An assessee can appeal against a penalty order under Section 270A of the Income Tax Act, 1961—Penalty for under-reporting and misreporting of income—before the Commissioner of Income Tax (Appeals) [CIT(A)] or the Income Tax Appellate Tribunal (ITAT), depending on the stage and scope. Below are key grounds on which such a penalty order can be challenged:
⚖️ Possible Grounds for Appeal Against Section 270A Penalty Order
1. No Under-Reported Income
- The assessee may argue that there is no under-reported income, as assessed by the Assessing Officer (AO), due to:
- Incorrect computation of total income
- Acceptance of valid claims or deductions
- Disallowances based on interpretation
2. Bona Fide Mistake / Reasonable Cause [Section 270A(6)]
- Certain cases are excluded from being treated as under-reporting, such as:
- Bona fide computational errors
- Income disclosed in return but disallowed on interpretation
- Transfer pricing adjustments made voluntarily
- Income assessed as per Section 115JB (MAT) or 115JC (AMT), if book profit not inaccurate
Assessee can argue these exclusions apply.
3. No Mens Rea (for Misreporting)
- Misreporting attracts 200% penalty (as against 50% for under-reporting).
- Assessee can argue there was no intention to mislead, and the error was not deliberate.
- Common examples:
- Income estimated but not concealed
- Reliance on professional advice
- Misreporting not fitting into categories in Section 270A(9) (e.g. suppression of facts, fake invoices)
4. Procedural Defects / Natural Justice Violation
- No proper show cause notice was issued before levy
- Opportunity of being heard not given
- Lack of clear reasoning or non-speaking order
- Order passed without jurisdiction or beyond time limits
5. Disclosure Made in Return or Revised Return
- Penalty can’t be levied if:
- Income is voluntarily disclosed in the original return
- Revised return filed before detection
[Ref: SC in Price Waterhouse Coopers Pvt Ltd vs CIT – genuine mistake not liable for penalty]
6. Appeal Pending on Quantum Assessment
- If the quantum addition (income enhancement) is under appeal, and:
- Assessee has a strong prima facie case, or
- Addition is later deleted or modified,
then penalty under section 270A will not survive.
7. Penalty Imposed without Satisfaction
- Assessee can argue AO has not recorded satisfaction that the case involves under-reporting/misreporting at the time of initiating penalty proceedings.
8. Incorrect Classification of Misreporting Instead of Underreporting
- Arguing that the alleged misreporting is not wilful but at most under-reporting, to reduce penalty from 200% to 50%.
🔁 Remedies Available
| Forum | When to Approach |
|---|---|
| CIT(A) | Within 30 days of receiving penalty order |
| ITAT | If CIT(A) confirms penalty |
| High Court / SC | Only on substantial question of law |
✅ Best Practices While Appealing
- File a well-reasoned appeal with documentary evidence
- Emphasize disclosure, bona fide conduct, and reasonableness
-
Ensure procedural safeguards were followed by the AO