2025 (2) TMI 872 - HC - Income Tax

Penalty Under Section 270A Quashed Due to ITBA Portal Glitch; Emphasizes Fair Assessment in Tax Penalties.

VRML Constructions Pvt Ltd Versus Union of India & Ors.

The HC quashed the penalty imposed on the Petitioner under Section 270A of the Income Tax Act, 1961, finding it unjustified due to a technical glitch that ... Penalty u/s 270A - HELD THAT:- This is not a case where the Assessing Officer, after being conscious of the institution of the Appeal, has nevertheless deemed it appropriate to exercise the powers u/s 275(1)(a). AO has only observed that since the ITBA data did not reflect the institution of the quantum Appeal, the Assessing Officer felt that he had no alternative but to impose a penalty. Thus, this is not a case where the penalty was imposed after independent application of mind. The main grounds for imposing the penalty were because the AO felt that he had no alternative but to impose the penalty in the absence of the ITBA portal, reflecting the institution of the quantum Appeal by the Petitioner. Petitioner had pointed out that the quantum Appeal was indeed instituted. The Petitioner also produced the acknowledgment receipt evidencing the institution of the quantum Appeal. Because of a technical glitch, if this institution was not being reflected on the ITBA portal, no penalty should have been imposed by holding that the AO had no alternative but to impose a penalty. We quash and set aside the impugned penalty order. However, we clarify that the quashing of this order will not preclude the Respondents from initiating fresh proceedings for the imposition of penalty should they so desire upon the disposal of the Petitioner’s quantum Appeal before the Commissioner (Appeals). Based upon this statement, the Petitioner’s Appeal against the penalty order before the Commissioner (A) is disposed of as withdrawn. Mr Jain states that this order will be placed before the Commissioner (Appeals) within 15 days from today so that the Appeals can be shown as disposed of for statistical purposes. The issues presented and considered in the judgment are as follows:1. Whether the penalty imposed on the Petitioner under Section 270A of the Income Tax Act, 1961, was justified despite the Petitioner having already filed a quantum Appeal on the Department's Income Tax Business Application (ITBA) portal.2. Whether the Assessing Officer's decision to impose the penalty was reasonable in light of the circumstances surrounding the Petitioner's quantum Appeal.Issue-Wise Detailed Analysis:The Court considered the arguments presented by both parties. The Petitioner's counsel argued that the penalty was unjustified as the quantum Appeal had already been filed and evidenced by an acknowledgment receipt. On the other hand, the Respondent's counsel contended that the penalty was valid under Section 275(1)(a) of the IT Act.The Court analyzed the impugned penalty order and observed that the Assessing Officer imposed the penalty based on the absence of the quantum Appeal on the ITBA portal. The Court noted that the penalty was not imposed after an independent assessment but rather due to a technical glitch in reflecting the Appeal on the portal.The Court concluded that since the quantum Appeal was indeed filed, the penalty should not have been imposed solely based on the portal's failure to display the Appeal. As a result, the Court quashed and set aside the penalty order dated 8 February 2022, with the clarification that the Respondents could initiate fresh penalty proceedings after the disposal of the quantum Appeal before the Commissioner (Appeals).Significant Holdings:The Court's decision to quash the penalty order was based on the fundamental principle that penalties should be imposed after a thorough assessment and consideration of all relevant factors. The Court emphasized that technical glitches or administrative errors should not lead to unjust penalties on taxpayers. The core principle established is that penalties should be imposed judiciously and not as a knee-jerk reaction to technical issues.The final determination on the issue was in favor of the Petitioner, as the penalty order was set aside. The Court granted liberty to the Respondents to initiate fresh penalty proceedings if deemed necessary after the resolution of the Petitioner's quantum Appeal.In conclusion, the Court's decision in this case highlights the importance of a fair and reasoned approach to imposing penalties under tax laws, ensuring that taxpayers are not unduly burdened due to technical shortcomings in administrative processes.