2022 (3) TMI 1295 - HC - Income Tax

Penalty under section 270A - Penalty for under-reporting and misreporting of income - HELD 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 makes the impugned order manifestly arbitrary. This Court is of the opinion that the entire edifice of the assessment order framed by Respondent No.1 was actually voluntary computation of income filed by the Petitioner to buy peace and avoid litigation, which fact has been duly noted and accepted in the assessment order as well and consequently, there is no question of any misreporting. This Court is further of the view that the impugned action of Respondent No.1 is contrary to the avowed Legislative intent of Section 270AA of the Act to encourage/incentivize a taxpayer to (i) fast-track settlement of issue, (ii) recover tax demand; and (iii) reduce protracted litigation.

Summary

Issues:
Challenge to impugned order under section 270AA(4) of the Income Tax Act, 1961 for immunity from penalty under section 270A for Assessment Year 2018-19.

Analysis:
The petitioner filed a writ petition challenging the order passed by Respondent No.1 under section 270AA(4) of the Income Tax Act, 1961, rejecting the application seeking immunity from penalty under section 270A for the Assessment Year 2018-19. The petitioner sought immunity from penalty under section 270AA of the Act for the income assessed in the assessment order dated 23rd June, 2021. The impugned order dated 09th March, 2022, rejected the petitioner's application on the grounds that it did not fall within the scope of section 270AA of the Act.

The petitioner argued that the impugned order was time-barred under section 270AA(4) of the Act as it was passed well beyond the prescribed period. The facts, information, and documents submitted by the petitioner were accepted by the respondents, and the dispute revolved around a question of law regarding the interpretation of contracts and provisions of the Act and DTAA, with no allegation of misreporting of income by the petitioner.

Upon perusing the impugned order, the Court found that the denial of immunity by the respondents was erroneous, arbitrary, and lacked reasoning. The penalty proceedings initiated under section 270A did not specify whether it was for underreporting or misreporting of income, rendering the order arbitrary. The Court noted that the assessment order was a voluntary computation of income by the petitioner to avoid litigation, with no misreporting involved.

The Court opined that the actions of Respondent No.1 were contrary to the legislative intent of section 270AA of the Act, which aims to encourage taxpayers to settle issues quickly, recover tax demand, and reduce litigation. Consequently, the impugned order dated 09th March, 2022, was set aside, and Respondent No.1 was directed to grant immunity to the petitioner under section 270AA of the Act. The writ petition and pending applications were disposed of in light of the Court's directions.