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Facts
The assessee, a real estate firm, initially declared a loss. During assessment, the AO accepted the assessee's claim to treat rental income as business income rather than house property income, leading to a revised income. The AO also issued a penalty notice under Section 270A for under-reporting of income.
Held
The Tribunal held that the assessee had complied with the conditions under Section 270AA by paying the demand and filing the application for immunity within the stipulated period. The AO's failure to pass an order on the immunity application was not the assessee's fault.
Key Issues
Whether the penalty under Section 270A for under-reporting of income can be imposed when the assessee has complied with the provisions of Section 270AA for seeking immunity, and the AO has failed to act on the immunity application.
Sections Cited
143(3), 270A, 270A(6), 270AA, 270AA(1), 270AA(2), 270AA(4)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI, VICE – & SHRI SOUNDARARAJAN K.
ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 07/11/2024 in respect of the A.Y. 2017-18 and raised the following grounds: “
1. That the order of the learned Commissioner of Income Tax (Appeals), in so far it is prejudicial to the interests of the appellant, is erroneous in law and against the facts and circumstances of the case.
2. The learned Commissioner of Income Tax (Appeals) erred in law and on facts in confirming the penalty order u/s 270A without considering the appreciating that the 25.08.2021 has not been adjudicated in the true spirit of the law,.
3. The learned Commissioner of Income Tax (Appeals) erred in law and on facts in not granting immunity from the penalty without considering the fact that the assessee has complied with section 270AA(l) by paying the demand as per the order of the assessment within the due date mentioned in the demand notice and not filing appeal against the assessment order.
4. The learned Commissioner of Income Tax (Appeals) erred in law and on facts in not granting immunity from the penalty even though the assessee has complied with the conditions mentioned in section 270AA(2) by filing Form 68 with the jurisdictional assessing officer within one month from the end of the month in which order of assessment u/s 143(3) was passed.
That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in not adjudicated the additional ground raised
during the appellate proceedings even though the said ground was legal in nature.
6. That the learned Commissioner of Income Tax (Appeals) ought to have held that the claim of depreciation in the return of income is purely based on the bonafide belief and therefore, the benefits under provisions of section 270A(6) of the Act has to be granted.
7. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in holding that the disallowances made in the assessment order amounts to under-reporting of income. Each of the above grounds is without prejudice to one another and the appellant herein seeks the leave of the Hon'ble Income Tax Appellate Tribunal, Bangalore to add, delete, amend or otherwise modify one or more of the above grounds either before or at the time of hearing of this appeal.”
The brief facts of the case are that the assessee is a firm in the business of real estate development and investment in properties and received rentals out of it. During the year, the assessee filed their return of income and declared a total loss. Thereafter, the notice u/s. 143(2) was issued and the assessment was completed u/s. 143(3) of the Act in which the income has been arrived at Rs. 1,62,58,927/- as against the loss of Rs. 2,67,93,074/-. The assessee while computing the income had debited an expenditure of Rs. 11,03,13,398/- as against the rental income but while adjudicating the issue, the assessee made a claim that the rental income of the assessee would fall under the head profits and gains of business or profession instead of the head income from house property. Thereafter, the AO verified the various documents and accepted the claim made by the assessee for the change of head and arrived the income of Rs. 1,43,86,602/- Some other issues were also not accepted by the AO in his order made u/s. 143(3) of the Act. Finally, the AO had raised a balance demand of Rs. 70,73,090/- and also issued a penalty notice u/s. 270A r.w.s. 274 for under reporting of income. Since the assessee had claimed the rental income under the head income from house property when the same is to be taxed under the head profits and gains of business or profession, it was contended that it would not fall under the provision 270A of the Act and could not be treated as under reporting of income.
Anyhow in order to avoid further disputes and in order to get the immunity from the payment of penalty u/s. 270A, the assessee voluntarily paid the dues and also filed an application in form no. 68 as per section 270AA(2) of the Act seeking an immunity from the imposition of penalty.
The demand notice was issued by the AO on 26/12/2019 and hence the amount paid on 18/01/2020 and 24/01/2020 were within the period mentioned in the demand notice. As against the said order passed u/s. 143(3) of the Act, the assessee had also not filed an appeal before the appellate authority. Further, the application for grant of immunity for imposition of penalty in form no. 68 was also filed on 24/01/2020 within the period mentioned u/s. 270AA(2) of the Act. The assessee informed the said facts to the AO while filing objections to the show cause notice issued for imposition of penalty u/s. 270A of the Act. The AO had rejected the reply filed by the assessee on the ground that the jurisdictional AO has not
5. As against the said order, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) also dismissed the appeal on the ground that the assessee had not produced any order granting immunity from imposition of penalty u/s. 270AA(4) of the Act and also observed that the assessee had accepted the assessment order of the AO which means that he had accepted the under reported of the particulars of income.
As against the said order, the assessee is in appeal before this Tribunal.
At the time of hearing, the Ld.AR also filed a paper book in which the written submissions, application to accept the additional grounds, challan copies for the payment of tax and interest as per the demand notice and the application in form no. 68 for granting immunity from imposing penalty u/s. 270AA were furnished along with the orders of the various Tribunals.
The Ld.AR further submitted that the mere showing the income under the head income from house property and subsequently, claimed the same as profits and gains of business or profession, that too based on the Hon’ble Super Court order could not be treated as an underreporting of income and hence the penalty u/s. 270A need not be imposed.
The Ld.DR relied on the orders of the lower authorities.
We have heard the arguments of both sides and perused the materials available on record.
The assessee being in the business of real estate and earned income from the rental, shown the said income as income from house property and claimed the deductions and arrived a loss. Subsequently, based on the Hon’ble Supreme Court judgment, at the time of assessment, he requested to treat the income under the head profits and gains of business or profession. This claim was also accepted by the AO and the assessment was completed u/s. 143(3) in which an income of Rs. 1,62,58,927/- has been arrived. Therefore it could not be treated as under reported income.
Even assuming that the same is an under reporting, the assessee in order to settle the issue, had decided to get the immunity from the imposition of penalty u/s. 270AA of the Act. To avail the immunity, the assessee had also paid the balance dues within the stipulated period and also filed an application in form 68 to the assessing officer within the said period. Further, the assessee had accepted the assessment order and no appeal has been filed by him as against the said order passed u/s. 143(3) of the Act. From the perusal of the section 270AA, the assessee had complied with the conditions imposed u/s 270AA, to avail the immunity from the imposition of penalty. The assessee had done his duty as per the provisions and the AO who has received the form 68 ought to have passed an order within a period of one month from the date of the receipt of the application in form 68. But unfortunately, the AO had not taken any action on the said application. The said facts were intimated to the AO while filing reply to the show cause notice for the imposition of penalty but unfortunately the AO had not accepted the reply on the ground that the AO had not uploaded any order passed u/s. 270AA(4) of the Act. It is not the mistake of the assessee but it is the mistake of the AO in not passing the order when all the other requirements are complied with. When there is a provision granting some benefits to the assessee, it should be seen that the benefits should reach the assessee at any cost. Instead of granting the benefit u/s. 270AA of the Act, the AO had imposed the penalty u/s. 270A of the Act only because the AO had not passed any order u/s. 270AA(4) of the Act.
The appellate authority being a quasi judicial authority, also failed to appreciate the fact that the assessee had complied with all the requirements by paying the demands and also filing an application in form 68 but
The AO’s inaction in not passing any order on the application in form no. 65 cannot be attributed to the assessee and the immunity cannot be rejected on the said ground.
We have also gone through the judgment of the Hon’ble Delhi High Court in W.P.(C) 5111/2022 and C.M. Nos. 15165-15166/2022 dated 28/03/2022 in the case of Schneider Electric South East Asia (HQ) Pte Ltd. vs. ACIT in which the Hon’ble Delhi High Court had held as follows: “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 makes the impugned order manifestly arbitrary. 8. 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. 9. 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 (ii) recover tax demand; and (iii) reduce protracted litigation. 10. Consequently, the impugned order dated 09th March, 2022 passed by Respondent No.1 under Section 270AA (4) of the Act is set aside and Respondent No.1 is directed to grant immunity under Section 270AA of the Act to the Petitioner.”
Respectfully following the principles laid down by the Hon’ble Delhi High Court, we are setting aside the orders of the AO as well as the Ld.CIT(A) and direct the AO to grant the immunity u/s. 270AA of the Act to the assessee, if there is no other impediment.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 25th June, 2025.