Section 270AA after the Finance Act 2026: Bombay High Court Allows Penalty Waiver for Misreporting

Can a taxpayer get a penalty for misreportingof income waived? And can the Assessing Officer refuse a fresh application merely because an earlier one was rejected? On 5 October 2026 the Bombay High Court answered both questions in the taxpayer’s favour. It read the Finance Act, 2026 amendment to Section 270AA of the Income-tax Act, 1961, and directed the Assessing Officer to grant the waiver.

The facts

The taxpayer’s return for AY 2024-25 was selected for scrutiny. During the assessment she found that certain Chapter VI-A deductions had been claimed in error. She recomputed her income and, on 22 September 2025, voluntarily paid additional tax and interest of ₹2,67,500.

The assessment was completed on 25 November 2025, accepting the revised income. Penalty proceedings under Section 270A were then initiated on the footing that the under-reporting was in consequence of misreporting.

The case then turned on two applications for immunity:

• First application. She applied in Form No. 68 on 23 December 2025. It was rejected on 1 January 2026, because the law then in force did not allow immunity in a misreporting case.
• Penalty. A penalty of ₹4,72,442 was imposed on 29 June 2026.
• Second application. Relying on the Finance Act, 2026 amendment, she paid additional income-tax of ₹2,36,221 on 21 July 2026 and applied again on 22 July 2026. The application was rejected on 23 July 2026, on two grounds: misreporting cases were still excluded, and a second application was not permitted.

What the Finance Act, 2026 changed

Section 21 of the Finance Act, 2026 substituted sub-sections (1) to (3) of Section 270AA. The new sub-sections are deemed to have been substituted with effect from 1 March 2026. Under the new text, an assessee may apply for immunity from, or waiver of, the Section 270A penalty, and immunity from prosecution under Sections 276C and 276CC. Three conditions must all be met:

• the tax and interest payable under the assessment or reassessment order have been paid within the period in the notice of demand;
• in a misreporting case (Section 270A(9)), additional income-tax of 100% of the tax payable on the under-reported income has been paid within the period in the notice of demand, in lieu of the penalty;
• no appeal has been filed against those orders.

The application must be made within one month from the end of the month in which the orders are received. The Assessing Officer shall then grant the immunity or waiver, after the appeal period under Section 249(2)(b) has expired. No immunity or waiver is available where proceedings have been initiated under Chapter XXII (prosecution): new sub-section (3A).

What the Court held

1. Misreporting is no longer a bar

Under the amended Section 270AA, an application can be entertained even where the penalty was imposed for misreporting. Rejecting the second application on the ground that the case involved misreporting applied a restriction the amended law no longer contains.

2. An earlier rejection does not bar a fresh application

The Revenue argued that the taxpayer had used up the remedy with her first application. The Court disagreed. The amended Section 270AA(2) allows an application within one month of the month in which the assessment order and the penalty order are received. That was a remedy the earlier text did not give in this form. The amendment created a fresh cause of action, and the rejection under the old law did not extinguish it.

3. No remand: the waiver must be granted

The Revenue did not dispute that the amended conditions in Section 270AA(1) were met. Once they are met and the appeal period has expired, Section 270AA(3) obliges the Assessing Officer to grant the relief. The Court therefore saw no purpose in sending the matter back. It quashed the order of 23 July 2026 and directed the Assessing Officer to grant the waiver and immunity within four weeks of the order being brought to the officer’s attention.

Which law applies to older years

The case concerned AY 2024-25, which remains under the Income-tax Act, 1961. Section 536(2)(c) and (d) of the Income-tax Act, 2025 continue the 1961 Act, including its penalty provisions, for proceedings in respect of tax years beginning before 1 April 2026.

One further change is coming. For assessments and reassessments made on or after 1 April 2027 for AY 2026-27 or any earlier year, the Section 270A penalty will form part of the assessment order itself. This comes from the new Section 274(4), inserted by the Finance Act, 2026.

What taxpayers should do now

• Revisit misreporting penalties. A penalty characterised as misreporting is no longer, by that fact alone, outside Section 270AA.
• Revisit rejected applications. If an application was rejected under the pre-amendment law, check whether the amendment gives a fresh basis to apply, and whether you are still within time.
• Diarise the one-month window. It runs from the end of the month in which the assessment and penalty orders are received.
• Budget the 100% additional tax separately from the tax and interest under the assessment order. Both must be paid within the demand-notice period.
• Decide on appeal deliberately. Filing an appeal defeats the application. Do not withdraw an appeal on the assumption that a waiver will follow; assess eligibility first.
• Check for prosecution proceedings. If any have been initiated under Chapter XXII, sub-section (3A) excludes relief.

How RDA can help

RDA Tax Advisory Services reviews Section 270A penalty orders. We assess eligibility under the amended Section 270AA and examine earlier rejection orders. We also work out the dates, payments and procedural route for a waiver application. See our tax litigation support and our guide to income-tax notices.

General information only. Eligibility for immunity or waiver depends on the orders, dates, payments and facts of each case, and on the law applicable to the assessment year. This is not a case-specific legal or tax opinion.