TaxTMI 
TaxTMI 
2025 (11) TMI 1963
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....and circumstances of the case, the penalty order under section 270A is bad in law and void ab initio and same needs to be quashed considering that the AO has initiated the penalty proceedings under the category of under reporting of income in consequence of misreporting (as per the provisions of section 270A(9) read with section 270A(8) while the final order is passed under the category of underreporting of income(as per the provisions of section 270A(2) read with section 270A(7). 3. The CIT(A) has erred in confirming the penalty levied under section 270A of the Act for claiming deduction of Health and Education Cess by the Appellant which was supported by various Judicial precedents. 4. The Ld. AO / CIT(A) has failed to appreciate that the claim of Health and Education Cess was made by Appellant in good faith and hence does not tantamount to under-reporting of income as per the provisions of section 270A of the Act. 5. The Ld. AO has erred in passing the penalty order dated 30th March 2023 without considering the Form 69 filed by the Appellant on 25th March 2023 as per Notification no. 111/2022, dated 28-09-2022 issued by the CBDT. 6. The Ld. AO....
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....ion application. However, there is no direct relation between addition made by the Assessing Officer in the assessment order and points raised by the assessee for rectification. The Assessing Officer has made addition on account of addition of "Health and Educational Cess" Rs. 5,34,01,866/-. In view of the above, it is concluded the assessee has not furnished sufficient explanation as to why the penalty u/s. 270A should not be imposed for the above assessment year except stating that rectification applications filed which is subject matter of the JAO and does not have any bearing to the penalty proceedings by the Faceless Penalty Officer. Therefore, the further contention of the assessee to keep the penalty proceeding in abeyance is baseless. Accordingly, it is inferred that this is a fit case for levying penalty u/s. 270A of Income Tax Act, 1961 for the above assessment year. Hence, penalty order is being passed accordingly." 4. The appeal of the assessee against the penalty order passed by the Ld. AO has been confirmed by the Ld. CIT(A)/NFAC vide his impugned order dated 29.03.2025 by observing as under : "7.1 Ground no. 1 pertains to the passing of penalty order u/s ....
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..../s 40(a)(ii) and it is held that these shall be deemed to be under reporting, notwithstanding any contained in subsection (6) of section 270A. In view of this specific carve out, the claim of the appellant is not acceptable and the ground is dismissed." 5. The Ld. AR submitted that the assessee has already accepted the disallowance made by the Ld. AO on account of claim on health and education cess u/s 40(a)(ii) of Rs. 5,34,01,866/- during the course of assessment proceedings vide its submission made on 30.03.2022. Reiterating the submissions made before the lower authorities, the Ld. AR submitted that the assessee had initially claimed deduction on a bonafide basis and in view of the favourable judicial ruling of the Hon'ble High Courts and Tribunal including the Jurisdictional Delhi Tribunal at that point of time. Once the proposed amendment vide Finance Bill, 2022 in respect of non deductibility of cess levied on Income Tax Act as an expense while computing business income, was enacted and came into force by the Finance Act, 2022-23, the assessee withdrew its claim of deduction of health and education cess in the subject AY 2020-21 amounting to Rs. 5,34,01,866/- (pages 187 an....
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.... Ld. Representatives of the parties and perused the material available on record and paper book filed by the Ld. AR on behalf of the assessee. We have also perused the decisions cited before us. It is the contention of the Ld. Counsel for the assessee that the assessee had made a bonafide claim of health and education cess which was approved by the various High Courts including the Hon'ble Jurisdictional Bombay High Court in the case of Sesa Goa Limited Vs. JCIT (2020) 117 taxmann.com 96 (BOM) and the Hon'ble Rajasthan High Court in the case of G R Infraprojects Limited (supra). The allowability of cess as an expense was highly debatable issue which stood rested by the amendment brought in by the Finance Act, 2022 with retrospective effect. We find that before the amendment there were several favourable judgments allowing the claim of cess as an expense by the assessee. Admittedly, the assessee has already accepted the impugned disallowance on account of claim of health and education cess during the course of assessment proceedings and filed a letter for a voluntary disallowance of health and education cess. Post amendment brought by the Finance Act, 2022, the assessee also filed F....
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....ereon within specified time. 11. Learned counsel has further argued that the benefit of allowable deduction of education cess was claimed by the petitioner-company when it was permitted as per law, however, as soon as the amendment under Section 155 of the Act was introduced by way of inserting sub-section (18), the petitioner company immediately suo moto withdrew its claim for cess amounting to Rs. 12,85,58,982/- to buy mental peace and to avoid litigation and levy of penalty etc. vide letter dated 19.03.2022. In such circumstances, it cannot be said that the petitioner-company has concealed any fact or misrepresented. In the above circumstances, it cannot be said that the petitioner company has under-reported the income by way of misreporting. 12. .......... 13. .......... 14. .......... 15. Per contra, learned counsel for the respondents countering the submissions of counsel for petitioner on merits has argued that the respondent-department has not committed any illegality in passing the impugned order as the petitioner-company is not eligible for immunity from levying of penalty under Section 270AA of the Act. 16. Heard lear....
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....mposition of penalty under section 270A and initiation of proceedings under section 276C or section 276CC, if he fulfils the following conditions, namely:- (a) the tax and interest payable as per the order of assessment or reassessment under sub-section (3) of section 143 or section 147, as the case may be, has been paid within the period specified in such notice of demand; and (b) no appeal against the order referred to in clause (a) has been filed. (2) An application referred to in sub-section (1) shall be made within one month from the end of the month in which the order referred to in clause (a) of sub-section (1) has been received and shall be made in such form and verified in such manner as may be prescribed. (3) The Assessing Officer shall, subject to fulfilment of the conditions specified in sub-section (1) and after the expiry of the period of filing the appeal as specified in clause (b) of sub-section (2) of section 249, grant immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C or section 276CC, where the proceedings for penalty under section 270A has not been initiated under the circu....
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.... assessee seeking immunity from imposition of penalty under Section 270A within a period of one month from the end of month in which the application under sub-section (1) is received. 24. In the case of Schneider Electric South East Asia (HQ) Pte Ltd. (supra), Delhi High Court has held as under: "6. Having perused the impugned order dated 09th March, 2022, this Court is of the view that the Respondents' action of denying the benefit of immunity on the ground that the penalty was initiated under Section 270A of the Act for misreporting of income is not only erroneous but also arbitrary and bereft of any reason as in the penalty notice the Respondents have failed to specify the limb - "underreporting" or "misreporting" of income, under which the penalty proceedings had been initiated. 7. 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 assessment order to deny immunity from imposition of penalty and prosecution mak....
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....on 270AA of the Act, which reads as under: 270AA xxxx xxxx xxxx The Assessing Officer shall, within a period of one month from the end of the month in which the application under sub-section (1) is received, pass an order accepting or rejecting such application: Provided that no order rejecting the application shall be passed unless the assessee has been given an opportunity of being heard. xxxx xxxx xxxx 13. The proviso to Sub-section (4) of Section 270AA of the Act makes it amply clear that before an application of rejected, the applicant must be given an opportunity of being heard. In the present case, there is no dispute that the petitioner was not afforded the said opportunity. 14. In view of the above, this Court considers it apposite to set aside the impugned order as the same has been passed without following the procedure as set out in Section 270AA(4) of the Act." 27. In the present case, neither in the assessment order dated 22.09.2022 nor in the subsequent show-cause notices, the Assessing Officer has specified that the case of the petitioner company is covered under which part of sub-section (9) of Section 270A of the Act. Even in th....
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....ontrary to the satisfaction recorded in the assessment order where the penalty proceedings were initiated for misreporting of income. Further, the penalty is levied @ 200% u/s 270A(8) of the Act for under reporting of income as a consequence of misreporting. In the penalty order, the AO alleged that assessee has claimed deduction of Rs. 99,58,838/- on account of Education Cess which is not allowable expenditure wholly and exclusively for the purposes of business. Further, the AO has placed reliance of amendment made in Finance Act 2022 where it is provided that corporate cannot claim deduction for taxes paid as cess u/s 37(1) of the Act. Such amendment was retrospective in nature and, accordingly, AO was of the opinion that assessee has under reported its income as a consequence of misreporting. Identical issue was came up before the Co-ordinate Bench of ITAT, Bengalore, wherein the Co-ordinate Bench in Para 5.10 to 5.12 has observed as under:- "5.10 Therefore, it goes without saying that for the applicability of section 270A of the Act, the conditions stated therein must be strictly followed. A mere making of the claim which is based on a honest and bonafide belief and ev....
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.... of the assessee". 7. Since, in the instant case, the assessee has made a bonafide claim which was approved by various High Courts in the case of Sesa Goa Ltd. Vs. JCIT reported in [2020] 117 taxman.com 96 (Bombay) and Chambal Fertilisers & Chemicals Ltd. Vs. JCIT reported in D.B. ITA No.52 of 2018 (Rajasthan High Court). Thus, claim of the assessee was not malafide and the allowability of Education Cess as expenses is highly debatable which stood resolved by the amendment made in Finance Act, 2022. At this juncture, it is relevant to state the explanation given in the "Memorandum explaining the provisions of Finance Bill, 2022" wherein while explaining the amendment proposed in Clause -13, it is observed as under: "Clarification regarding treatment of cess and surcharge Section 40 of the Act specifies the amounts which shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession". Sub-clause (ii) of clause (a) of section 40 of the Act provides that any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis ....
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....evenue observing as under:- "In our judgment it is unnecessary to express any opinion in the matter because the essential point for determination is whether surcharge is an additional mode or rate for charging income tax. The meaning of the word "surcharge" as given in the Webster's New International Dictionary includes among others "to charge (one) too much or in addition" also "additional tax". Thus the meaning of surcharge is to charge in addition or to subject to an additional or extra charge. If that meaning is applied to s. 2 of the Finance Act 1963 it would lead to the result that income tax and super tax were to be charged in four different ways or at four different rates which may be described as (i) the basic charge or rate (In part I of the First Schedule); (ii) Sur-charge; (iii) special surcharge and (iv) additional surcharge calculated in the manner provided in the Schedule. Read in this way the additional charges form a part of the income tax and super tax" 21. The Hon'ble Supreme Court, therefore, has decided the issue in favour of the revenue and held that surcharge and additional surcharge are part of the income-tax. At this stage, it is perti....
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....TURE SECTION 40(a)(ii), Recently a case has come to the notice of the Board where the ITO has disallowed the 'cess' paid by the assessee on the ground that there has been no material change in the provisions of s.10(4) of the old Act and s.40(a)(ii) of the new Act. 2. The view of the ITO is not correct. Clause 40(a)(ii) of the IT Bill, 1961 as introduced in the Parliament stood as under: "(ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains". When the matter came up before the Select Committee, it was decided to omit the word 'cess' from the clause. The effect of the omission of the word 'cess' is that only taxes paid are to be disallowed in the assessments for the year 1962- 63 and onwards. 3. The Board desire that the changed position may please be brought to the notice of all the ITOs so that further litigation on this account may be avoided." 6. In the above referred Circular issued by CBDT, 'Cess' is to be allowed under sub-clause (ii) of clause (a) of section 40 of the Act. H....
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....se of the Union. The word "surcharge" has thus been used to either increase the rates of income tax and super tax or to increase these taxes. The scheme of the Finance Act of 1971 appears to leave no room for doubt that the term Income tax" as used in Section 2 includes surcharge." 8. Since the judgments of Rajasthan High Court and Bombay High Court did not consider the judgment of Hon'ble Supreme Court discussed above, the judgments of these two High Courts appear to be per incuriam. It may be mentioned that in paragraph 578 at page 297 of Halsbury's Laws of England, Fourth Edition, the rule of per incuriam is stated as follows "A decision is given per incuriam when the court has acted in ignorance of a previous decision of its own or of a court of coordinate jurisdiction which covered the case before it, in which case it must be decided which case to follow; or when it has acted in ignorance of a House of Lords decision, in which case it must follow that decision; or when the decision is given in ignorance of the terms of a statute or rule having statutory force." 9. From the above discussion it may be seen that the interpretations of two High court....
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.... filed on 13.02.2021 and at the time of filing the Return, there were judgments of certain Jurisdictional as well as Non jurisdictional High Courts and the Tribunals cited supra in favour of the assessee and accordingly the assessee company claimed the same as expenditure in the original return of income based on an honest & bonafide belief that these are allowable expenditure. The assessee company not only contended the same before the AO but also before the ld. CIT(A). The Authorities below have also not disapproved that the judgments relied upon by the assessee company are incorrect. We are of the opinion that everything would depend upon the Return of Income filed because that is the only document where the assessee company can under report its Income or mis-report its Income. When such Income are found to be under reported in the return of Income or misreported in the return, then only the liability would arise. It is also an undisputed facts that with regard to employee's contribution towards PF, the assessee contended before the authorities below that the claim was made in the return of income based on the decision of Hon'ble Jurisdictional High Court of Karnataka in the cas....
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....word "Cess" within the meaning of tax which was not there at the time of filing the return for the Asst. year 2020-21. Therefore, the assessee company before the completion of assessment also filed a letter together with the revised computation of income withdrawing the claim of deduction of the Health & education cess as expenses since the filing of revised return was barred by time, which fact has been duly noted and accepted in the Assessment Order. Therefore we also find merits in this contention of the assessee too. 5.1 We also cannot brush aside the fact that assessee company had also filed Form No. 68 on 6.10.2022 as per the provision contained u/s 270AA(2) of the Act requesting for grant of immunity. The AO merely by stating that on the basis of the facts of the case, it is seen that it is not a case wherein immunity u/s 270A can be granted & accordingly rejected the application for grant of immunity vide Order dated 28/11/2022. The AO has levied penalty u/s 270A of the Act both under the provisions of sub-section (7) of section 270A of the Act as well as sub-section (8) of section 270A of the Act totaling Rs. 84,58,184/-. The penalty under sub-section (7) of secti....
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....e. (3) The amount of under-reported income shall be,- (i) in a case where income has been assessed for the first time,- (a) if return has been furnished, the difference between the amount of income assessed and the amount of income determined under clause (a) of subsection (1) of section 143; (b) in a case where no return of income has been furnished or where return has been furnished for the first time under section 148,- (A) the amount of income assessed, in the case of a company, firm or local authority; and (B) the difference between the amount of income assessed and the maximum amount not chargeable to tax, in a case not covered in item (A); (ii) in any other case, the difference between the amount of income reassessed or recomputed and the amount of income assessed, reassessed or recomputed in a preceding order: Provided that where under-reported income arises out of determination of deemed total income in accordance with the provisions of section 115JB or section 115JC, the amount of total under-reported income shall be determined in accordance with the following formula- (A - B) + (C - D) ....
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.... amount added or deducted in the first preceding year is not sufficient to cover the receipt, deposit or investment, the year immediately preceding the first preceding year and so on. (6) The under-reported income, for the purposes of this section, shall not include the following, namely:- (a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered; (b) the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom; (c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on th....
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.... were the total income; (c) in any other case, determined in accordance with the formula-(XY) where, X = the amount of tax calculated on the under-reported income as increased by the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order as if it were the total income; and Y = the amount of tax calculated on the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order. (11) No addition or disallowance of an amount shall form the basis for imposition of penalty, if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year. (12) The penalty referred to in sub-section (1) shall be imposed, by an order in writing, by the Assessing Officer, the Commissioner (Appeals), the Commissioner or the Principal Commissioner, as the case may be. "270AA. Immunity from imposition of penalty, etc.- (1) An assessee may make an application to the Assessing Officer to g....
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....emand payable has been paid within the period specified in the notice of demand. 2. The Order of assessment or Re-assessment must be passed u/s 143(3) and/or u/s 147 of the Act. 3. No appeal against the aforesaid order has been filed by the assessee. 4. Application in form 68 shall be made within one month from the end of the month in which the order has been received. 5. The proceedings for the penalty has not been initiated under the circumstances referred in section 270A(9) of the Act. 5.4 In the present case, no tax and interest demand payable is required to be paid as per the notice of demand issued u/s 156 of the Act. The assessment order is passed u/s 143(3) r.ws. 144B of the Act on 16.9.2022. Further, as stated by the ld. A.R. of the assessee, no appeal has been filed against assessment order dated 16.9.2022 and the assessee filed an application in form 68 (placed in page 53 of the appeal paper book) on 6.10.2022 i.e. within one month from the end of month in which the Assessment order has been received and the penalty for disallowance of employees contribution to EPF amounting to Rs.16,61,049/- is levied for under reporting of i....
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.... (International Taxation) & Ors. Writ Petn. No. 5111 of 2022, has held, "This Court is further of the view that the impugned action of respondent No. 1 is contrary to the avowed legislative intent of s. 270AA of the Act to encourage/incentivize a taxpayer to (i) fasttrack settlement of issue, (ii) recover tax demand; and (iii) reduce protracted litigation." 10. Consequently, the impugned order under s. 270A of the Act is set aside and the respondents are directed to grant immunity under s. 270AA of the Act to the petitioner. With the aforesaid directions, the present writ petition along with pending applications stands disposed of." 5.6 Further in the present case as we read the order of assessment, the AO initiated the penalty proceeding u/s 270A for under reporting of income in consequence of misreporting of income on the alleged ground that the assessee company suppressed its true income by misrepresentation of facts/suppression of facts whereas the AO while passing the penalty Order had observed that notice u/s 274 r.w.s 270A of the Act was issued on 16/09/2022 asking the assessee to show cause why a penalty should not be levied on the above two additions for ....
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....m clause (a) to (f) of Section 270A(9) was determinant before imposing penalty u/s 270A of the Act has rendered the proceedings invalid and thus untenable in the eyes of law. 5.10 Therefore, it goes without saying that for the applicability of section 270A of the Act, the conditions stated therein must be strictly followed. A mere making of the claim which is based on a honest and bonafide belief and even offered for taxation before the completion of assessment by itself will not amount to under reporting resulting in misreporting of income. 5.11 In the present case, the assessee company well before the completion of the assessment proceedings i.e. on 16.9.2022 filed a letter to AO for voluntary declaration of health and education cess by enclosing the revised computation. Considering the totality of the case, we are of the opinion that provisions of section 270A(6)(a) of the Act is squarely applicable in case of assessee company. Here, the assessee offered an explanation before the AO and we are of the opinion that the explanation is also bonafide. Since the assessee company claimed the deduction based on decision of Hon'ble jurisdictional & Non Jurisdictional Hi....