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Facts
The assessee claimed cost of improvement amounting to Rs. 4,19,720/- which was disallowed by the Assessing Officer (AO) for want of evidence. The AO initiated penalty proceedings under Section 270A of the Income Tax Act, 1961. The assessee appealed to the CIT(A), who confirmed the penalty. The assessee is now in appeal before the Tribunal.
Held
The Tribunal held that the disallowance of cost of improvement was due to lack of substantiation, not misreporting of income. The AO failed to specify which limb of Section 270A was attracted, and the penalty notice was vague. Therefore, the penalty was deleted.
Key Issues
Whether the disallowance of a claim due to lack of evidence amounts to 'misreporting' or 'under-reporting' of income, justifying the levy of penalty under Section 270A. Whether the penalty proceedings were validly initiated without specifying the limb of Section 270A.
Sections Cited
250, 270A, 143(3), 142(1), 270AA, 155, 40, 154, 246, 246A, 264, 249, 276C, 276CC
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCHES,”SMC” JAIPUR
Before: SHRI RATHOD KAMLESH JAYANTBHAI, AM & SHRI NARINDER KUMAR, JM vk;dj vihy la-@ITA No. 577/JP/2025
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”SMC” JAIPUR Jh jkBkSM+ deys'k t;UrHkkbZ] ys[kk lnL; ,o Jh ujsUnz dqekj] U;kf;d lnL; ds le{k BEFORE: SHRI RATHOD KAMLESH JAYANTBHAI, AM & SHRI NARINDER KUMAR, JM vk;dj vihy la-@ITA No. 577/JP/2025 fu/kZkj.k o"kZ@Assessment Year : 2022-23 cuke Urmila Rajendra Mundra Income Tax Officer, Vs. Prop. M/s Jai Shree Agency Ward 2(2), 24/96, Tulsi Bhawan, Babu Ajmer Mohalla Kaiser Ganj, Ajmer 305001 LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABNPM1004A vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Sunil Porwal, CA jktLo dh vksj ls@ Revenue by : Sh. Gautam Singh Choudhary, JCIT lquokbZ dh rkjh[k@ Date of Hearing : 30/07/2025 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 01/08/2025 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM
By way of a present appeal, the assessee challenges the order of learned National Faceless Appeal Centre, Delhi [ for short ‘CIT(A)’] passed u/s 250 of the Act on 24.03.2025 for Assessment Year 2022-23. The said order of the ld. CIT(A) arise as against the penalty order dated 26.09.2024 passed under section 270A of the Income Tax Act, 1961 [ for short Act] by the Income Tax Officer, Ward 2 (2), Ajmer.
“That Ld. CIT(A), NFAC, Delhi has wrongly confirmed the levy of penalty u/s 270A of Rs. 2,03,488/- considering disallowances of interest capitalized of Rs. 4,89,159/- for calculation of capital gain (index value of Rs. 4,19,720/-).
3. Succinctly, the fact as culled out from the records is that in the quantum proceeding the claim of cost of improvement of Rs. 4,19,720/- being the interest capitalized by the assessee was disallowed. Against that disallowance for claim of cost of expenditure the assessee did not prefer any appeal accepted that disallowance. Based on that set of facts as there was initiation of penalty proceeding as per provision of section 270A of the Act the assessee was asked to show cause as to why the penalty proceeding should not be initiated against the assessee and thereby a final notice was issued on 13.09.2024. The assessee filed her reply on 19.09.2024 stating that there was no speciation as to the fact that the assessee misreported the income or under reported. The assessee submitted that against the claim of interest as cost of acquisition the assessee has filed the copy of the bank statement and there supported the claim made by the assessee. In the quantum proceeding when the claim was disallowed and since the assessee was not having any further tax burden has not preferred an appeal. Based that set of fact the assessee reply filed by the assessee but did not consider as tenable. Having considered the reply of the assessee ld. AO noted that the assessee has misreported the income of Rs. 4,89,159/- and therefore, ld. AO order to levy the penalty @ 200 % of the tax on the under reported income for an amount of Rs. 2,03,488/-.
Aggrieved by that order of levying the penalty the assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised by the assessee the relevant finding of the ld. CIT(A) is reiterated here in below:
“I have examined facts of the case and gone through, SOF, GOA and records in the present case. GoA no. 1 and GoA no. 2 challenge the penalty on the ground that the addition made by the AO did not come in the category of misreporting of income. In this case, the appellant claimed cost of improvement on account of capitalised interest and increased cost of acquisition resulting into accepting less liability for income tax but failed to substantiate it by producing supporting documents. In this case, while passing the assessment order, the AO disallowed this cost as the assessee failed to prove genuineness of this claim. It is noticed from the Order that the appellant did not dispute the addition. When the claim of the appellant was disallowed for want of any documentary evidence, the addition attained finality and looking to the nature of addition, it cannot be said that the additions were result of any difference in opinion. False claim of deduction falls in the category of misreporting of income and, therefore, penalty was rightly imposed in this case. The case-law cited by the appellant is distinguishable on facts of the case as in the present one, no documentary evidence was filed in support of claim towards cost of improvement. Further with respect to the argument of the appellant regarding failure of the AO to classify the case either in the category of 'under- reporting' or' misreporting', it is clear from the language of provisions of section 270A(1) of the Act that the penalty is to be levied when there is under reporting of income. Only the quantum of penalty varies when there is 'under-reporting' and Urmila Rajendra Mundra vs. ITO 'misreporting' which terms have been explained in section 270A(2) and section 270A(9), respectively. The AO has used words "under reporting in consequence of misreporting" which are the same as mentioned in provisions of sub-section (8) of section 270A of the Act. This argument is dismissed. Both the grounds are, therefore, dismissed. The appeal is dismissed.”
Feeling dissatisfied with that order of the ld. CIT(A) the assessee has preferred the present appeal before this tribunal on the solitary ground of challenging the levy of penalty. To support the ground raised by the assessee, ld. AR of the assessee, has filed the written submissions which reads as follows:
Assessment u/sec 143(3) of Act was passed on 07.03.2024 by making following additions (disallowances). Issue Particulars Addition 1. Disallowance on account of 4,89,159 capitalized interest on borrowed capital (set off against capital loss in schedule CG)
2. During the year assessee has sold immoveable property (Flat No. 414 Jaipur) for Rs. 16,05,500) on 20.07.2021 (1/2 share as co- owner) (Full value of sale is Rs. 32,11,000/-).
On this property interest paid to IDFC Bank during construction period Rs. 4,19,720/- was paid & Capitalized (Indexed to Rs. 4,89,159) & claimed as “COST OF IMPROVEMENT” as per accounting standard.
3. The A.O. felt that no supporting document/evidence filed; the A.O. has preferred to made ADDITION/DISALLOWANCES on A/c of this CAPITALISED INTEREST on BORROWED CAPITAL. Accordingly, penalty proceedings u/sec 270A was intimated; stating UNDER Urmila Rajendra Mundra vs. ITO REPORTING OF INCOME in consequence to “MISREPORTING OF INCOME”.
4. The Ld. CIT(A) has also not considered the facts & has confirmed the penalty. GROUND OF APPEAL Ground No. 1 - CONSIDERING THE DISALLOWANCED OF RS. 4,89,159/- ON A/C OF CAPITALIZED INTEREST ON BORROWED CAPITAL (LOSS SET OFF) AS UNERREPORTING OF INCOME IN CONSEQUANCE OF MISREPROTING OF INCOME FOR THE LEVY OF PENALTY U/SEC 270A. Ground No. 2 - LEVY OF PENALTY OF RS. 203488 U/SEC 270A IS BAD IN LAW (BEING COMMON INTERLINKED HERE DEALT JOINTLY) A. The A.O. has disallowed A sum of Rs. 489159 being index Value of Rs 419720 being amount of Interest capitalized on Property sold (1/2 share). The reason granted by A.O. for such dis-allowance is “In absence of any supporting document / Evidences claim of “COST OF IMPROVEMENT” Rs 489159 is disallowed”.
B. Whereas the Assessee vide reply to notice u/sec 142(1) of Act date 20.07.2023 has filed complete Details/Proof for such claim.
Again on 23.08.2023 such Details/Evidence were E-Filed in response to Notice u/sec 142(1)of Act dated 17.08.2023. (Page 1 to 2)
Thus the claim of A.O. that No supporting Evidence filed is basically wrong and against Natural Justice.
C. None coming on the Merits/ Technical aspects of the Facts; The brief are- 1) That Disallowance of Interest paid for purchase of flat at Jaipur (Interest during Booking to Acquisition period); All evidences were submitted to A.O.; even for the year under consideration the A.O. has allowed Pro-Rata Interest paid (Before sale) on Rental income of such flat u/sec 24(b) of Act. Complete Loan statement of IDFC Bank was filed with Audited Accounts.
2) The A.O. has considered such “DISALLOWANCES” as under - reporting of Income in Consequences to misreporting of Income.
Sec 270A(2) of Act defines “UNDER REPORTED OF INCOME”:
(a) the income assessed is greater than the income determined in the return processed under clause (a) of sub-section (1) of section 143;
(b) the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished or where return has been furnished for the first time under section 148;
(c) the income reassessed is greater than the income assessed or reassessed immediately before such reassessment;
(d) the amount of deemed total income assessed or reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income determined in the return processed under clause (a) of sub-section (1) of section 143;
(e) the amount of deemed total income assessed as per the provisions of section 115JB or section 115JC is greater than the maximum amount not chargeable to tax, where no return of income has been furnished or where return has been furnished for the first time under section 148;
(f) the amount of deemed total income reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income assessed or reassessed immediately before such reassessment;
(g) the income assessed or reassessed has the effect of reducing the loss or converting such loss into income.
Thus the A.O. has not specifically Mentioned/ Pointed out the specific sub- clause of sec 270A(2) of Act where the default arise for “Under Reported”
Urmila Rajendra Mundra vs. ITO Further refer LD/72/2018 MUMBAI in case of SALTWATER STUDIO LLP v/s NFAC date 22-05-23 where on A/c of Claim of EXPENDITURE disallowed; Penalty u/sec 270A was deleted.
Further clause (3) to sec 270A sub clause (ii) to said section further states- The Amount of under reported Income shall be “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:
Further clause (6) sub clause (a) to sec 270A further defines UNDER-REPORTED INCOME, for the purpose of this Section Shall not Include-
The amount of income in respect of which the assessee offers an explanation and the Assessing Officer or [the Joint Commissioner (Appeals) 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; D. Now considering the PROVISIONS OF Law/ Act; The word “MISREPORTING OF INCOME” as per Clause 8 to sec 270(A) has been defined in such clause (9) to sec 270(A) read below- (a) misrepresentation or suppression of facts; (b) failure to record investments in the books of account; (c) claim of expenditure not substantiated by any evidence; (d) recording of any false entry in the books of account; (e) failure to record any receipt in books of account having a bearing on total income; and (f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply
Thus “CAPITALISATION OF INTEREST PAID TO BANK DURING CONSTRUCTION PERIOD” is neither any expenditure Nor “Unproved”, Since complete details From Date of Acquisition to Sale, Source of Acquisition, Interest paid / payable to Bank were Filed before A.O. and A.O. after considering the same has allowed deduction u/sec 24(b) of Act on Pro-rata period.
Thus the said disallowances of capitalization of Interest is neither “MISREPORTED” Nor “UNDER-REPORTED” but technically claimed.
Whether ‘misreporting’ or not – where penalty was levied on assessee u/sec. 270A alleging misreporting of income, however, fact that assessee had furnished all details of transactions relating to disallowance made u/s 14A and Assessing Officer as well as assessee had used same details to arrive at different quantum of disallowances, this by no stretch of imagination could be held to be misreporting and further, in absence of details as to which limb of section 270A was attracted, impugned penalty order was to be quashed and revenue was to be directed to grant immunity u/s 270AA [Prem Brothers Infrastructure LLP v. NFAC [2022] 142 taxmann.com 38/288 Taxman 768 (Delhi)].
Thus, till the AO do not specifically mention the “LIMB of clause 9 to section 270A” the fact of AO cannot be considered for “MISREPORTING” and thus the AO was suppose to grant immunity u/sec. 270AA and this order of AO is requested to be quashed.
The assessee has applied for immunity u/sec. 270AA by filing form 68 (Rule 129) which also has been denied by AO since considered such disallowances as “MISREPORTING” enclosed copy of notice u/sec. 270AA dated 02/05/2024 of Income Tax Officer, Ward 2(2), Ajmer. (Page 3 to 4)
Under similar circumstances; Hon’ble ITAT in Appeal No. 68/JODH/2024 A.Y. 2017-18 in case of Triupati Jewellers Jodhpur has held; Copy Enclosed. (Page 5 to 18)
We Pray to delete the Penalty & Grant Justice!
6. To support the contention so raised in the written submission reliance was placed on the following evidence / records / decisions:
Sr.No. Nature of Documents Page
Copy of rejection letter dated 02.05.2024 of 3 to4 A.O. u/sec. 270AA
Copy of order of ITA 68/JODH/24 A.Y. 2017-18 5 to 18 Dated 24.12.2024 in case of M/s Tirupati Jewellers, Jodhpur
7. The ld. AR of the assessee in addition to the above written submission so filed vehemently argued that the claim of the assessee was supported by the evidence placed on record so there was neither under reporting of income or not misreporting of income. Since, there was not much tax outgo in the hands of the assessee on account of available carried forward loss being adjusted against that disallowance the assessee did not prefer the appeal. He also argued that revenue has not given the proper show cause notice dated 02.05.2024 [page 3 of the paper book] wherein there was not specified allegation as to under which limb they intend to levy the penalty. He also supported the case law on the argument that was advanced before us.
8. The ld DR on the findings of the lower authorities and more particularly advanced the similar contentions as stated in the order of the ld. CIT(A). He vehemently argued that ld. CIT(A) vide para last on page 13 account of capitalized interest and increased cost of acquisition resulting into accepting less liability for income tax but failed to substantiate it by producing the supporting documents. Based on that finding so recorded ld. DR supported the orders of the lower authority.
9. We have heard the rival contentions, perused the material placed on record and also gone through the contentions recorded in the orders of lower authorities. The assessee has raised the solitary ground challenging the action of the ld. CIT(A) in confirming the levy of penalty u/s 270A of Rs. 2,03,488/- considering disallowances of interest capitalized of Rs. 4,89,159/- for calculation of capital gain.
Record reveals that against the said disallowance of cost of acquisition the assessee has not challenged that quantum addition made by the ld.AO and since that being the fact the ld. AO for the said disallowance initiated penalty proceeding as per the provision of section 270A of the Act and thereby ordered to levy the penalty of Rs. 2,03,488/- being the amount of 200 % of the tax to be avoided and thereby the assessee has mis reported his income. while replying to the notice issued u/s. 142(1) of the Act dated 20.07.2023 submitted vide point no. 14 that deduction of interest was claimed on borrowing from IDFC first bank and PNB housing and the statement of the loan was submitted. Thus, the claim of the assessee was supported by the evidence. It was the decision of the assessee not to challenge the disallowance even though the claim was supported by evidence but the bench noted that the contention of the AO that of the ld. CIT(A) that the claim of cost of acquisition was without any supporting evidence devoid merits. Even at the time of hearing of the present appeal ld. DR did not challenged the reply filed by the assessee and placed on record in the quantum of proceeding and thereby did not rebut this fact that the claim of the assessee was with the proper supporting evidence. Considering that non disputed fact the bench is of the considered view that merely the claim of the assessee was not entertained it cannot be a reason automatically to levy the penalty for misreporting or under reporting of the income. We get support of this view from the decision of the apex court in the case of Commissioner of Income Tax, Ahmedabad Vs. Reliance Petroproducts Private Limited [ 189 Taxman 322 (SC) ]. In that case the apex court held that ; Urmila Rajendra Mundra vs. ITO 9. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as :— "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript." We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.
It was tried to be suggested that section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not, in our opinion, attract the penalty under section 271(1)(c). If we accept the contention of the revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature.
Urmila Rajendra Mundra vs. ITO 11. In this behalf the observations of this Court made in Sree Krishna Electricals v. State of Tamil Nadu[2009] 23 VST 249 as regards the penalty are apposite. In the aforementioned decision which pertained to the penalty proceedings in Tamil Nadu General Sales Tax Act, the Court had found that the authorities below had found that there were some incorrect statements made in the Return. However, the said transactions were reflected in the accounts of the assessee. This Court, therefore, observed : "So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's account books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside." The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its Return.
The Tribunal, as well as, the Commissioner of Income-tax (Appeals) and the High Court have correctly reached this conclusion and, therefore, the appeal filed by the revenue has no merits and is dismissed.
Considering the above ratio and respectfully following the decision of the Apex court we do not see any reason to sustain the penalty.
Even otherwise also the bench also noted that in the notice issued for proposing to levy the penalty the Act the ld. AO did not specify as to whether the assessee has misreported the income or under reported the income and since this being the lapse on the part of the ld. AO and consequently the levy of penalty cannot sustain without specifying the specific charge against the assessee penalty levied cannot be sustained.
We get support of our view from the decision of our Jurisdictional High Court in the case of G R Infraprojects Ltd. Vs. ACIT [ 158 taxmann.com 80 ] our High Court held that ; Urmila Rajendra Mundra vs. ITO 19. For proper adjudication of controversy involved, we deem it appropriate to quote the relevant provisions of the Income-tax Act, which read thus: "155. Other amendments (18) Where any deduction in respect of any surcharge or cess, which is not allowable as deduction under section 40, has been claimed and allowed in the case of an assessee in any previous year, such claim shall be deemed to be under- reported income of the assessee for such previous year for the purposes of sub- section (3) of section 270A, notwithstanding anything contained in sub-section (6) of section 270A, and the Assessing Officer shall recompute the total income of the assessee for such previous year and make necessary amendment; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of section 154 being reckoned from the end of the previous year commencing on the 1st day of April, 2021: Provided that in a case where the assessee makes an application to the Assessing Officer in the prescribed form and within the prescribed time, requesting for recomputation of the total income of the previous year without allowing the claim for deduction of surcharge or cess and pays the amount due thereon within the specified time, such claim shall not be deemed to be under-reported income for the purposes of sub-section (3) of section 270A. 270A. Penalty for under reporting and misreporting of income. (9) The cases of misreporting of income referred to in sub-section (8) shall be the following, namely:- (a) misrepresentation or suppression of facts;
(b) failure to record investments in the books of account; (c) claim of expenditure not substantiated by any evidence;
(d) recording of any false entry in the books of account; (e) failure to record any receipt in books of account having a bearing on total income; and (f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.
270AA. Immunity from imposition of penalty, etc. (1) An assessee may make an application to the Assessing Officer to grant immunity from imposition 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 circumstances referred to in sub-section (9) of the said section 270A. (4) 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. (5) The order made under sub-section (4) shall be final. (6) No appeal under section [section 246 or] section 246A or an application for revision under section 264 shall be admissible against the order of assessment or reassessment, referred to in clause (a) of sub-section (1), in a case where an order under sub- section (4) has been made accepting the application."
Sub-section (18) of Section 155 of the Income-tax Act is inserted vide Finance Act, 2022 w.e.f. 1-4-2022. The above referred provisions provide that deduction of any surcharge, cess, which is not allowable as deduction under section 40 of the Income-tax Act, then such claim shall be deemed to be under-reported income of the assessee for the purpose of levy of penalty under section 270A of the Act. It further provides that if an assessee makes an application to the assessing officer in prescribed form in prescribed time requesting for recomputation of income of previous year deducting the surcharge or cess and pays the difference amount within specified time, his claim shall not be deemed to be unreported income.
Section 270A of the Act specifies penalty for under-reporting and misreporting, wherein sub-section (9) of Section 270AA of the Act categorizes the cases of misreporting of income.
Sub-section (3) of Section 270AA of the Income-tax Act empowers the assessing officer to grant immunity from imposition of penalty under section 270A and initiation of Urmila Rajendra Mundra vs. ITO proceedings under section 276C or under section 276CC of the Income-tax Act on fulfilment of the conditions of sub-section (1) of Section 270AA after the expiry of the period of filing the appeal if the proceeding has not been initiated against the assessee under the circumstances referred to in sub-section (9) of Section 270A.
Sub-section (4) of Section 270AA provides that the assessing officer shall pass an order accepting or rejecting any application filed by the 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.
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 - "under reporting" 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.
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. [Emphasis supplied] 25. In Ultimate Infratech (P.) Ltd. (supra), Delhi High Court has held as under: "5. Having heard learned counsel for the petitioner, this Court is of the view that it is only in cases where proceedings for levy of penalty have been initiated on account of alleged misreporting of income that an assessee is prohibited from applying and availing the benefit of immunity from penalty and prosecution under section 270AA.
In fact, the statutory scheme for grant of immunity is based on satisfaction of three fundamental conditions, namely, (i) payment of tax demand; (ii) non-institution Urmila Rajendra Mundra vs. ITO of appeal; and (iii) initiation of penalty on account of under reporting of income and not on account of misreporting of income.
This Court is also of the view that the petitioner cannot be prejudiced by the inaction of the Assessing Officer in passing an order under section 270AA of the Act within the statutory time limit as it is settled law that no prejudice can be caused to any assessee on account of delay/default on the part of the Revenue.
In the present case, the petitioner has satisfied the aforesaid conditions, inasmuch as, (i) the tax has been paid on the additions; (ii) appeal has undisputedly not been filed; and (iii) penalty (as would be evident from the penalty notice) has been initiated on account of "underreporting" of income."
In Rohit Kapur (supra), Delhi High Court has held as under: "12. Before proceeding further, it is relevant to refer to Sub-section 4 of Section 270AA of the Act, which reads as under: 270AA ** ** **
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. ** ** **
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.
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 22-9-2022 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 the impugned order dated 31-3-2023 also, it is not specified that which part of sub-section (9) of Section 270A of the Act is attracted in the case of petitioner. 28. Otherwise also, the petitioner-company in its reply to show cause notice dated 16-3- 2022 and subsequent replies to the different show cause notices has justified its claim Urmila Rajendra Mundra vs. ITO for deduction of education cess, however, the Assessing Officer without considering the said justification or rejecting the same has passed the impugned order mechanically. We are of the view that once the petitioner-company has withdrawn its claim vide letter dated 19-3-2022 for deduction of education cess in view of insertion of sub-Section (18) of Section 155 before it came into force w.e.f. 1-4-2022, the petitioner-company is entitled for immunity from imposition of penalty under section 270A of the Act though the proceedings against it were initiated for imposition of penalty. Moreover, while initiating the said proceedings vide order dated 22-9-2022, the Assessing Officer has failed to specify that which part of sub-Section (9) of Section 270A is attracted in the case of petitioner-company, the said initiation is non est. The respondent vide impugned order dated 31-3-2022 has clarified that the petitioner-company is fulfilling the conditions mentioned in sub-Section (1) and (2) of Section 270AA, however, its conclusion that the petitioner-company do not fulfil the condition mentioned in sub- section (3) of Section 270AA of the Act is illegal and cannot be sustained.
Apart from that the application filed by the petitioner-company under section 270AA of the Act seeking immunity from imposition of penalty has not been decided by the Assessing Officer within prescribed time as per sub-section (4) of Section 270AA of the Act, the impugned action of the Assessing Officer of imposing penalty against the petitioner-company is liable to be set aside.
Resultantly, this writ petition is allowed. The penalty order dated 31-3-2023 passed under section 270A of the Income-tax Act is set aside. The demand notice issued by the respondent No. 1 under section 156 of the Income-tax Act is also set aside. The respondent No. 1 is directed to grant immunity under section 270AA of the Income-tax Act to the petitioner-company.
No order as to cost. Respectfully following the above decisions which are binding precedents and the facts of the case on hand being similar to the referred decision, we direct the ld. AO to delete the penalty levied against the assessee. In the result grounds raised by the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 01/08/2025. Sd/- Sd/- ¼ujsUnz dqekj½ ¼jkBkSM+ deys'k t;UrHkkbZ½ (NARINDER KUMAR) (RATHOD KAMLESH JAYANTBHAI) U;kf;d lnL;@Judicial Member ys[kk lnL; @Accountant Member Urmila Rajendra Mundra vs. ITO Tk;iqj@Jaipur fnukad@Dated:- 01/08/2025 *Ganesh Kumar, Sr. PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Urmila Rajendra Mundra, Ajmer 2. izR;FkhZ@ The Respondent- Income Tax Officer, Ward- 2(2), Ajmer 3. vk;dj vk;qDr@ The ld CIT vk;dj vk;qDr¼vihy½@The ld CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 577/JP/2025) 6. vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेज. त्महपेजतंत