Section 270A penalty must be computed on the correct under-reported income after reducing processing-stage income.

Penalty under section 270A for misreporting of income had to be computed by comparing the assessed income with the income determined in processing under section 143(1)(a). The statutory formula required the processing-stage income to be reduced from the assessed income; treating that figure as nil was contrary to section 270A(2) and section 270A(3). Because the penalty under section 270A(8) depends on the properly computed under-reported income, the penalty amount also required recomputation. The Revenue's method was incorrect, and the matter was restored for fresh computation of under-reported income and consequential penalty in favour of the assessee to that extent.

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Issues: Whether the penalty under section 270A for misreporting of income was correctly computed by taking the income determined under section 143(1)(a) as nil instead of reducing it from the assessed income, and whether the penalty required recomputation on the basis of the difference between the assessed income and the income determined in processing.

Analysis: The under-reported income under section 270A is computed by comparing the income assessed with the income determined in the return processed under section 143(1)(a). The assessed income in the case was higher than the income determined at the processing stage, and the statutory formula required the earlier determined income to be reduced from the assessed income. Taking the processing-stage income at nil was contrary to the mechanism prescribed by section 270A(2) and section 270A(3). Since the penalty for misreporting under section 270A(8) is linked to the tax payable on the properly computed under-reported income, the quantum of penalty also had to be recomputed accordingly.

Conclusion: The computation adopted by the Revenue was incorrect. The matter was restored only for recomputation of under-reported income and the consequential penalty, which is in favour of the assessee to that extent.

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