Court holds that post Finance Act, 2026 amendments, waiver applications under Section 270AA can be filed even after penalty imposition and in cases of misreporting of income; second application within one month of penalty order maintainable and waiver mandatory once conditions fulfilled.
In a significant judgment delivered on October 5, 2026, the Bombay High Court (Division Bench comprising Justices B.P. Colabawalla and Farhan P. Dubash) ruled in favor of Farah Khurshed Titina against the Income Tax Officer, Ward 22(1)(6), Mumbai, concerning the waiver of penalty imposed under Section 270A of the Income Tax Act, 1961.
The dispute arose after the petitioner's income was selected for scrutiny for the Assessment Year 2024-25. Upon review, the petitioner discovered inadvertent erroneous claims under Chapter VI-A deductions and voluntarily revised her income computation, paying additional tax and interest. The Assessing Officer (AO), while accepting the revised income, initiated penalty proceedings for under-reporting attributable to misreporting and levied a penalty of Rs. 4,72,442.
Initially, the petitioner filed an application under Section 270AA of the Income Tax Act seeking immunity from penalty. This application was rejected by the AO on the ground that immunity could not be granted in cases of misreporting of income, as per the law prior to amendments introduced by the Finance Act, 2026. After the penalty order was passed, the petitioner filed a second application for waiver within one month of receiving the penalty order, relying on the amendments effective from March 1, 2026, which permitted waiver applications even in cases of misreporting and post penalty imposition.
The AO rejected this second application, asserting that the petitioner could not file a second waiver application and reiterated the pre-amendment position disallowing waiver in misreporting cases.
The petitioner challenged this rejection through a writ petition before the Bombay High Court.
The Court analyzed the pre- and post-amendment provisions of Section 270AA, highlighting key changes brought by the Finance Act, 2026:
- - Before the amendment, Section 270AA did not permit waiver applications in cases where penalty proceedings were initiated under Section 270A(9) (misreporting of income).
- - Post amendment, the statute explicitly allows filing applications for waiver or immunity even after penalty orders are passed and in cases involving misreporting of income, subject to payment of additional income tax equal to 100% of the tax on under-reported income.
- - The amendment also introduced a new timeline allowing waiver applications within one month from the end of the month in which the penalty order is received, creating a fresh cause of action.
Relying on these legislative changes, the Court held that:
- 1. The AO erred in rejecting the second waiver application on the basis that the penalty was levied for misreporting, as the amended law permits waiver in such cases.
- 2. The second waiver application was maintainable despite the earlier rejection because the amendment created a new right and cause of action.
- 3. Since the petitioner fulfilled all conditions under Section 270AA(1) (payment of tax and interest, additional tax in lieu of penalty, and no appeal filed), the AO was mandatorily bound to grant the waiver and immunity from proceedings under Sections 276C or 276CC.
The Court quashed the impugned order dated July 23, 2026, and directed the AO to grant the waiver and immunity within four weeks.
This ruling provides important clarity and relief to taxpayers seeking penalty waivers under the amended Income Tax Act, emphasizing that legislative changes by the Finance Act, 2026 must be applied to permit waiver applications post penalty and in cases involving misreporting.
Bottom Line:
Income Tax Act, 1961 Section 270AA as amended by Finance Act, 2026 permits application for waiver of penalty even in cases of misreporting of income and also after passing of penalty order - Second application filed within one month from receipt of penalty order is maintainable - Once conditions under Section 270AA(1) are fulfilled, grant of waiver/immunity by Assessing Officer is mandatory.
Statutory provision(s): Income Tax Act, 1961 Sections 270A, 270AA, 276C, 276CC; Finance Act, 2026 (amendments to Section 270AA)
Farah Khurshed Titina v. Income Tax Officer, (Bombay)(DB) : Law Finder Doc Id # 2994763
