Revision under Section 264 and penalty for under-reporting were both unsustainable on the disclosed PF/ESI disallowance.

Section 264 revisional power is available against a penalty order even though an appeal also lies, unless the case falls within the express bars in sub-section (4); the assessee may choose between appeal under Section 246A and revision, so refusal to entertain revision solely for availability of appeal was unjustified. Penalty under Section 270A for under-reporting was also unsustainable because the same disallowance had already been reflected at the Section 143(1)(a) processing stage, the statutory ingredients of under-reporting were not met, and the claim was based on a debatable jurisdictional position with full disclosure and bona fide explanation. The penalty order was quashed.

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Issues: (i) Whether a penalty order under Section 270A of the Income-tax Act, 1961 could be revised under Section 264 of the Income-tax Act, 1961 despite the order being appealable. (ii) Whether penalty for under-reporting of income was leviable on the disallowance relating to employees' contribution to PF/ESI.

Issue (i): Whether a penalty order under Section 270A of the Income-tax Act, 1961 could be revised under Section 264 of the Income-tax Act, 1961 despite the order being appealable.

Analysis: Section 264 confers wide revisional power over any subordinate order, subject only to the express restrictions in sub-section (4). An order is barred from revision only where an appeal lies and the time to appeal has not expired without waiver, or where an appeal is pending or has been filed. Outside those statutory exceptions, the mere fact that an order is appealable does not exclude revision. The assessee is entitled to choose between the appellate remedy under Section 246A and the revisional remedy under Section 264.

Conclusion: The revision application was maintainable, and the refusal to entertain it on the ground of availability of appeal was not justified.

Issue (ii): Whether penalty for under-reporting of income was leviable on the disallowance relating to employees' contribution to PF/ESI.

Analysis: Penalty under Section 270A is discretionary and is not automatic upon addition. Under-reporting, in the context of a return already processed under Section 143(1)(a), requires the assessed income to exceed the income determined in that processing. Here, the same disallowance had already been made at the processing stage and was merely reiterated in assessment, so the statutory ingredients of under-reporting were not satisfied. The claim was also made on the basis of then-prevailing jurisdictional law, the issue was debatable, and all material facts had been disclosed with a bona fide explanation.

Conclusion: Penalty under Section 270A was not leviable and was liable to be deleted.

Final Conclusion: The writ petition succeeded, the revisional rejection and penalty order were quashed, and the assessee obtained complete relief.

Ratio Decidendi: A penalty order under the Income-tax Act may be revised under Section 264 unless expressly barred by sub-section (4), and penalty for under-reporting cannot be sustained where the same disallowance was already reflected in processing under Section 143(1)(a) and the claim was bona fide on a debatable legal issue fully disclosed by the assessee.

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