Taxpayers facing penalties for misreporting income can now invoke the amended Section 270AA of the Income Tax Act, 1961 to seek a waiver, the Bombay High Court has ruled. In a decision delivered on October 5, a Division Bench held that the Finance Act, 2026 amendment, effective from March 1, 2026, permits waiver applications even after a penalty has been imposed in a misreporting case. The court also clarified that a taxpayer whose earlier waiver application was rejected under the old regime is not barred from applying again.

The ruling came on a petition filed by Farah Khurshed Titina, who challenged the rejection of her second application seeking waiver of a ₹4.72 lakh penalty imposed by the Assessing Officer. The High Court quashed the rejection and directed the officer to waive the penalty within four weeks of being presented with the order.

“However, we note that the position has changed considerably as a result of the amendments made by the Finance Act, 2026 w.e.f. 1st March 2026. As is evident from the amendments made, an application for waiver of penalty already levied, can now be made and the same will have to be considered by the AO even in circumstances where penalty is levied for under-reporting of income which is in consequence of misreporting of income,” the bench observed.

A voluntarily corrected return that still drew a penalty

The dispute arose after Titina’s case was selected for scrutiny for the assessment year 2024-25. While preparing for the assessment proceedings, she realised that she had inadvertently claimed deductions under Chapter VI-A of the Income Tax Act. She revised her income computation and voluntarily paid ₹2,67,500 towards additional tax and interest on September 22, 2025.

The Assessing Officer accepted her revised income but separately initiated penalty proceedings for under-reporting of income in consequence of misreporting. At that stage, the law did not permit waiver relief in cases involving misreporting, and her first application seeking immunity from penalty was rejected on January 1, 2026.

The Assessing Officer subsequently imposed a penalty of ₹4,72,442 on June 29, 2026. After the Finance Act, 2026 amendment came into force, Titina paid ₹2,36,221 as additional income-tax on July 21 and filed a second application for waiver the next day.

The Assessing Officer rejected that second application on July 23 on two grounds: first, that penalties arising from misreporting remained outside the waiver mechanism, and second, that Titina could not apply again after her first application had already been rejected.

Fresh cause of action under the amended provision

The High Court rejected both grounds. It held that the amended provision contemplates waiver applications even after a penalty has been imposed for misreporting. The amendment, the bench found, created a fresh cause of action, enabling Titina to file a second application within the prescribed period after she received the penalty order.

The court also made clear that a previous rejection under the old regime did not operate as a bar. Because the legal framework changed materially from March 1, 2026, a taxpayer who had been refused relief under the pre-amendment position could apply again once the new provision became available.

That conclusion addresses a practical concern for taxpayers with pending or previously rejected waiver requests. Before the amendment, Section 270AA’s waiver mechanism was understood to cover only under-reporting of income that did not flow from misreporting. The Finance Act, 2026 broadened the scope, and the High Court has now confirmed that the broader provision applies to penalties already levied as well as to fresh penalty orders.

Waiver becomes mandatory once conditions are met

The bench further observed that granting the waiver was mandatory once the conditions under Section 270AA(1) were fulfilled and the applicable period for filing an appeal against the penalty order had expired. In this case, the tax department did not dispute that Titina had satisfied these conditions.

That finding was significant because it meant the High Court did not need to send the matter back to the Assessing Officer for reconsideration. Since the only reasons given for rejecting the second application were legally unsustainable, and the statutory conditions were met, the court considered the waiver claim to be made out.

The High Court therefore quashed the July 23 rejection order and directed the Assessing Officer to waive the penalty and grant immunity from initiation of proceedings under Sections 276C and 276CC of the Income Tax Act, 1961.

The Assessing Officer is now required to implement the waiver and extend the statutory immunity within four weeks from the date the order is brought to the officer’s attention. For taxpayers and tax litigators, the decision clarifies that the 2026 amendment is not a narrow procedural change but a substantive expansion of the penalty waiver regime, including for cases involving misreporting of income.