Penalty of ₹3.99 Lakh Imposed After Filing a Revised ITR to Correct an Error—What Happened Next?

The Jaipur bench of the Income Tax Appellate Tribunal (ITAT) has set aside a penalty of ₹3.99 lakh imposed on a taxpayer. A legal flaw was discovered in the notice issued by the Income Tax Department, which provided relief to the taxpayer. It should be noted that this ruling may not apply to all cases.

When filing an Income Tax Return (ITR), it is crucial to provide accurate information regarding one’s income. If it is discovered that income has been concealed or incorrect information has been provided, the Income Tax Department can impose a substantial penalty. However, a taxpayer from Sikar, Rajasthan, has received relief from a penalty of ₹3.99 lakh. The Jaipur-based ITAT quashed the penalty after identifying a legal defect in the department’s proceedings.

This case pertains to the Assessment Year 2018-19. An individual from Sikar had failed to file his Income Tax Return by the due date. Subsequently, upon receiving a notice from the Income Tax Department, he filed a return declaring an income of ₹12.9 lakh.

The Assessing Officer took the view that had the notice not been issued, this income would not have come under the tax net. Consequently, penalty proceedings were initiated under Section 270A of the Income Tax Act.

How was the penalty of ₹3.99 lakh imposed?

The officer imposed a penalty of approximately ₹3.99 lakh—calculated at about 200% of the tax liability, which amounted to roughly ₹1.99 lakh. Later, the Commissioner of Income Tax (Appeals) upheld the penalty decision.

Following this, the taxpayer challenged the decision before the Jaipur ITAT. During the hearing, a legal lapse in the procedure followed for imposing the penalty proved to be the decisive factor.

Why did the ITAT set aside the penalty?

The Tribunal observed that the Income Tax Department’s assessment order and penalty notice failed to specify which particular provision under Section 270A(9) was being invoked to allege 'misreporting' by the taxpayer.

According to the Tribunal, when penalty proceedings are initiated against an individual, they must be clearly informed of the legal basis for the allegations. A lack of such clarity prevents the taxpayer from presenting their case effectively. Citing this technical and legal flaw, the ITAT set aside the penalty on September 23, 2026.

What does this mean for taxpayers?

Under Section 270A of the Income Tax Act, a penalty of 50% of the tax payable can be imposed for general 'under-reporting' of income, while for 'misreporting'—under specific prescribed circumstances—this penalty can go up to 200%.

However, this ruling does not imply that penalties for failing to file an Income Tax Return (ITR) or understating income will be automatically quashed for everyone. The relief in this instance was granted due to specific defects in the notice and the legal procedure followed. Therefore, taxpayers should continue to file their returns on time and ensure that all income is reported accurately.