the ITAT Jaipur ruled in the man’s favour and set aside the penalty.
Why did taxpayer win the case?
Pranshu G, Partner at Ashok Pranshu & Co, told ET that the key issue was the AO's decision to impose the higher, 200% penalty for misreporting without specifying which particular clause of Section 270A(9) the man had allegedly violated.The ITAT found that neither the assessment order nor the penalty notice contained the necessary satisfaction identifying the alleged offence. As a result, the man had not been informed of the precise charge he was expected to contest.Also Read | She bought shares for Rs 13.5 lakh and sold them for Rs 77.47 lakh after 18 months; taxman denied capital gains exemption, but ITAT gives relief and deletes Rs 79 lakh in additionsOn examining the penalty notice issued to the man, ITAT Jaipur found that the document did not mention which specific limb of Section 270A(9) was being invoked to penalise him.The tribunal also pointed out the same deficiency in the assessment order. It 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.”The ITAT observed that the law is well settled on this point. If a taxpayer is not told which specific legal provision forms the basis of the proposed penalty, the subsequent penalty proceedings are vitiated.To support its conclusion, the tribunal referred to the Rajasthan High Court's ruling in G.R. Infraprojects Limited vs. ACIT, D.B Civil Writ Petition No. 5594/2023, decided on January 2, 2024.An important additional point in the order is that the man’s declared income was accepted in the assessment without any addition or variation. The judgment also records that no revenue loss accrued to the department.The man had raised the absence of any addition or variation as a ground of appeal.
However, the tribunal's stated basis for quashing the penalty was the failure to record the required satisfaction and specify the relevant provision of Section 270A(9).After considering the facts and the judicial precedents, the ITAT Jaipur concluded that the AO had failed to record the necessary satisfaction in the assessment order about which limb of Section 270A applied to the case. The AO had also omitted to specify the relevant part of Section 270A(9) in the notice issued under Section 274 read with Section 270A.The tribunal held that these omissions undermined the validity of the entire penalty proceedings. Consequently, the penalty imposed by the AO and subsequently upheld by the CIT(A) could not be sustained. The ITAT Jaipur therefore quashed the penalty.Also Read | Woman applied for 130 IPO shares, bank entered only 65; consumer commission awards Rs 37,000 for deficient service but rejects her Rs 40 lakh compensation claim
When is penalty under Section 270A imposed?
Pranshu explains that Section 270A distinguishes between under-reporting of income and the more serious offence of misreporting. In ordinary cases of under-reported income, the penalty is 50% of the tax payable on the amount under-reported.The higher penalty of 200% applies only when the under-reporting arises from specific forms of misreporting listed under Section 270A(9). These include suppressing or misrepresenting facts, failing to record investments or receipts, making false entries in books of account, claiming expenditure without supporting evidence, and not reporting certain specified transactions.The detection of additional income, or a taxpayer's decision to offer such income for taxation, does not by itself automatically attract the 200% penalty.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."Also Read | Rs 5.89 crore FD interest slashed from 7.75% to 3.5% without notice; Delhi High Court rejects bank’s non-renewal argument and orders interest at an average of earlier rates