2022 (6) TMI 130 - HC - Income Tax

Penalty u/s270A quashed; disallowance u/s14A not misreporting, Assessee entitled to immunity u/s270AA

HC held that the only adjustment made in assessment was enhancement of disallowance under s.14A, based on details fully disclosed by Assessee. The alleged ... Penalty u/s 270A - immunity u/s 270AA - misreporting of income - non-specification of correct charge - HELD THAT:- This Court is of the opinion that the only addition in the assessment order framed by Respondent No.1 is in respect of disallowance u/s 14A - Petitioner has made a disallowance of Rs.3,20,14,010/- which was recomputed by the AO - Thus, this is a case where the amount of underreporting of income is consequent to increase in the disallowance voluntarily estimated by the assessee. This court is conscious of the fact that there can be cases where underreporting of income may result in misreporting of income, however, in peculiar facts of the present case, underreporting allegedly done by the assessee cannot amount to misreporting as the assessee had furnished all the details of the transactions relating to disallowance made under Section 14A of the Act and the AO as well as assessee has used the same details to arrive at different conclusions i.e. differing quantum of disallowances under Section 14A of the Act. This by no stretch of imagination can be held to be ‘misreporting’. This Court also finds that there is not even a whisper as to which limb of Section 270A of the Act is attracted and how the ingredient of sub-section (9) of Section 270A is satisfied. In the absence of such particulars, the mere reference to the word 'misreporting' by the Respondents in the penalty order to deny immunity from imposition of penalty and prosecution makes the impugned order manifestly arbitrary. The impugned penalty order dated 28th March, 2022 passed by Respondent No.1 under Section 270A of the Act is quashed and Respondent No.1 is directed to grant immunity under Section 270AA of the Act to the Petitioner. Issues:Challenge to penalty under section 270A of the Income Tax Act, 1961 and seeking immunity under Section 270AA of the Act.Analysis:The petitioner challenged the penalty order dated 28th March, 2022, under section 270A of the Income Tax Act, 1961, amounting to Rs.2,50,78,168. The petitioner sought immunity under Section 270AA of the Act from the penalty and prosecution under Section 270A in relation to the income assessed for the Assessment Year 2018-19. The petitioner contended that the Respondent had not passed an independent order under section 270AA(4) of the Act regarding the immunity application within the stipulated time, making the rejection of the application beyond the limitation period. The main issue raised was the misreporting of income, particularly concerning the disallowance under section 14A of the Act. The petitioner argued that the disallowance amount exceeded the exempt income, and the Respondent's enhancement of the disallowance was unjustified. The petitioner also emphasized that the dispute revolved around the estimation of disallowance under section 14A, which did not constitute misreporting of income as per section 270A(9) of the Act.In response, the Respondent argued that the petitioner had not correctly made the disallowance under Section 14A, resulting in underreporting and misreporting of income. The Respondent relied on the penalty order to support the imposition of the penalty under Section 270A and the denial of immunity under Section 270AA. The Respondent's position was that the petitioner's actions constituted misreporting of income, justifying the penalty under Section 270A.The court analyzed the case law and observed that the Respondent's denial of immunity based on misreporting of income was erroneous and arbitrary. The court noted that the penalty notice lacked specificity regarding the type of misreporting, rendering the decision arbitrary. The court highlighted that the assessment order was a voluntary computation by the petitioner to avoid litigation, indicating no misreporting. The court emphasized the legislative intent behind Section 270AA to encourage settlement, tax recovery, and reduce litigation. Consequently, the court set aside the penalty order and directed the grant of immunity to the petitioner under Section 270AA.In conclusion, the court found that the underreporting of income in the case was a result of an increase in the disallowance voluntarily estimated by the petitioner, not constituting misreporting. The court quashed the penalty order under Section 270A and directed the Respondent to grant immunity under Section 270AA to the petitioner. The writ petition and pending applications were disposed of in light of the court's directions.