Relief from Penalties Under Section 270A Due to Legal Precedents and Calculation Errors

1. Penalty Protection: Bona Fide Reliance on Legal Precedent

Title: [Protection from Penalty Under Section 270A(6) When Deduction is Based on Then-Binding High Court Precedents]

The Issue: An assessee claimed a deduction based on a High Court decision that was valid at the time of filing the return. Later, the Supreme Court overruled that decision, making the deduction inadmissible. The Assessing Officer (AO) then levied a penalty for “under-reporting of income.”
The Ruling: Under Section 270A(6)(a), “under-reported income” shall not include amounts where the assessee offers a bona fide explanation and discloses all material facts.
The Logic: Since the assessee followed a binding legal precedent (High Court order) existing at the time of the return, their claim was considered prima facie bona fide. A subsequent change in law by the Supreme Court does not retroactively turn an honest claim into a case of willful under-reporting.
Outcome: In favor of Assessee. The penalty was found to be unsustainable.

2. Jurisdictional Requirement: Assessed Income vs. Processed Income

Title: [Ad-Interim Stay on Penalty Under Section 270A Where Assessed Income Does Not Exceed Processed Income]

The Issue: A penalty was levied under Section 270A, and a revision petition under Section 264 was rejected. The assessee filed a writ petition seeking a stay.
The Ruling: According to Section 270A(2), “under-reporting” is specifically defined. It primarily arises when the income assessed (under Section 143(3) or 147) is greater than the income determined/processed under Section 143(1)(a).
The Logic: If the final assessed income is not higher than the income originally processed in the summary assessment (Intimation), the very definition of “under-reporting” is not met. Without meeting this statutory threshold, the initiation of penalty proceedings is legally flawed.
Outcome: In favor of Assessee. The court granted an ad-interim stay on the penalty.

Key Takeaways for Taxpayers

The “Bona Fide” Shield: If your tax position is supported by a High Court ruling or a Circular, even if it is later reversed, you are generally protected from penalties under the “bona fide explanation” clause of Section 270A(6).
Check the Math: Always compare your 143(1) Intimation total income with the final 143(3) Assessment Order total income. If the latter is equal to or less than the former, no penalty for “under-reporting” can be legally initiated under the standard clauses of Section 270A.
Disclosure is Key: To avail of the protection under Section 270A(6), ensure that all material facts regarding your claim or deduction are fully disclosed in the return or during the assessment proceedings.

HIGH COURT OF BOMBAY

GM Modular (P.) Ltd.

Principal Commissioner of Income-tax^*

B. P. COLABAWALLA and FIRDOSH P. POONIWALLA, JJ.

WRIT PETITION NO. 378 OF 2026

JANUARY 27, 2026

Dharan Gandhi and Aanchal Vyas, Advs. for the Petitioner.

ORDER

1. The present Petition is filed by the Petitioner to quash and set aside the impugned order dated 20^th March, 2025 passed by Respondent No.1 under Section 264 of the Income Tax Act, 1961 and also the Penalty Order dated 29^th January, 2024 passed by Respondent No.2 under Section 270A of the IT Act.

2. The short point in the present case is whether the penalty could have been levied under Section 270A in the light of the fact that, according to the Petitioner, there was no under reporting of income because the income offered to tax, in the return of income, was as per the decision of this Court in the case of CIT, (Central) v. Ghatge Patil Transports Ltd. [2014] 368 ITR 749 (Bombay)/[2014] (10) TMI 999 -Bombay High Court. Hence, on the date when the return of income was filed, the deduction claimed by the Petitioner was as per the aforesaid decision. However, subsequently it appears that the ratio laid down in the Ghatge Patil Transports Ltd.(supra) decision was over ruled by the Hon’ble Supreme Court in the case of Checkmate Services (P.) Ltd v. CIT ITR 518 (SC). It is the submission of the Petitioner that, in such a scenario, there can never be under reporting of income and this is also made clear when one peruses Section 270A(6) of the IT Act. It is on this basis that the Petitioner seeks the quashing of the penalty Order dated 29^th January, 2024. As far as the Order passed by Respondent No.1 under Section 264 is concerned, it is challenged on the basis that the said Order is virtually a non-speaking order and does not take into consideration either the provisions of Section 270A(6) or Section 270A (2) of the IT Act. According to the Petitioner, the Revisional Authority has proceeded on a completely wrong premise and has dismissed the Revision Application filed by the Petitioner.

3. We have heard the learned counsel for the Petitioner on this limited aspect. We find that this Writ Petition is coming up for the first time. We, therefore, direct the Petitioner to serve the Respondents privately, returnable on 10^th February, 2026.

4. As far as the ad-interim relief is concerned, prima facie, we find considerable force in the arguments canvassed on behalf of the Petitioner. Section 270A (6) [the provision under which penalty is levied], inter alia stipulates that under reported income, for the purposes of Section 270A, shall not include, amongst other things, the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bonafide and the assessee has disclosed all the material facts to substantiate the explanation offered. In the present case, the explanation offered by the Petitioner is that on the date of the filing of the return of income, the Petitioner was entitled to the deduction as per the decision of this Court in Ghatge Patil Transports Ltd. (supra). Once this is the case, the explanation was bonafide and the Assessing Officer could never have come to the conclusion that there was any under reporting of income. If there was no under reporting of income, there was no question of levying any penalty under Section 270A.

5. This is apart from the fact that under reporting of income can arise [under Section 270A (2)] only when the income assessed under Section 143(3) is higher than the income determined in the return processed under Section 143(1)(a) of the IT Act. In the present case, atleast prima facie, the assessed income [under Section 143(3)], as per the Appellate Order, is not greater than the income processed under Section 143(1) (a). On this count also, atleast prima facie, we find that no penalty proceedings could have been initiated or any order passed under Section 270A of the IT Act. We, therefore, find that a strong prima facie case is made out for grant of ad-interim relief. Accordingly, there will be ad-interim relief staying the operation of the penalty order dated 29^th January, 2024 passed by Respondent No.2 under Section 270A of the IT Act. In other words, no coercive action shall be taken by the Income Tax Department pursuant to the penalty order passed by Respondent No.2.

6. We now place the above matter on 10^th February, 2026 ‘for ad-interim reliefs’. We put the parties to notice that we may dispose of the Writ Petition at that stage itself, time permitting.

7. Since, we have directed the Petitioner to serve the papers and proceedings in the above Writ Petition on the Respondents, we also direct that along with a copy of the Writ Petition, a copy of this Order shall also be served on the Respondents.

8. Stand over to 10^th February, 2026.

9. This order will be digitally signed by the Private Secretary/Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.