Penalty u/s 270A - Non Reporting of Business Income

Applicability of Section 270A: Under-reporting vs Misreporting

• Section 270A(1): Provides for penalty if a person has under-reported income.

• Section 270A(8): Provides that under-reporting will be treated as misreporting in certain circumstances (e.g. misrepresentation, suppression of facts, failure to report income, etc.).

 In your case:

• The assessee filed ITR-1, which does not permit reporting of business income.

• However, business income was discovered during survey.

• This constitutes a failure to report income that was clearly known to the assessee.

Therefore, this falls under “Misreporting of Income” under Section 270A(9)(a): “misrepresentation or suppression of facts”.

Penalty Rate: 50% or 200%? Can AO impose in between (e.g., 75%, 100%)?

• For under-reporting (not misreporting): Penalty is 50% of tax on under-reported income.

• For misreporting (like in your case): Penalty is 200% of tax on under-reported income.

There is no discretion given to the AO to choose any rate between 50% and 200%. It is either:

• 50% – for under-reporting, or

• 200% – for misreporting.

So, penalty will be fixed at 200% of the tax on business income (i.e., the under-reported portion).

Thank you for the reply. Now I am little bit not clear as whether this will not constituted as "Misreporting".

Section 270A does not make every unreported business receipt “misreporting”. If the business income is assessed and the case falls under section 270A(2), the usual starting point is under-reporting, attracting 50% of the tax payable on the under-reported income under section 270A(7). The 200% rate applies only if the under-reporting is in consequence of misreporting as defined in section 270A(9)—for example, misrepresentation or suppression of facts, or recording a false entry. The Assessing Officer must identify and support the applicable clause; omission from ITR-1 alone does not automatically establish misreporting.

• The 50% and 200% figures are percentages of tax payable on under-reported income, not percentages of the business income itself.
• Section 270A(8) prescribes 200% where misreporting is established; it is not a general range of 50%–200%. A 75%, 100% or 125% rate is not ordinarily available under these provisions.
• Check whether the income is ultimately assessed, the explanation and evidence for its omission, and whether the statutory exceptions in section 270A(6) apply. These facts, and the assessment order’s findings, determine the outcome.

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