Penalty under Section 270A – Whether Penalty Proceedings Can Continue When Quantum Appeal Is Pending Before CIT(A)

 

The introduction of Section 270A by the Finance Act 2016 marked a shift from the traditional regime of penalty for concealment under Section 271(1)(c) to a more structured system identifying two distinct categories of defaults: under-reporting of income and misreporting of income. While the assessment machinery has gradually adapted to this new framework, a recurring controversy relates to the timing and sustainability of penalty proceedings when the assessee has already preferred a quantum appeal before the Commissioner of Income Tax (Appeals).

 

The core legal principle that emerges from jurisprudence under the earlier penalty regime, which continues to guide interpretation under Section 270A, is that a penalty cannot survive independently of the quantum addition. If the very foundation of the penalty proceedings—namely, the income alleged to have been under-reported or misreported—is under challenge before the appellate authority, initiation or imposition of penalty becomes premature.

 

Several High Courts have consistently held that where the quantum addition is sub judice, penalty proceedings must either (a) await the final outcome of the appeal, or (b) be kept in abeyance by the Assessing Officer. Although Section 270A is relatively new and reported case law is limited, the principle of dependency of penalty on quantum remains unchanged.

 

Further, Explanation 2 to Section 270A and CBDT Circulars clarify that the determination of under-reported income is a factual exercise directly linked to the assessment order. Therefore, if the assessment order itself is contested before CIT(A), any penalty derived from such additions becomes contingent and not final.

 

The practical approach adopted by many appellate authorities is that when the quantum addition is deleted or modified, penalty proceedings do not survive. Equally, courts have acknowledged that misreporting requires a higher standard of proof than mere under-reporting, and this standard cannot be tested until quantum issues are adjudicated.

 

For taxpayers facing parallel penalty proceedings while their quantum appeal is pending, it is essential to respond formally, place reliance on established principles, and request that the penalty proceedings be kept in abeyance until the quantum appeal is decided.

 

FORMAT – REPLY TO PENALTY NOTICE UNDER SECTION 270A

(Where quantum appeal is already filed before CIT(A))

(No special characters, suitable for uploading on ITBA)

 

To

The Assessing Officer

[Ward or Circle]/ Faceless

[City]

 

Subject: Reply to Show Cause Notice for Penalty under Section 270A of the Income Tax Act

 

Assessee Name:

PAN:

Assessment Year:

Order dated:

 

Respected Sir

I am in receipt of the show cause notice issued under section 270A proposing levy of penalty on the alleged under reported income. In this regard I respectfully submit the following.

                1.            Quantum assessment is under challenge before the Commissioner of Income Tax Appeals

The additions made in the assessment order dated are already challenged by filing a statutory appeal before the learned CIT Appeals. The appeal has been duly filed within the prescribed time and is pending adjudication. The very basis on which penalty is proposed is therefore not final. As the quantum additions are sub judice the initiation or imposition of penalty is premature.

 

                2.            Penalty is dependent on the final outcome of quantum proceedings

It is a settled principle that penalty proceedings cannot attain finality unless the quantum addition is confirmed by the appellate authority. Courts have consistently held that where the addition is deleted or modified the penalty cannot survive. The determination of under reported income under section 270A is a consequential act and must await the outcome of the appellate proceedings.

 

                3.            No case of misreporting is made out

The assessment order does not establish any element of misreporting as defined in section 270A subsection 9. All particulars were fully disclosed and the issue is purely interpretational. Therefore even on merits penalty is not leviable.

 

                4.            Request to keep penalty proceedings in abeyance

In view of the pending appeal and the contingent nature of the additions I request that the penalty proceedings may kindly be kept in abeyance until the appeal before the learned CIT Appeals is decided.

 

I request your kind consideration of the above facts and a sympathetic view in the matter.

 

Thanking you

 

Yours faithfully

Name

PAN

Date

Place


AI Generated Precautions to be taken by professionals

  1. Ensure that the quantum appeal before CIT(A) is filed within the prescribed timeline and maintain proper acknowledgment as evidence.
  2. Clearly bring on record before the Assessing Officer that the quantum additions are sub judice and request that penalty proceedings be kept in abeyance.
  3. Highlight that determination of under-reported income under Section 270A is consequential and cannot be finalized until the appellate authority adjudicates the additions.
  4. Examine the assessment order to confirm whether any allegation of misreporting under Section 270A(9) is made; if not, specifically rebut such presumption.
  5. Maintain complete documentation of disclosures made during assessment to demonstrate absence of concealment or misreporting.
  6. Avoid accepting or agreeing to any variation in income that may imply admission of under-reporting.
  7. File a detailed written reply to the penalty notice to ensure proper representation on record.
  8. Track the progress of the quantum appeal and promptly submit the appellate order to the Assessing Officer once disposed.
  9. Where quantum additions are likely to be reduced or deleted, advise the assessee to avoid premature payment of penalty.
  10. Preserve all communications, notices, submissions, and appeal documents for future defense in penalty or further appellate proceedings.