Non Specification Of Penalty Provisions In Penalty Notice And Denial Of Immunity; Delhi High Court Holds That Assessee Is Eligible For Immunity, Says Tax Payer Should Be Incentivised.
The Delhi High Court has ruled that the action of income tax authorities denying the benefit of immunity from penalty under Section 270AA of Income Tax Act to the assessee on the ground that penalty was initiated under Section 270A for misreporting of income is arbitrary since the penalty notice issued by the authorities failed to specify the limb under which the penalty proceedings...
The Delhi High Court has ruled that the action of income tax authorities denying the benefit of immunity from penalty under Section 270AA of Income Tax Act to the assessee on the ground that penalty was initiated under Section 270A for misreporting of income is arbitrary since the penalty notice issued by the authorities failed to specify the limb under which the penalty proceedings were initiated.
The Bench, consisting of Justices Manmohan and Dinesh Kumar Sharma, held that since the authorities had failed to specify whether action was taken against the assessee for "underreporting" or "misreporting" of income under Section 270A of the Act, the order of the income tax authorities denying immunity from imposition of penalty was erroneous and arbitrary.
The Assessee Schneider Electric South East Asia (HQ) Pte Ltd. filed an application seeking immunity from imposition of penalty under Section 270A of the Income Tax Act for the relevant Assessment year. The application of the Assessee was rejected by the Assistant Commissioner of Income Tax (International Taxation) (ACIT(IT)) under Section 270AA(4) of the Act. The Assessee filed a writ petition before the Delhi High Court against the order of the ACIT(IT).
The the Assessee/Petitioner Schneider Electric submitted before the High Court that all the facts, information and documents submitted by the Assessee had been accepted by the income tax department and there could not be any allegation of "misreporting" of income on the part of the Assessee. The revenue contended that the Assessee was not entitled to the benefit of immunity under Section 270AA of the Act.
Section 270A(1) of the Income Tax Act gives the specific income tax authorities the power during the course of proceedings under the Act to direct any person who has under-reported his income to pay penalty in addition to tax, if any, on the under-reported income. Section 270A (8) provides that where under-reported income is in consequence of any misreporting by any person, the penalty referred to in Section 270A (1) shall be equal to two hundred per cent of the amount of tax payable on under-reported income. Also, Section 270AA provides that an assessee may make an application to the Assessing Officer to grant immunity from imposition of penalty under Section 270A of the Act on fulfilling the specified conditions.
The High Court ruled that the income tax authorities' action of denying the benefit of immunity under Section 270AA on the ground that penalty was initiated on Assessee for misreporting of income was erroneous, arbitrary and bereft of any reason since the penalty notice issued by the authorities failed to specify the limb under which the penalty proceedings were initiated, i.e., the authorities failed to specify whether action was taken against the Assessee for "underreporting" or "misreporting" of income under Section 270A of the Act. The High Court therefore held that the order issued under Section 270AA of the Act rejecting Assessee's application for immunity on the ground that penalty was initiated for misreporting of income was manifestly arbitrary.
"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 makes the impugned order manifestly arbitrary."
The High Court ruled that the action of the income tax authorities in rejecting the application of the Assessee seeking impunity from penalty under Section 270A is contrary to the legislative intent envisioned under Section 270AA. The High Court observed that the intention of Section 270AA is to encourage and incentivize a taxpayer to undertake fast-track settlement of issues, recover tax demand and reduce protracted litigation.
Therefore, the High Court allowed the writ petition of the Assessee and set aside the order passed by the ACIT (IT). The Court directed the ACIT (IT) to grant immunity under Section 270AA of the Act to the Assessee/Petitioner.
Case Cited: Schneider Electric South East Asia (HQ) PTE Ltd Versus Assistant Commissioner Of Income Tax, International Taxation, New Delhi And Ors.
Dated: 28.03.2022 (Delhi High Court)
Counsel For The Petitioner: Mr. Sachit Jolly, Mr. Rohit Garg, Ms. Disha Jham, Ms. Mehak Sachdeva And Mr. Sohum Dua, Advocates.
Counsel For The Respondent: Mr. Sunil Agarwal, Senior Standing Counsel With Mr. Tushar Gupta And Mr. Amarth Chaudhari, Advocates.
Citation: 2022 LiveLaw (Del) 257
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