Finance Act, 2016 inserts, with effect from 1-4-2017, a new section 270AA in the Act empowering an Assessing Officer to grant immunity from imposition of penalty under section 270A of the Act as well as initiation of prosecution proceedings under section 276C and section 276CC of the Act on certain terms and conditions.

Section 270AA of the Act reads as under:

[Immunity from imposition of penalty, etc.

270AA. (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.29

(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 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.]

Explanatory note to Finance Bill 2016:-

“67. Immunity from penalty and prosecution in certain cases by inserting new section 270AA of the Income-tax Act

67.1 In order to provide immunity from penalty and prosecution in certain cases, a new section 270AA has been inserted in the Income-tax Act under which an assessee may make an application to the Assessing Officer for grant of immunity from imposition of penalty under section 270A of the Income-tax Act and initiation of proceedings under section 276C or section 276CC of the Income-tax Act, provided he pays the tax and interest payable as per the order of assessment or reassessment within the period specified in such notice of demand and does not prefer an appeal against such assessment order. The assessee can make such application, within one month from the end of the month in which the order of assessment or reassessment is received, in such form and manner, as may be prescribed.

67.2 It is also provided that the Assessing Officer shall, on fulfilment of the above conditions and after the expiry of period of filing appeal as specified in sub-section (2) of section 249 of the Income-tax Act, grant immunity from initiation of penalty and proceeding under section 276C or section 276CC of the Income-tax Act, if the penalty proceedings under section 270A of the Income-tax Act have not been initiated on account of 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; or
(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 of the Income-tax Act apply.

67.3 The Assessing Officer shall pass an order accepting or rejecting such application within a period of one month from the end of the month in which such application is received. However, in the interest of natural justice, no order rejecting the application shall be passed by the Assessing Officer unless the assessee has been given an opportunity of being heard. The order of Assessing Officer under the said section shall be final.

67.4 Further, no appeal under section 246A of the Income-tax Act or an application for revision under section 264 of the Income-tax Act 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 section 270AA of the Income-tax Act has been made accepting the application.

67.5 Clause (b) of sub-section (2) of section 249 of the Income-tax Act provides that an appeal before the Commissioner (Appeals) is to be made within thirty days of the receipt of the notice of demand relating to an assessment order.

67.6 In line with the insertion of section 270AA of the Income-tax Act, the provisions of section 249 of the Income-tax Act have also been amended to provide that in a case where the assessee makes an application under section 270AA of the Income-tax Act seeking immunity from penalty and prosecution, then, the period beginning from the date on which such application is made to the date on which the order rejecting the application is served on the assessee shall be excluded for calculation of the aforesaid thirty days period. The said amendment is consequential to the insertion of section 270AA of the Income-tax Act.

67.7 Applicability: These amendments will take effect from the 1st of April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years.”

Section 270AA of the Act provide for process, requirement, terms and conditions to get immunity from penalty under section 270A and prosecution under section 276C/276CC of the Act as under:

♦ The assessee can make an application, in the prescribed form and verify the same in prescribed manner, within one month from the end of the month in which assessment order under section 143(3) of the Act  or reassessment order under section 147 of the Act  is received. – Form 68 is prescribed in this regards.

♦ The tax and interest, as demanded, as per the assessment or reassessment are paid within the time specified in Notice of demand issued under section 156 of the Act;

♦ The assessee does not file any appeal against the order of assessment or reassessment;

♦ In the above circumstances, the Assessing Officer shall grant immunity from the penalty and the prosecution, provided:-

the above conditions (making application, payment of tax and interest and no appeal) are fulfilled;
the time limit for filing an appeal against the assessment or reassessment order has expired; and
the penalty levied is not for underreported income on account of misreporting [as set out in section 270A(9);

Once aforesaid conditions are fulfilled, no discretion lies with A.O. and he has to pass order accepting the Assessee’s application for immunity under section 270AA of the Act.

The Assessing Officer shall pass the order, within one month from the end of the month in which the assessee makes the application, accepting or rejecting the application for immunity;
The order rejecting the application shall not be passed without giving an opportunity of being heard to the assessee;
The order passed under the section would be final; and

 

 

 

 

 

 

 

Where the application for immunity is accepted and an order is passed under the section, no appeal or revision would lie against the assessment or reassessment order.

If pursuant to application for immunity, an order is passed under section 270AA, the effect thereof would be i.e. upon acceptance of Assessee’s application for immunity:

the assessment or reassessment is accepted; the additions, tax and interest are also accepted ;
the Assessing Officer has granted immunity from the penalty under section 270A of the Act as well as from the prosecution under sections 276C and 276CC of the Act;
no further proceedings against the order of assessment or reassessment or order under the section; no appeal under section 246A of the Income-tax Act or an application for revision under section 264 of the Income-tax Act 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 section 270AA of the Income-tax Act has been made accepting the application.
accordingly, assessment or reassessment proceedings could be regarded as final and concluded (as far as the assessee is concerned; the Department may be able to initiate reassessment proceedings, subject to fulfilment of the applicable conditions).

If the application is rejected, the implications could be:

against the order passed under the section 270AA, no further proceedings is possible (save, possibly, a writ petition);
the assessee is free to file an appeal against the order of assessment/reassessment and question the additions made therein; Section 249 of the Act is amended in line with the provision of section 270AA of the Act and provides that to compute limitation period of 30 days, period starting from the date of application under section 270AA to the date of rejection order shall be excluded.
the Assessing Officer will initiate penalty proceedings under section 270A of the Act to levy penalty in respect of the under-reported income and/or misreported income;
the assessee can file his explanation during penalty proceedings before the appropriate authorities against the levy of penalty under section 270A of the Act;
The Assessee can exercise the remedy available under section 273A of the Act and can file application before Principal CIT to reduce or waive penalty levied under section 270A of the Act.

Posers:-

(i) In case of multiple additions in assessment order or reassessment order, whether Assessee is having option to file immunity application for one addition and appeal for other additions?

In case of multiple addition there may be a situation wherein for one addition the A.O. has initiated penalty proceedings for Underreported income and for the other addition Underreported income resulted in misreporting. Say for example in case of Mr. A, the A.O. has made addition on account disallowance under section 14A as well as addition on account Unsecured loan treating the same as accommodation entry. For disallowance under section 14A of the Act the A.O. initiated penalty for “Underreporting of income” whereas for addition on account of unsecured loan the penalty is initiated for “underreported income resulted in misreporting”. In such case whether Mr. A can file appeal before CIT(A) for addition made on account of Unsecured loan and an application under section 270AA of the Act to get immunity from penalty in respect of addition under section 14A of the Act.

The answer is No. One of condition for section 270AA of the Act is that the Assessee has not filed any appeal against the order. Means the Assessee has not disputed the order as a whole and has paid taxes in full as per assessment order. Hence it is not possible to file immunity application as well as appeal simultaneously for one assessment order.

It is important to take a reference from the provision of section 264 of the Act which also refer to assessment order. The reference is invited to the decision of Supreme Court in the case of Hindustan Aeronautics Ltd v. Commissioner of Income-tax [2000] 110 Taxman 311 (SC), wherein the Apex court has held as under:

Section 264 of the Income-tax Act, 1961 – Revision – Of other orders – Assessment year 1970-71 – Whether Commissioner has power to revise an order under section 264 if same order has been made subject to an appeal to Tribunal, even though relief claimed in revision is different from relief claimed in appeal before Tribunal (irrespective of fact whether appeal is by assessee or by department) – Held, no

In view of the above, the wordings of the preconditions to make an application for immunity are clear – which affirm full merger of the assessment order. The Assessee is not having option to file immunity application as well as appeal against single assessment order.

(ii) To file immunity application under section 270AA of the Act, whether the Assessee need to make payment as per demand notice which is subject to various rectification?

As explained, one of condition to get immunity is that the Assessee has paid taxes with interest as per the assessment order and that too on or before the time stipulated in demand notice issued with assessment order. However, many times demand notice issued with assessment order requires rectification on account of various reasons i.e. less grant of tax credit, wrong calculation of interest under section 234A, 234B, 234C etc. It is certainly impossible to get the demand notice rectified before the due date of payment mentioned in demand notice. Accordingly, prima facie, it appears, the entire amount of tax may have to be paid, irrespective of any mistake, of whatever nature, which is apparent on the face of records.

Hence no option is left with the Assessee and the Assessee needs to make payment as per assessment order to file an application under section 270AA of the Act so as to claim immunity from levy of penalty and prosecution.

Further there is no bar under section 270AA of the Act which restrict the Assessee to file rectification application to rectify the demand notice issued under section 156 of the Act. Hence the Assessee can after making payment of taxes with interest as per demand notice file rectification application and get the refund of excess tax payment.

(iii) In case of enhancement by CIT(A), whether the Assessee can apply for immunity under section 270AA of the Act?

In case of enhancement of income by CIT(A), penalty to the extent of enhanced income is initiated by the CIT(A). Hence question may arise as to whether immunity from penalty against addition made by CIT(A) is available to the Assessee and who will be authority to grant immunity in such situation.

The Application has to be made to the Assessing Officer, that is, the AO having jurisdiction over the applicant. The section confers power only on the Assessing Officer [as defined in section 2(7A)]. The order granting/rejecting immunity under section 270AA of the Act needs to be passed by the Assessing Officer. Hence, the Commissioner and/or the Commissioner (Appeals) does not have such power under the section. The issue may be subject to litigation in future, wherein the department can take plea that the A.O. cannot grant immunity for the penalty being initiated by the his superior authority i.e. CIT(A). On the other hand one can very well argue that:

  • The penalty against addition was initiated for underreporting of income
  • Taxes with interest were duly paid by the Assessee on or before the stipulated time limit
  • The Assessee has not preferred any appeal against the order:

And accordingly he is entitled to get immunity from levy of penalty and prosecution as per section 270AA of the Act.

(iv) Whether immunity application for one year leave any scope for adverse inference on pending litigation of the Assessee? 

The Central Board of Direct Taxes had issued Circular dated 16th August, 2018 in context of the provisions of section 270AA of the Income Tax Act, 1961  The CBDT has clarified through the Circular No.5/2018 issued that merely because the assessee intended or is desirous of availing the benefit of the provisions of section 270AA seeking immunity from penalty and prosecution under the respective provisions, it will not restrict the right of the assessee to contest the same issue in any earlier year falling under the erstwhile provision section 271(1)(c). The assessee regardless of its action under section 270AA can still challenge the proceedings under section 271(1)(c) pertaining to earlier years and the Income Tax authority cannot possibly draw adverse inference by taking undue advantage of the application moved by assessee under section 270AA(2) in Form No.68.

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