Section 270AA: Immunity from Penalty and Prosecution under the Income-tax Act

Section 270AA of the Income-tax Act, 1961 allows eligible taxpayers to close an assessment without facing penalty or prosecution. Recent amendments have widened its scope considerably, so taxpayers should understand the current position before deciding whether to contest an assessment or settle it.

What Is Section 270AA?

Section 270AA was inserted by the Finance Act, 2016, with effect from 1 April 2017. It empowers the Assessing Officer to grant immunity from penalty under section 270A, and from prosecution under sections 276C and 276CC. In practice, a taxpayer who accepts the assessment, pays the dues and does not appeal can avoid further penalty and criminal proceedings relating to that assessment. 

Key Conditions for Immunity

• The taxpayer must pay the tax and interest demanded and must not file an appeal against the demand order. 
• The taxpayer must submit a written application to the Assessing Officer requesting immunity from penalty under section 270A and prosecution under sections 276C and 276CC. 
• The Assessing Officer grants immunity only after the period for filing an appeal under section 249(2) has expired. 
• Section 270AA(3) uses the word “shall”, so the officer has no discretion to refuse once the conditions are met. 

Finance Act, 2026: Misreporting Cases Now Covered

Earlier, immunity was available only for plain under-reporting of income, and not where under-reporting arose in consequence of misreporting. This distinction was significant. Under-reporting carries a penalty of 50% of the tax payable, while misreporting attracts 200%. The Finance Act, 2026 changed the position as follows: 

• The amendment extends relief to cases where under-reporting is in consequence of misreporting. It takes effect from 1 March 2026 and applies to AY 2026-27 and earlier years. 
• In such cases, the taxpayer must pay additional income-tax equal to 100% of the tax payable on the relevant income, in lieu of penalty. 
• Immunity is not available where proceedings under Chapter XXII have been initiated. 

Recent Judicial Support

On 5 October 2026, a Division Bench of the Bombay High Court held that taxpayers can seek a waiver under the amended section 270AA even where a penalty has already been imposed for misreporting. The court observed that the waiver is mandatory once the conditions are fulfilled and the appeal period has expired. The Court also noted that the amended section 270AA(2) permits a waiver application within one month from the end of the month in which the relevant order is received. 

Points to Watch

• Tax professionals have sought clarification from the CBDT on how the amendment applies to earlier assessment years, particularly where the assessment order was passed before 1 March 2026. 
• Settling should not be automatic. Accepting an assessment and forgoing an appeal can be costly where the addition is weak, so each case needs careful evaluation.

Position under the Income-tax Act, 2025

The corresponding provision in the Income-tax Act, 2025 is section 440. The Finance Bill, 2026 proposed a similar expansion there, effective from 1 April 2026 for tax year 2026-27. 

Conclusion

Section 270AA offers a practical route to avoid prolonged penalty and prosecution proceedings, and the 2026 amendment has made it relevant to a much wider group of taxpayers. Timely action is essential, since the application window is short. For expert guidance on this topic, contact your tax professional today.