Under-reporting of income absent, penalty under tax law fails where rectification orders showed nil assessed income.

Penalty under Section 270A of the Income-tax Act could not be sustained where rectification orders recorded nil assessed income after adjustment of current year and brought forward losses, because the statutory precondition of under-reporting was absent. The Court treated the absence of under-reported income as the threshold defect and held that the penalty order failed on that basis. The later liquidation order and the Insolvency and Bankruptcy Code argument were noticed, but no final finding was recorded on them because they were not necessary once the penalty was unsustainable for want of under-reporting. The penalty was set aside in favour of the assessee.

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Issues: Whether penalty under Section 270A of the Income-tax Act, 1961 could be sustained when rectification orders had recorded nil assessed income and there was no under-reporting of income.

Analysis: Section 270A permits penalty only where a person has under-reported income. The rectification orders, passed after the assessment, recorded the assessed income as nil after adjusting the assessed income against current year and brought forward losses. In that factual setting, the precondition for invoking Section 270A was absent. The existence of a later liquidation order and the contention based on the Insolvency and Bankruptcy Code were noticed, but no definitive finding was recorded on that aspect because the penalty failed on the threshold issue of under-reporting.

Conclusion: The penalty order could not be sustained and was set aside in favour of the assessee.

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