Section 270A of ITA, 1961 : Section 270A: Penalty For Under Reporting And Misreporting Of Income

Explanation using Example

Imagine a scenario where Mr. Sharma, a business owner, files his income tax return for the financial year stating his income as INR 10 lakhs. After a detailed scrutiny, the Income Tax Department finds that Mr. Sharma had not reported INR 2 lakhs of income that he earned from a side business. Therefore, his actual income for the year should have been INR 12 lakhs.

As per Section 270A of the Income-tax Act, 1961, Mr. Sharma has under-reported his income because the income assessed (INR 12 lakhs) is greater than the income determined in the return processed (INR 10 lakhs). Consequently, the Assessing Officer may direct Mr. Sharma to pay a penalty in addition to the tax due on the under-reported income of INR 2 lakhs.

The penalty for under-reporting is generally 50% of the tax payable on the under-reported income. However, if the under-reporting is due to misreporting (like suppression of facts or failure to record income), the penalty could be as high as 200% of the tax payable on the under-reported income.