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Income Tax Appellate Tribunal, DELHI BENCH, ‘E’: NEW DELHI
Before: SHRI ANUBHAV SHARMA
ORDER
PER AMITABH SHUKLA, AM,
This appeal has been preferred by the assessee against order dated 31.03.2025 of National Faceless Appeal Centre (NFAC), Delhi, in Appeal No. NFAC/2020-21/10263604, arising out of penalty order dated 16.06.2023 passed u/s 270A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by National Faceless Assessment Centre, Delhi, pertaining to Assessment Year 2021-22.
2. Contesting the order of ld. CIT(A) dated 31.03.2025 confirming penalty u/s 270A imposed by the ld. AO amounting to Rs.19,40,453/-, the assessee has raised following grounds of appeal:-
1. Ld. CIT(A) has erred both in law and facts in confirming penalty imposed under section 270A of the Act despite non- specification of limb for imposing penalty in the show cause notice.
2. Ld. CIT(A) has erred both in law and facts in passing ex-parte order confirming penalty imposed under section 270A of the Act amounting to Rs. 19,40,453.
3. The Ld. CIT(A) has erred both in law and on facts in passing ex- parte order under section 250 of the Act without granting virtual / physical hearing.
At the outset, the ld. Counsel for the assessee vehemently argued that the notice u/s 270A dated 21.12.2022 issued by the Revenue is infructuous on account of non-specification of the limb for imposing penalty in the show-cause notice. It was urged that all the grounds of the appeal raised by the assessee are centring around this single issue. The ld. Counsel has provided us with a copy of the impugned notice dated 21.12.2022. The ld. Counsel has argued that non- specification of the limb for imposing penalty in the show-cause notice has become fatal to the penalty order dated 16.06.2023 passed by the AO. The ld. Counsel has further argued that the quantum addition qua which the penalty has be imposed, is still sub-judice before the ld. First Appellate Authority and that therefore the penalty order has once again become infructuous.
4. Brief factual matrix of the case is that order u/s 143(3) was passed on 21.12.2022 whereby the ld. AO made addition of Rs.27,99,500/- on account of Rs.1,10,000/- on account of bad debts. Penalty proceedings u/s 270A for under reporting and misreporting of income were initiated. The Ld AO issued notice u/s 270A dated 21.12.2022. Subsequently, he proceeded to pass order u/s 270A dated 16.06.2023 imposing penalty of Rs.19,21,517/-.
We have heard rival submissions in the light of material available on records. At this stage, we deem it necessary to reproduce the statutory provisions of section 270A of the Act “270A. (1) The Assessing Officer or 94[the Joint Commissioner (Appeals) or] the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the course of any proceedings under this Act, direct that any person who has under- reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income. (2) A person shall be considered to have under-reported his income, if— (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. (3) The amount of under-reported income shall be,— (i) in a case where income has been assessed for the first time,— (a) if return has been furnished, the difference between the amount of income assessed and the amount of income determined under clause (a) of sub-section (1) of section 143; (b) in a case where no return of income has been furnished or where return has been furnished for the first time under section 148,— (A) the amount of income assessed, in the case of a company, firm or local authority; and (B) the difference between the amount of income assessed and the maximum amount not chargeable to tax, in a case not covered in item (A); (ii) in any other case, the difference between the amount of income reassessed or recomputed and Provided that where under-reported income arises out of determination of deemed total income in accordance with the provisions of section 115JB or section 115JC, the amount of total under-reported income shall be determined in accordance with the following formula— (A — B) + (C — D) where, A = the total income assessed as per the provisions other than the provisions contained in section 115JB or section 115JC (herein called general provisions); B = the total income that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of under-reported income; C = the total income assessed as per the provisions contained in section 115JB or section 115JC; D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC been reduced by the amount of under- reported income: Provided further that where the amount of under-reported income on any issue is considered both under the provisions contained in section 115JB or section 115JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D. Explanation.—For the purposes of this section,— (a) "preceding order" means an order immediately preceding the order during the course of which the penalty under sub-section (1) has been initiated; (b) in a case where an assessment or reassessment has the effect of reducing the loss declared in the return or converting that loss into income, the amount of under-reported income shall be the difference between the loss claimed and the income or loss, as the case may be, assessed or reassessed. (4) Subject to the provisions of sub-section (6), where the source of any receipt, deposit or investment in any assessment year is claimed to be an amount added to income or deducted while computing loss, as the case may be, in the assessment of such person in any year prior to the assessment year in which such receipt, deposit or investment appears (hereinafter referred to as "preceding year") and no penalty was levied for such preceding year, then, the under-reported income shall include such amount as is sufficient to cover such receipt, deposit or investment. (5) The amount referred to in sub-section (4) shall be deemed to be amount of income under-reported for the preceding year in the following order— (a) the preceding year immediately before the year in which the receipt, deposit or investment appears, being the first preceding year; and (b) where the amount added or deducted in the first preceding year is not sufficient to cover the receipt, deposit or investment, the year immediately preceding the first preceding year and so on. (6) The under-reported income, for the purposes of this section, shall not include the following, namely:— (a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or 95[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; (b) the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer or 95[the Joint Commissioner (Appeals) or] the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom; (c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or (d) the amount of under-reported income represented by any addition made in conformity with the arm's length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X, and, disclosed all the material facts relating to the transaction; and (e) the amount of undisclosed income referred to in section 271AAB. (7) The penalty referred to in sub-section (1) shall be a sum equal to fifty per cent of the amount of tax payable on under-reported income. (8) Notwithstanding anything contained in sub-section (6) or sub- section (7), where under-reported income is in consequence of any misreporting thereof by any person, the penalty referred to in sub- section (1) shall be equal to two hundred per cent of the amount of tax payable on under-reported 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; recording of any false entry in the books of (d) 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. (10) The tax payable in respect of the under-reported income shall be— (a) where no return of income has been furnished or where return has been furnished for the first time under section 148 and the income has been assessed for the first time, the amount of tax calculated on the under-reported income as increased by the maximum amount not chargeable to tax as if it were the total income; where the total income determined under clause (b) (a) of sub-section (1) of section 143 or assessed, reassessed or recomputed in a preceding order is a loss, the amount of tax calculated on the under- reported income as if it were the total income; (c) in any other case, determined in accordance with the formula— (X-Y) where, X = the amount of tax calculated on the under-reported income as increased by the total income determined under clause (a) of sub- section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order as if it were the total income; and Y = the amount of tax calculated on the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order. (11) No addition or disallowance of an amount shall form the basis for imposition of penalty, if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year. (12) The penalty referred to in sub-section (1) shall be imposed, by an order in writing, by the Assessing Officer, 96[the Joint Commissioner (Appeals) or] the Commissioner (Appeals), the Commissioner or the Principal Commissioner, as the case may be.
A perusal of above statutory prescription clearly eludes that sub-section-9 of section 270A postulates instances, (a) to (f) where mis-reporting of income shall be deemed for levy of any penalty. The natural corollary of law would be that when a notice invoking provisions of sub-section-9 of section 270A are AO raising presumption that under reported income is in consequence of any mis-reporting thereof, the assessing authority is also mandated to specify specific reason provided in clause (a) to (f) of sub-section- 9 of section 270. Non-specification of any specific clause would render the notice deficient and hence infructuous.
7. Per Contra, the ld. DR placed reliance upon the order of lower authorities.
8. We have noted that the Hon’ble Delhi High Court has considered the issue at length in its decision in the case of GE Capital US Holdings Inc. v. Deputy Commissioner of Income-tax (International Taxation) 468 ITR 746(Del.). It has been concluded that the assessing authority is required to specify specific limb for which penalty is to be imposed. Thus, Hon’ble High Court held “......16. On a more fundamental plane, Mr. Jolly submitted that the notices which came to be issued by the respondents seeking to initiate action under Section 270A themselves are rendered illegal bearing in mind the indisputable position which emerges from the record and in light of the respondent failing to indicate the limb of Section 270A, which according to them, had been allegedly breached by the petitioner. Drawing our attention to the Show Cause Notice8 which was issued, Mr. Jolly submitted that the same was founded upon an allegation that the petitioners had indulged in "under-reporting/misreporting of income". According to learned counsel, it was incumbent upon the respondents to categorically indicate whether the petitioner was being charged with underreporting or misreporting. Mr. Jolly submitted that the aforesaid imperatives which must inform a SCN is an aspect which stands settled in light of the judgment rendered by the Court in CIT v. Minu Bakshi 2022 SCC OnLine Del 4853 and Schneider Electric South East Asia (HQ) (P) Ltd. v. CIT 2022 SCC OnLine Del 870. Learned counsel submitted that although Minu Bakshi was a Section 271(1)(c) of the Act, the principles propounded therein would equally apply to a notice under Section 270A.
It becomes pertinent to note that Section 271(1)(c) speaks of various eventualities and which may expose an assessee to face imposition of penalties. These range from a failure to comply with a notice under Section 115WD or concealment or furnishing of inaccurate particulars of income or fringe benefits. Mr. Jolly sought to draw a parallel between Section 271(1)(c) and Section 270A by highlighting the fact that both under reporting as well as misreporting are considered to be separate and distinct transgressions. It is in the aforesaid backdrop that learned counsel contended that a SCN, in order to be recognized as valid and sustainable in law, must with due clarity indicate whether the assessee is charged of under-reporting or misreporting. It is in the aforesaid context that Mr. Jolly drew our attention to the following observations as rendered by the Division Bench of the Court in Minu Bakshi: "6.3. Third, if Explanation 5 to section 271(1) of the Act were to be relied upon, the Revenue would have to establish that the assets, such as money, bullion etcetera were seized during the search conducted on the premises of the assessee and that the said assets related to the income of the assessee for the relevant assessment years. Explanation 5, as noted in the said judgement, was inserted in the statute by Taxation Laws (Amendment) Act, 1984, w.e.f. 01.10.1984.
7. In our opinion, the conclusion reached by the Tribunal in the instant case that the notice for imposition of penalty under Section 271(1)(c) of the Act, did not specify which limb of the said provision the penalty was sought to be levied, is covered by the following decisions, which includes a decision rendered by a coordinate bench of this Court. (i) CIT v. SSA's Emerald Meadows, passed in dated November 23, 2015. (ii) CIT v. Manjunatha Cotton and Ginning Factory. (iii) Pr. CIT v. Sahara India Life Insurance Company Ltd. passed in of 2019, dated August 2, 2019." 18. The principle of an assessee being apprised of the charge specifically and with due clarity was re emphasized by a Division Bench of the Court in Schneider Electric and which was a decision Section 270A. This is evident from the following observations as rendered therein: "6. Having perused the impugned order dated 9-3-2022, 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 270 A 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 270-A of the Act is attracted and how the ingredient of sub-section (9) of Section 270-A 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 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 1 is contrary to the avowed legislative intent of Section 270-AA of the Act to encourage/incentivise a taxpayer to (i) fast track settlement of issue; (ii) recover tax demand; and (iii) reduce protracted litigation." According to Mr. Jolly, the initiation of action under Section 270A of the Act is thus liable to be quashed and set aside on the aforesaid grounds.
Appearing for the respondents, Mr. Rai submitted that while it is true that the SCNs' referable to Section 270A had referred to both under-reporting/misreporting, the assessment orders had with adequate clarity identified the case against the petitioner as being liable to be viewed as that of misreporting. In view of the aforesaid, learned counsel contended that the petitioner had been placed on due notice of the charge which stood raised against it. According to learned counsel, the aforesaid facets of this particular case would Section 270A.
According to Mr. Rai, if the aforesaid position be accepted, it would be apparent that the case of the petitioner would fall within the exclusionary provisions enshrined in sub-section (3) of Section 270AA and thus the Court would hold that the respondent had acted correctly in rejecting the applications for immunity.
For the purposes of evaluating the correctness of the rival submissions addressed, we deem it apposite to extract Sections 270A and 270AA hereinbelow: "270-A. Penalty for under-reporting and misreporting of income. (1) The Assessing Officer or [the Joint Commissioner (Appeals) or the Commissioner (Appeals)] or the Principal Commissioner or Commissioner may, during the course of any proceedings under this Act, direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the underreported income. (2) A person shall be considered to have under-reported his income, if— (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 115-JB or Section 115-JC, 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 115-JB or Section 115-JC, 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. (3) The amount of under-reported income shall be,— (i) in a case where income has been assessed for the first time,— (a) if return has been furnished, the difference between the amount of income assessed and the amount of income determined under clause (a) of sub-section (1) of Section 143; (b) in a case where [no return of income has been furnished or where return has been furnished for the first time under Section 148],— (A) the amount of income assessed, in the case of a company, firm or local authority; and (B) the difference between the amount of income assessed and the maximum amount not chargeable to tax, in a case not covered in item (A); (ii) 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: Provided that where under-reported income arises out of determination of deemed total income in accordance with the provisions of Section 115-JB or Section 115-JC, the amount of total under-reported income shall be determined in accordance with the following formula— (A — B) + (C — D) where, A = the total income assessed as per the provisions other than the provisions contained in section 115JB or section 115JC (herein called general provisions); B = the total income that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of under-reported income; C = the total income assessed as per the provisions contained in section 115JB or section 115JC; D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC been reduced by the amount of under-reported income: Provided further that where the amount of under-reported income on any issue is considered both under the provisions contained in Section 115-JB or Section 115-JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under Item D. Explanation.—For the purposes of this section,— (a) "preceding order" means an order immediately preceding the order during the course of which the penalty under sub-section (1) has been initiated; (b) in a case where an assessment or reassessment has the effect of reducing the loss declared in the return or converting that loss into income, the amount of under-reported income shall be the difference between the loss claimed and the income or loss, as the case may be, assessed or reassessed. (4) Subject to the provisions of sub-section (6), where the source of any receipt, deposit or investment in any assessment year is claimed to be an amount added to income or deducted while computing loss, as the case may be, in the assessment of such person in any year prior to the assessment year in which such receipt, deposit or investment appears (hereinafter referred to as "preceding year") and no penalty was levied for such preceding year, then, the underreported income shall include such amount as is sufficient to cover such receipt, deposit or investment. (5) The amount referred to in sub-section (4) shall be deemed to be amount of income under-reported for the preceding year in the following order— (a) the preceding year immediately before the year in which the receipt, deposit or investment appears, being the first preceding year; and (b) where the amount added or deducted in the first preceding year is not sufficient to cover the receipt, deposit or investment, the year immediately preceding the first preceding year and so on.
(6) The under-reported income, for the purposes of this section, shall not include the following, namely: — (a) 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; (b) the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer or [the Joint Commissioner (Appeals) or the Commissioner (Appeals)] or the Commissioner or the Principal Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom; (c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or disallowance; (d) the amount of under-reported income represented by any addition made in conformity with the arm's length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed under Section 92D, declared the international transaction under Chapter X, and, disclosed all the material facts relating to the transaction; and (e) the amount of undisclosed income referred to in Section 271- AAB. (7) The penalty referred to in sub-section (1) shall be a sum equal to fifty per cent of the amount of tax payable on under-reported income. (8) Notwithstanding anything contained in sub-section (6) or subsection (7), where under-reported income is in consequence of any misreporting thereof by any person, the penalty referred to in subsection (1) shall be equal to two hundred per cent of the amount of tax payable on under-reported 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. (10) The tax payable in respect of the under-reported income shall be— (a) where no return of income has been furnished or where return has been furnished for the first time under section 148 and the income has been assessed for the first time, the amount of tax calculated on the under-reported income as increased by the maximum amount not chargeable to tax as if it were the total income; (b) where the total income determined under clause (a) of subsection (1) of Section 143 or assessed, reassessed or recomputed in a preceding order is a loss, the amount of tax calculated on the underreported income as if it were the total income; (c) in any other case, determined in accordance with the formula— (X-Y) where, X = the amount of tax calculated on the under-reported income as increased by the total income determined under clause (a) of subsection (1) of Section 143 or total income assessed, reassessed or recomputed in a preceding order as if it were the total income; and Y = the amount of tax calculated on the total income determined under clause (a) of sub-section (1) of Section 143 or total income assessed, reassessed or recomputed in a preceding order. (11) No addition or disallowance of an amount shall form the basis for imposition of penalty, if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year.
(12) The penalty referred to in sub-section (1) shall be imposed, by an order in writing, by the Assessing Officer, the Joint Commissioner (Appeals) or the Commissioner (Appeals), the Commissioner or the Principal Commissioner, as the case may be. 270-AA. 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 270-A and initiation of proceedings under Section 276-C or Section 276-CC, 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 276-C or Section 276-CC, 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 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 subsection (1), in a case where an order under sub- section (4) has been made accepting the application."
22. As is evident from a reading of Section 270A(1), a person would be liable to be considered to have under reported its 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 thereafter liable to be computed in accordance with the stipulations prescribed therein. However, the subject of misreporting of income is dealt with separately in accordance with the provisions comprised in sub-sections (9) and (10) of Section 270A. It is thus evident that both under-reporting as well as misreporting are viewed as separate and distinct misdemeanors.
However, and as we read the orders of assessment which were passed, the same carry no findings which may be viewed as indicative of the contingencies spelt out in clauses (a) to (f) of Section 270A(9) being attracted. In our considered opinion, in the absence of the AO having specified the transgression of the petitioner and which could be shown to fall within the ambit of sub- section (9) of Section 270A, proceedings for imposition of penalty could not have been mechanically commenced.
Notwithstanding the above, we note that the SCNs' which came to be issued for commencement of action under Section 270A were themselves vague and unclear. This since they failed to specify whether the petitioner was being charged with under-reporting or misreporting of income. The aforesaid aspect assumes added significance bearing in mind the indisputable position that a prayer for immunity could have been denied in terms of Section 270AA(3) only if it were a case of misreporting. The SCNs' failed to indicate the specific charge which was sought to be laid against the petitioner. This, since they sought to invoke both sub sections (2) as well as sub-section (9) of Section 270A. There was thus an abject failure on the part of the respondents to indicate the branch of Section 270A which was sought to be invoked. The SCNs' would thus clearly fall foul of the principles which had been enunciated in Minu Bakshi and Schneider Electric.
Turning then to Section 270AA, we find that sub-section (3) of that provision requires the AO to confer consideration on the following three aspects: (a) Whether the conditions precedent specified in sub-section (1) of Section 270AA have been complied with? (b) The period for filing an appeal under Section 249(2)(b) having passed. (c) The subject matter of penalty not falling within the ambit of Section 270A (9).
Since an application for grant of immunity cannot possibly be pursued unless the assessee complies with clauses (a) and (b) of Section 270AA (1), the observation of the respondent that mere payment of demand would not lead to a prayer for immunity being pursued is wholly unsustainable.
We are also of the considered opinion that while examining an application for immunity, it was incumbent upon the AO to ascertain whether the provisions of Section 270A stood attracted either on the anvil of under reporting or misreporting. This since the AO becomes enabled to reject such an application only if it be found that the imposition of penalty is founded on a charge which was referable to Section 270 A (9).
In the facts of the present case, we find that a finding of misrepresentation, failure to record investments, expenditure not substantiated by evidence, recording of false entry in the books of account and the other circumstances alluded to in sub-section (9) of Section 270A has neither been returned nor recorded in the assessment order. The SCNs' in terms of which the action under Section 270A came to be initiated also failed to specify whether the petitioner was being tried on an allegation of under-reporting or misreporting.
Since there was a clear and apparent failure on the part of the respondents to base the impugned proceedings on a contravention relatable to Section 270A (9), the application for immunity could not have been rejected. As was noticed hereinabove, neither the AO nor the impugned SCNs' laid an allegation which could be said to be reflective of the petitioner having been found to have violated Section 270 A (9). In fact, the notices themselves sought to take a wholly ambivalent stance while alleging that the petitioner had indulged in "under-reporting/misreporting". We thus have no hesitation in holding that the impugned SCNs' are rendered unsustainable on this short ground alone.
The importance of clarity and comprehensiveness which must imbue show cause notices came to be duly emphasised by us in our decision in Puri Constructions (P) Ltd. v. CIT 2024 SCC OnLine Del 939: "78. The requisites of a valid show-cause notice were lucidly explained by the Supreme Court in Gorkha Security Services v. Government (NCT of Delhi) as under: "Contents of the show-cause notice 21. The central issue, however, pertains to the requirement of stating the action which is proposed to be taken. The fundamental purpose behind the serving of show-cause notice is to make the noticee understand the precise case set up against him which he has to meet. This would require the statement of imputations detailing out the alleged breaches and defaults he has committed, so that he gets an opportunity to rebut the same. Another requirement, according to us, is the nature of action which is proposed to be taken for such a breach. That should also be stated so that the noticee is able to point out that proposed action is not warranted in the given case, even if the defaults/breaches complained of are not satisfactorily explained. When it comes to blacklisting, this requirement becomes all the more imperative, having regard to the fact that it is harshest possible action."
Similar observations find place in UMC Technologies Pvt. Ltd. v. Food Corporation of India: "13. At the outset, it must be noted that it is the first principle of civilised jurisprudence that a person against whom any action is sought to be taken or whose right or interests are being affected should be given a reasonable opportunity to defend himself. The basic principle of natural justice is that before adjudication starts, the authority concerned should give to the affected party a notice of the case against him so that he can defend himself. Such notice should be adequate and the grounds necessitating action and the penalty/action proposed should be mentioned specifically and unambiguously. An order travelling beyond the bounds of notice is impermissible and without jurisdiction to that extent. This court in Nasir Ahmad v. Custodian General, Evacuee Property- has held that it is essential for the notice to specify the particular grounds on the basis of which an action is proposed to be taken so as to enable the noticee to answer the case against him. If these conditions are not satisfied, the person cannot be said to have been granted any reasonable opportunity of being heard."
The reliance which is placed by Mr. Hossain on the decisions in Isha Beevi v. TRO and CIT v. Rajinder Nath is clearly misconceived. We note that in Isha Beevi, the writ petitioner had sought the issuance of a writ of prohibition seeking quashing of notices that were impugned. It was in the aforesaid context and the prerequisites of a writ of prohibition that the Supreme Court observed that the mere mentioning of a wrong provision would not justify the issuance of that prerogative writ and more so where the writ petitioner had failed to establish a total absence of jurisdiction.
83. The principle of a power otherwise inhering or existing and not being impacted by the mere mention of a wrong provision is one which we apply to ratify, save and uphold a decision which is otherwise found to be valid and sustainable. We would be wary of either readily or unhesitatingly adopting or invoking that precept at the stage of a show-cause notice especially where the noticee is left to fathom which of the more than fifty variable obligations it is alleged to have violated."
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 limb" 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....”
We also find force in the argument of ld. Counsel for the assessee that when the amount of quantum addition is in dispute before the appellate stage and has not become final, no penalty can be worked out by the Assessing Officer. Accordingly, in respectful compliance to the decision of Hon’ble Delhi High Court in the case of GE Capital US Holdings Inc. (supra), as well as in the 270A dated 21.12.2022 is infructuous and bad in law. We, therefore, quash the impugned penalty notice. It is settled principal of law that when the foundation goes the super structure also collapses. Accordingly, the penalty order u/s 270A dated 16.06.2023, which is resting on the penalty notice dated 21.12.2022 is also set-aside. All the grounds of appeal raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.