Penalty for under reporting and misreporting of income

1. According to Section 270A of the Income Tax Act, if an individual underreports or misreports their income, an assessing officer (AO), a commissioner (appeals), a principal commissioner, or a commissioner may order them to pay a penalty of 50% and 200% of the tax due for under reporting and misreporting respectively.

2. Under-reporting income occurs when a person discloses a smaller amount than their actual income. This can happen for various reasons, such as poor record-keeping or factual mistakes in calculating income.

3. Misreporting of income includes giving wrong or faulty information related to the type, source or measurement of income. This can consist of falsifying income details, claiming benefits or breaks that are not legally permitted, or giving false information about the income sources.

Immunity:
1. Section 270AA of the Income Tax Act provides immunity from penalty and prosecution in case of under-reporting of income.

2. The said provision provides immunity from imposition of penalty under section 270A and initiation of prosecution in respect of cases of under-reporting of income if the tax and the interest payable as per the assessment or the reassessment order is paid within the period specified in the notice of demand i.e. within 30 days of the service of notice and also if no appeal has been filed against the assessment or the reassessment order.

3. It may be noted that this benefit of immunity will be available only in case of under-reporting of income and not in cases of mis-reporting of income.

Some case laws:
1. The immunity under s. 270AA could be denied only in cases of misreporting, which the SCNs failed to specify and so immunity may be granted. (GE Capital US Holdings Inc.: [2024] 163 taxmann 146 (Delhi)

2. Revenue merely stated misreporting of income in the assessment order to deny immunity from imposition of penalty which is manifestly arbitrary and failed to show which ingredient of Section 270A(9) got satisfied. The Delhi HC quashed the penalty order. Schneider Electric South East Asia (HQ) PTE Ltd Vs ACIT (Delhi High Court) W.P.(C) 5111/2022 & C.M.Nos.15165-15166/2022

3. The penalty order lacked a proper discussion on why the provided explanation against the SCN was deemed unacceptable. The penalty order was not sustainable. (Chitra Ramanathan Versus Income Tax Officer: ITAT-Chennai: I.T.A. No.374/Chny/2023)

4. The assessee submitted application before the AO in Form No. 68 in terms of section  270AA(2)  seeking immunity from imposition of penalty under section 270A of the Act . However no order under section 270AA had been passed by the jurisdictional Assessing Officer within the statutory time line . The HC held that  the  object of the section is to recover tax demand and reduce protracted litigation. (NIRMAN OVERSEAS PRIVATE LIMITED: W.P.(C) 5839/2022)