The Bombay High Court has ruled that taxpayers can seek waiver of income tax penalties even in cases of misreporting of income under the amended Section 270AA of the Income Tax Act, 1961.

It also held that an earlier rejection does not prevent a taxpayer from applying again under the amended law.

“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 court ruled.

A Division Bench of Justice B.P. Colabawalla and Justice Farhan P. Dubash passed the ruling on October 5 while hearing a petition filed by Farah Khurshed Titina, who challenged the rejection of her second application seeking waiver of a ₹4.72 lakh penalty.

The Finance Act, 2026, amended Section 270AA with effect from March 1, 2026, allowing taxpayers to seek waiver even after a penalty has been imposed for misreporting of income.

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 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 initiated penalty proceedings for under-reporting of income in consequence of misreporting. Titina's first application seeking immunity from penalty was rejected on January 1, 2026, because the law then did not permit such relief in cases of misreporting.

The Assessing Officer subsequently imposed a penalty of ₹4,72,442 on June 29, 2026. Following the amendment, 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 the second application on July 23, maintaining that penalties for misreporting could not be waived. The officer also held that Titina could not apply again after her first application had been rejected.

The high court rejected both grounds. It ruled that the amended provision permits waiver applications even after a penalty has been imposed for misreporting. The amendment also created a fresh cause of action, allowing Titina to apply within the prescribed period after receiving the penalty order.

The bench observed that granting the waiver was mandatory once the conditions under Section 270AA(1) were fulfilled and the applicable appeal-filing period had expired. The tax department did not dispute that Titina had met these conditions. The court therefore found no reason to send the matter back to the Assessing Officer for reconsideration.

It quashed the 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, within four weeks from the date the order is brought to the officer's attention

For Petitioner: Senior Advocate J.D. Mistri

For Department: Advocate Mamta Omle 

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Case Title :  Farah Khurshed Titina v. Income Tax Officer, Ward 22(1)(6), Mumbai & Ors.Case Number :  Writ Petition No. 4002 of 2026CITATION :  2026 LLBiz HC(BOM) 557
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