Under-reporting ceases when additional income is disclosed in an accepted updated return, so penalty cannot be sustained.

Where an assessee voluntarily disclosed additional income in an updated return and tax with interest was paid and that updated return was accepted in assessment, the element of under-reporting or misreporting necessary for levy of penalty under section 270A does not subsist, and penalty relating to that income cannot be sustained. Separately, a penalty notice that fails to specify which particular limb of the statutory misreporting categories is invoked contains a material defect rendering the proceedings invalid; accordingly, the penalty was deleted and the appeal allowed in the assessee's favour.

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Issues: (i) Whether penalty under section 270A of the Income-tax Act, 1961 is leviable where the assessee files an updated return declaring additional income and pays tax and interest and the assessing officer accepts that updated return; (ii) Whether the penalty notice under section 270A is valid where it does not specify the specific limb/charge under clause (a) to (f) of sub-section (9) of section 270A.

Issue (i): Whether penalty under section 270A is leviable where updated return discloses capital gains, taxes and interest are paid, and the assessment is completed accepting the updated return.

Analysis: The Tribunal examined facts showing the assessee filed an updated return under section 139(8A) declaring capital gains and paid tax and interest before the assessment concluded; the assessing officer accepted the updated return in the assessment order under section 143(3). The Tribunal relied on precedents holding that when additional income is offered in an updated/revised return and accepted by the AO in assessment, the essential element of "under-reporting" or "mis-reporting" for levy of penalty under section 270A ceases to exist. The Tribunal noted absence of findings that the statutory ingredients of misreporting (as set out in clauses (a) to (f) of section 270A(9)) were satisfied.

Conclusion: Penalty under section 270A of the Income-tax Act, 1961 is not leviable in respect of the income declared in the updated return that was accepted in assessment. The decision is in favour of the assessee on this issue.

Issue (ii): Whether the penalty notice is invalid for failing to specify the particular limb under section 270A(9).

Analysis: The Tribunal observed that the notice initiating penalty proceedings did not indicate which specific clause of sub-section (9) of section 270A was invoked. Citing judicial authority, the Tribunal held that failure to specify the exact limb/charge in the notice is a material defect undermining the validity of penalty proceedings under section 270A.

Conclusion: The penalty notice is invalid for not specifying the specific charge under clause (a) to (f) of section 270A(9). The conclusion favours the assessee.

Final Conclusion: The foundational elements for levy of penalty under section 270A were absent because the additional income was disclosed in an updated return accepted in assessment, and the penalty notice was legally defective for not specifying the statutory limb; accordingly, the penalty imposed is deleted and the appeal is allowed in favour of the assessee.

Ratio Decidendi: Where additional income is voluntarily disclosed in an updated return which is accepted by the assessing officer in assessment, the element of under-reporting or misreporting under section 270A does not subsist; additionally, a penalty notice under section 270A which does not specify the particular limb under sub-section (9) is invalid.

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