Bombay High Court: Taxpayer Can Seek Waiver of Section 270A Penalty Even After an Earlier Application Was Rejected
Finance Act, 2026 opens the door to penalty waiver in misreporting cases — and a second application cannot be rejected merely because the first one failed
Can an assessee seek waiver of penalty under Section 270A even after an earlier application for immunity was rejected? Can an Assessing Officer refuse relief simply because the penalty relates to misreporting of income? The Bombay High Court has answered both questions in favour of the taxpayer in an important judgment delivered on 5 October 2026. In Farah Khurshed Titina v. Income Tax Officer, Ward 22(1)(6), Mumbai & Ors., Writ Petition No. 4002 of 2026, the Bombay High Court examined the impact of the amendments made to Section 270AA by the Finance Act, 2026, effective from 1 March 2026. The Court held that an application seeking waiver of penalty could be entertained even in a case involving misreporting of income. It further held that an earlier rejected application did not bar a fresh application where the amended law created a fresh cause of action.
The facts: An inadvertent deduction claim
The assessee’s case was selected for scrutiny for AY 2024-25. During the process of collecting information for the assessment, she realised that certain deductions claimed under Chapter VI-A had been made erroneously. On discovering the mistake, she recomputed her income, submitted a revised computation and voluntarily paid additional tax and interest of ₹2,67,500 on 22 September 2025. The Assessing Officer subsequently completed the assessment on 25 November 2025, accepting the revised income. However, the AO initiated penalty proceedings under Section 270A, alleging under-reporting of income in consequence of misreporting. A penalty of ₹4,72,442 was ultimately imposed on 29 June 2026.
The first application was rejected
Before the penalty order was passed, the assessee had applied for immunity under Section 270AA by filing Form No. 68 on 23 December 2025. The Assessing Officer rejected the application on 1 January 2026, taking the view that immunity was unavailable where the penalty proceedings related to misreporting of income. After the Finance Act, 2026 amended Section 270AA with effect from 1 March 2026, the assessee made a second application on 22 July 2026. She also paid additional income-tax of ₹2,36,221 on 21 July 2026, as required under the amended provisions for cases involving misreporting. The AO rejected this second application as well. Apart from repeating the objection concerning misreporting, the AO reasoned that Section 270AA did not permit a second application and that no fresh cause of action had arisen. The assessee challenged this rejection before the Bombay High Court.
What changed under the Finance Act, 2026?
The central issue was the amendment to Section 270AA, effective from 1 March 2026. Under the earlier provisions, immunity from penalty was unavailable where the penalty proceedings had been initiated in circumstances covered by Section 270A(9), namely under-reporting of income in consequence of misreporting. The amended provision changed the position. It permitted an application for waiver of penalty even where a penalty had been levied, or was leviable, in a misreporting case, subject to the prescribed statutory conditions. In such cases, Section 270AA(1)(b), as amended, requires payment of additional income-tax equal to 100% of the tax payable on the under-reported income, in lieu of the penalty, within the period specified in the notice of demand. The Court noted that the law had therefore materially changed. An application could no longer be rejected merely on the ground that the penalty related to misreporting.
High Court: Misreporting is no longer an automatic bar
The Bombay High Court held that, following the amendment, an application for waiver could be made even in cases involving misreporting of income. The AO was therefore wrong in rejecting the assessee’s second application on that ground. The significance of this finding is that the earlier statutory restriction could not be applied mechanically to an application governed by the amended provision. The AO was required to consider the application in accordance with the law as amended.
Can a second application be filed after the first is rejected?
This was the second important issue. The Revenue argued that the assessee had already availed herself of the remedy under Section 270AA by filing the first application in December 2025. According to the Department, the rejection of that application prevented her from filing another one. The Court rejected this argument. It observed that the amended Section 270AA(2) links the application period to the receipt of the assessment or reassessment order and the penalty order. Under the amended framework, the application is to be made within one month from the end of the month in which the relevant orders specified in the provision are received. The Court held that the amendment had created a fresh cause of action, because the assessee could now apply for waiver after the penalty order—a course that had not been available under the earlier provision in the same circumstances. Consequently, the earlier application, filed before the amendment and rejected under the old legal position, did not bar the subsequent application. The assessee was entitled to file the second application within the applicable statutory period.
When does the AO have to grant the waiver?
The Court also considered whether the matter should be sent back to the Assessing Officer for reconsideration. It noted that the Revenue did not dispute that the conditions specified in Section 270AA(1), as amended, had been satisfied by the assessee. The Court held that once the statutory conditions are fulfilled, Section 270AA(3) makes the grant of waiver of penalty and the corresponding immunity from initiation of proceedings under Sections 276C or 276CC mandatory, subject to the requirements of the provision, including expiry of the relevant appeal-filing period. In the circumstances of the case, the Court found no purpose in remanding the matter to the AO for another round of consideration.
Final decision
The Bombay High Court quashed the AO’s order dated 23 July 2026 rejecting the second waiver application. It directed the Assessing Officer to allow the assessee’s application, grant waiver of the penalty under Section 270A and grant immunity from initiation of proceedings under Sections 276C and 276CC within four weeks from the date the order was brought to the AO’s attention.
Practical implications for taxpayers
This judgment offers important guidance for taxpayers facing penalty proceedings under Section 270A: 1. Misreporting does not automatically defeat a waiver application under the amended law.
Following the Finance Act, 2026 amendment, an application may be considered even where the penalty relates to misreporting, provided the statutory requirements are met. 2. An earlier rejection may not prevent a fresh application.
Where a legislative amendment creates a fresh right or cause of action, an application filed under the amended law cannot necessarily be rejected merely because an earlier application was unsuccessful. 3. Compliance with the payment conditions is crucial.
The amended provision prescribes additional income-tax equal to 100% of the tax payable on the under-reported income in lieu of the penalty in the specified circumstances. The relevant payment deadline and other statutory conditions must be carefully checked. 4. The time limit must be examined independently.
An assessee should verify the dates of receipt of the relevant orders and calculate the application deadline under the amended provision. The judgment should not be read as permitting repeated applications without regard to the statutory time limit. 5. The nature of the earlier rejection matters.
The ruling concerns an application made after a material legislative amendment changed the legal position. It does not establish a general right to repeatedly file applications on unchanged facts and under unchanged law.
Conclusion
The judgment in Farah Khurshed Titina reinforces an important principle: when the law changes, an application that was previously unavailable or legally barred may become maintainable under the amended framework. The Assessing Officer cannot continue applying the earlier restriction after the legislature has changed the law. Equally, an earlier rejection cannot automatically extinguish a fresh statutory right created by an amendment. For taxpayers facing Section 270A penalties, the decision makes it important to examine not only the original penalty order and earlier waiver application, but also the effect of subsequent legislative amendments. A rejected application may close one chapter—but when the law changes, it may not necessarily close the book.
The copy of the order is as under:
