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Income Tax Appellate Tribunal, DELHI BENCH “DB” NEW DELHI
Before: SHRI CHALLA NAGENDRA PRASAD & SHRI AVDHESH KUMAR MISHRA
आदेश /O R D E R
PER C.N. PRASAD, J.M.
This appeal is filed by the assessee against the order of the Ld. CIT(Appeals)-NFAC, Delhi dated 16.05.2024 for the AY 2017-18 in sustaining the penalty levied u/s 270A of the Act.
Ld. Counsel for the assessee referring to page 11 of the Paper Book which is the show-cause notice issued u/s 274 r.w.s. 270A of the Act, submitted that the Assessing Officer did not specify under 1 which limb the penalty proceedings were initiated. Ld. Counsel submits that no specific charge was mentioned in the show-cause notice but the notice was issued for under reporting/misreporting of income. Ld. Counsel further referring to page 3 of the Paper Book which is the assessment order passed u/s 143(3) of the Act submitted that the penalty proceedings u/s 270A were initiated for misreporting of income. Ld. Counsel further referring to penalty order passed u/s 270A of the Act submitted that the AO stated that the penalty proceedings were initiated for under reporting of income and misreporting of income by suppression or misrepresentation of facts and the penalty was levied for misreporting of income.
Ld. Counsel placing reliance on the decision of the Jurisdictional High Court in the case of Schneider Electric South East Asia (HQ) Pte. Vs. ACIT 145 taxmann.com 665 (Del) a copy of which is placed at page 27 of the Paper Book submitted that the Hon’ble High Court held that in the penalty notice if the AO failed to specify the limb of under reporting or misreporting of income, under which penalty proceedings had been initiated, penalty notice was erroneous and arbitrary and the assessee was granted immunity u/s 270AA of the Act.
Ld. Counsel further submitted that the Hon’ble Delhi High Court in the case of GE Capital US Holdings Inc. Vs. DCIT (International Taxation) (468 ITR 746) a copy of which is placed at page 30 of the Paper Book submitted that similar view has been taken. Ld. Counsel also placed reliance on the decision of the coordinate bench of the Tribunal in the case of Mideast Integrated Steels Ltd. Vs. ACIT in & 4956/Del/2024 dated 07.03.2025, wherein the Tribunal following the above decision of Jurisdictional High Court deleted the penalty levied u/s 270A of the Act. Reliance was also placed on the decision of the coordinate bench in the case of Jaina Marketing & Associates Vs. DCIT 162 taxmann.com 439 (Del Trib.).
On merits Ld. Counsel submitted that expenses incurred towards repairs and maintenance of guest house and other guest house related expenses were disallowed on ad hoc basis for which the penalty proceedings were initiated. Ld. Counsel submits that since the expenses were disallowed on ad hoc basis there cannot be any penalty u/s 270A of the Act.
On the other hand, the Ld. DR supported the order of the Ld. CIT(Appeals). Ld. DR further submits that the disallowance was made for non-furnishing of evidences for incurring of expenses and 3 therefore the AO has rightly initiated the penalty proceedings u/s 270A of the Act.
7. Heard rival submissions, perused the orders of the authorities below and the paper book furnished before us. Perusal of the show- cause notice dated 22.12.2019 issued u/s 274 r.w.s. 270A of the Act which is placed at page 11 of the Paper Book suggests that penalty proceedings were initiated for under reporting/misreporting of income. The AO did not specify specific charge for which the notice for penalty proceedings were initiated. In the assessment order the AO stated that the penalty proceedings were initiated for misreporting of income, however, while passing the penalty order the AO observed that penalty was initiated for under reporting of income in consequence of misreporting of income.
8. We observed that the Hon’ble Jurisdictional High Court in the case of Schneider Electric South East Asia (HQ) Pte. Vs. ACIT (supra) the Hon’ble High Court 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 u/s 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. 4
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.”
9. Similarly the Hon’ble Jurisdictional High Court in the case of GE Capital US Holdings Inc. Vs. DCIT (supra) has taken similar view.
We further find that the coordinate bench of the Tribunal in the case of Mideast Integrated Steels Ltd. Vs. ACIT in & 4956/Del/2024 dated 07.03.2025 following the decisions of the Jurisdictional High Court deleted the penalty observing as under: -
“12. We have heard the rival submissions and have perused the relevant material on record. We find that the penalty notice do not specify the exact limb under which the penalty is being imposed- whether the penalty is being levied for under-reporting u/s 270A(2) or for mis- reporting u/s 270A(9) of the Act. We also note that the assessment order records the satisfaction of the AO for initiating penalty u/s 270A(2) of the Act for under reporting of income but while levying penalty, the Assessing Officer has taken recourse to penalty for misreporting of income u/s 270A(9) of the Act. In such factual matrix of the instant case, we are of the considered opinion that penalty levied u/s 270A cannot be considered as validly levied. We find support from the decision of the Hon'ble Delhi Court in the case of Schneider Electric South East Asia [HQ] Pte (supra) which squarely applies to the facts of the instant case where the Hon'ble court held as under: "6.Having perused the impugned order dated 09th March, 2022, this Court is of the view that the 5 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.
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.
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.
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."
We are also supported by the decision of the Hon'ble Delhi in the case of GE Capital US Holdings Inc. (supra) wherein their Lordships also relied on the decision in the 6 case of Schneider Electric South East Asia [supra] and came to the conclusion as under: "31. We are further constrained to observe that even the assessment orders fail to base the direction for initiation of proceedings under Section 270A on any considered finding of the conduct of the petitioner being liable to be placed within the sweep of sub- section (9) of that provision. The order of assessment as well as the SCNs' clearly fail to meet the test of ―specific limbǁ as propounded in Minu Bakshi and Schneider Electric. A case of misreporting, in any case, cannot possibly be said to have been made out bearing in mind the fact that the petitioner had questioned the taxability of income asserting that the same would not constitute royalty. The issue as raised was based on an understanding of the legal regime which prevailed. The contentions addressed on that score can neither be said to be baseless nor specious. In fact, that stand as taken by the petitioner was based on a judgment rendered by the jurisdictional High Court which was indisputably binding upon the AO who, for reasons unfathomable, thought it fit to base its decision on a judgment rendered by the Karnataka High Court. The AO, it would be pertinent to recall, chose to distinguish the judgment of the Supreme Court in Engineering Analysis itself. In any event, the position which the petitioner sought to assert and canvass clearly stood redeemed in light of the decision rendered by the Supreme Court.
Undisputedly, the petitioner had duly complied with the statutory pre- conditions set out in Section 270AA(1). It was thus incumbent upon the respondent to have come to the firm conclusion that the case of the petitioner fell in the category of misreporting since that alone would have warranted a rejection of its application for immunity. On an overall conspectus of the aforesaid, we come to the firm conclusion that the impugned orders would not sustain."
10. The coordinate bench also considered levy of penalty in a case where an ad hoc estimation/disallowance was made. Following the coordinate bench of the Bangaluru Tribunal in the case of VDB Infra and Realty Private Ltd. 165 taxmann.com 293 (Bang.) it was held that penalty cannot be levied when the disallowance of expenses was made on ad hoc basis.
Ratios of the above decisions, squarely applies to the present case in hand. Thus, respectfully following the above decision, we direct the AO to delete the penalty levied u/s 270A of the Act.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 23/05/2025