Misreporting penalty requires specific factual allegations and reasoned findings; tax evasion computation must reflect the relevant assessed income difference.

Penalty for misreporting of income requires the notice to disclose the statutory and factual basis for alleging misrepresentation or other bad faith under Section 270A(9), and the penalty order must provide supporting reasons. A bare assertion of misreporting or a general reference to Section 270A is insufficient, particularly because misreporting attracts a higher penalty and excludes immunity under Section 270AA. Tax sought to be evaded must also be computed on the relevant assessed difference rather than the entire assessed normal income where the figures differ only to a stated extent. Invalid proceedings may be restarted in accordance with law, subject to the assessee's available contentions.

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Issues: (i) Whether penalty for misreporting of income could be sustained when the show cause notices and penalty order did not disclose the basis or reasons for characterising the under-reporting as misreporting; (ii) Whether the computation of tax sought to be evaded for imposing penalty required reconsideration.

Issue (i): Whether penalty for misreporting of income could be sustained when the show cause notices and penalty order did not disclose the basis or reasons for characterising the under-reporting as misreporting.

Analysis: Section 270A distinguishes misreporting from under-reporting and prescribes a substantially higher penalty for misreporting, while Section 270AA excludes immunity where misreporting is involved. Misreporting entails misrepresentation or other bad faith and is exhaustively confined to the categories specified in Section 270A(9). In view of these serious consequences, the notice must identify the factual basis on which misreporting is alleged, enabling a meaningful response. The notices either made a bare assertion of misreporting or merely referred to Section 270A, and the penalty order recorded misreporting without reasons.

Conclusion: The penalty order characterising the income as misreported was unsustainable and was set aside, in favour of the assessee.

Issue (ii): Whether the computation of tax sought to be evaded for imposing penalty required reconsideration.

Analysis: The assessed normal income reflected in the intimation under Section 143(1) and the assessment order under Section 143(3) differed only to the stated extent, whereas the penalty was computed by reference to the entire assessed normal income. The recorded figure of tax sought to be evaded therefore required reconsideration.

Conclusion: The computation underlying the penalty could not be sustained and requires reconsideration, in favour of the assessee.

Final Conclusion: The invalid penalty proceedings do not preclude fresh proceedings in accordance with law, with all contentions remaining available to the assessee.

Ratio Decidendi: A penalty for misreporting of income cannot be imposed unless the statutory basis and factual particulars establishing misrepresentation or other bad faith are specifically disclosed in the notice and supported by reasons in the penalty order.

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