Company gets immunity from penalty after withdrawing education cess claim under Section 270AA Income Tax Act

The Rajasthan HC allowed a writ petition challenging rejection of immunity application under Section 270AA of the Income Tax Act. The petitioner-company had withdrawn its claim for education cess deduction before the provision came into force. The court held that the Assessing Officer failed to specify which part of sub-section (9) of Section 270A applied to the case and did not decide the immunity application within the prescribed time limit. The penalty order under Section 270A was set aside, granting immunity to the petitioner-company from penalty imposition.

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Issues Involved:
1. Maintainability of the writ petition.
2. Legality of the penalty order under Section 270A of the Income-tax Act, 1961.
3. Entitlement of the petitioner-company to immunity under Section 270AA of the Income-tax Act, 1961.

Summary:

1. Maintainability of the Writ Petition:
The court addressed the preliminary objection regarding the maintainability of the writ petition. The respondents argued that the petitioner should have availed the alternative remedy of appeal under Section 246A of the Income-tax Act. However, the court found that the issue raised was purely legal and did not require an investigation into facts. Citing the Supreme Court decision in M/s Godrej Sara Lee Ltd. vs. The Excise and Taxation Officer-cum-Assessing Authority and Ors., the court held that the writ petition was maintainable since it involved a question of law.

2. Legality of the Penalty Order:
The petitioner-company had claimed a deduction for education cess, which was later disallowed following an amendment to Section 155 of the Income-tax Act. The petitioner withdrew the claim to avoid litigation and penalty. The Assessing Officer initiated penalty proceedings under Section 270A for misreporting by underreporting income. The court noted that neither the assessment order nor the subsequent show-cause notices specified which part of sub-section (9) of Section 270A was applicable. The court found this omission to be a significant procedural lapse, rendering the penalty proceedings nonest. The court also observed that the petitioner had complied with the conditions for immunity under Section 270AA but was not granted the same within the prescribed time limit.

3. Entitlement to Immunity under Section 270AA:
The court examined the provisions of Section 270AA, which allows an assessee to seek immunity from penalty if certain conditions are met. The petitioner had fulfilled these conditions, including paying the tax and interest and not filing an appeal. The court cited Delhi High Court decisions in Schneider Electric South East Asia (HQ) Pte Ltd. vs. Asst. Commissioner of Income Tax International Taxation Circle 3(1)(2), New Delhi & Ors., Ultimate Infratech Private Limited vs. National Faceless Assessment Centre Delhi & Anr., and Rohit Kapur VS. Principal Commissioner of Income Tax-7, New Delhi & Anr., which emphasized the need for clarity in penalty notices and the mandatory nature of granting immunity when conditions are met. The court concluded that the Assessing Officer's failure to specify the applicable part of sub-section (9) of Section 270A and the delay in deciding the immunity application were grounds to set aside the penalty order.

Conclusion:
The writ petition was allowed. The penalty order dated 31.03.2023 under Section 270A and the consequential demand notice were set aside. The respondent was directed to grant immunity to the petitioner-company under Section 270AA of the Income-tax Act. No order as to costs was made.

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