Under-Reporting And Misreporting Are Viewed As Separate And Distinct Misdemeanours; Delhi High Court Quashes Penalty

The Delhi High Court, while quashing the penalty, has held that both under-reporting and misreporting are viewed as separate and distinct misdemeanours.

The bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav has observed that, as per Section 270A(1), a person would be liable to be considered to have under-reported their income if the contingencies spoken of in clauses (a) to (g) of Section 270A(2) were attracted. In terms of Section 270A(3), the under-reported income is liable to be computed in accordance with the prescribed stipulations.

The two writ petitions were filed challenging the orders pursuant to which the applications of the petitioner referable to Section 270AA(4) of the Income Tax Act, 1961 for being accorded immunity from imposition of penalty have come to be rejected. Pursuant to the amendments that were permitted to be moved in the writ petitions, the petitioner has challenged the notices for levy of penalty under Section 270A.

The appellant/non-resident assessee is in the business of giving software licences and other IT support services to Indian firms. The assessee was assessed a tax on the payments received from the entities as royalty in terms of Section 9(1)(vi) of the Income Tax Act, read with Article 12 of the India-USA DTAA.

The department classified the payments as royalties. The penalty proceedings were initiated under Section 270A.

The assessee filed an application for immunity under Section 270AA, which was rejected by the AO, stating that mere payment of demand does not, ipso facto, amount to protection against or a claim against misreporting as envisaged by Section 270A(9).

The assessee has challenged the AO's order and notices initiating penalty proceedings under Section 270A.

The court noted that non-payment of tax by the assessee was justified due to uncertainty in the legal position existing at the time of filing the return of income and such a scenario outside the scope of 'mis-reporting'.

The court quashed the show cause notice instituting penalty proceedings under Section 270A and consequently finds no further justification to pursue or remit the matter back to the AO for reconsideration.

Counsel For Petitioner: Sachit Jolly

Counsel For Respondent: Puneet Rai

Case Title: GE Capital Us Holdings Inc Versus Dy Commissioner Of Income Tax (International Taxation)

Citation: 2024 LiveLaw (Del) 696

Case No.: W.P.(C) 1646/2022

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