Spunwell Syntex Private Ltd. Vs ITO (Rajasthan High Court)
Summary: The Rajasthan High Court at Jodhpur dismissed the writ petition filed by Spunwell Syntex Private Ltd. challenging rejection of its application for immunity from penalty under Section 270AA of the Income Tax Act, 1961 in relation to penalty proceedings under Section 270A for AY 2018-19. The petitioner’s deduction claim under Section 80 had been disallowed in assessment, following which it paid the assessed demand without filing an appeal and applied for immunity in Form No. 68. It challenged the rejection of immunity and subsequent penalty on the grounds that the notice and rejection order did not adequately specify the alleged misreporting, no personal hearing was provided, and the immunity application was not decided within the period prescribed under Section 270AA(4). Relying on the statutory scheme of Sections 270A and 270AA applicable to the proceedings, the Court held that the case involved “under-reporting of income in consequence of misreporting” falling within Section 270A(9), as the assessment order recorded non-production of accounting records relating to income from the solar plant unit, and therefore immunity under Section 270AA was unavailable. The Court further held that failure to specify a particular sub-category of Section 270A(9) in the show-cause notice did not, by itself, render the proceedings arbitrary or violate natural justice because the petitioner was sufficiently aware that the allegation concerned under-reporting consequent upon misreporting. It also rejected the limitation contention, holding that the period relied upon by the petitioner did not require disposal of an immunity application involving misreporting within that timeframe. Finding no illegality warranting interference, the High Court dismissed the writ petition and disposed of all pending applications.
Immunity under section 270AA is available only in cases of ordinary under-reporting of income and is statutorily barred where penalty proceedings are initiated for under-reporting in consequence of misreporting under section 270A(9).
Fact. The petitioner-company filed its return of income for Assessment Year 2018-19. During assessment proceedings, its claim for deduction under section 80 of the Income-tax Act was disallowed by the Assessing Officer in the assessment order dated 24 February 2021. Instead of challenging the assessment order in appeal, the petitioner paid the assessed tax demand and thereafter sought to avail the statutory immunity mechanism provided under section 270AA.
Penalty proceedings under section 270A were initiated through a notice under section 274 read with section 270A. The petitioner submitted its response and filed Form No. 68, seeking immunity from the imposition of penalty under section 270AA. However, the application for immunity was rejected by order dated 13 January 2022, following which a penalty order dated 3 February 2022 was passed.
The petitioner challenged the rejection of immunity before the Rajasthan High Court, primarily contending that the show-cause notice did not specify the precise category of misreporting under section 270A(9), that the application for immunity had been rejected without granting a personal hearing as required under section 270AA(4), and that the decision on the immunity application had not been made within the prescribed statutory period.
AO / Department’s Finding
The Department’s case was that the petitioner’s penalty proceedings were not for a simple case of under-reporting of income but involved under-reporting in consequence of misreporting of income, falling within the circumstances contemplated by section 270A(9).
The Assessing Officer had treated the matter as involving misreporting because the petitioner had failed to produce the relevant accounting records concerning income derived from its solar plant unit. The Department contended that this factual basis had already been indicated in the assessment order and, therefore, the petitioner was fully aware of the reasons for initiation of penalty proceedings.
Accordingly, the Revenue maintained that section 270AA(3) specifically excludes cases where penalty proceedings have been initiated under the circumstances referred to in section 270A(9). Therefore, irrespective of payment of tax and interest and non-filing of appeal, the petitioner was not eligible for immunity.
The Department also contended that the question of deciding the immunity application within the prescribed statutory period did not arise because the petitioner’s application itself fell outside the statutory immunity framework.
High Court Finding
The Rajasthan High Court upheld the rejection of the immunity application and held that the statutory scheme of sections 270A and 270AA makes a clear distinction between ordinary under-reporting of income and under-reporting arising as a consequence of misreporting of income.
The Court observed that section 270AA provides immunity only where the statutory conditions are fulfilled and, significantly, where penalty proceedings have not been initiated in the circumstances referred to in section 270A(9). Thus, where the case falls within the category of misreporting contemplated by section 270A(9), the statutory benefit of immunity under section 270AA is unavailable.
The Court found that, in the present case, the show-cause notice clearly described the proceedings as involving “under-reporting in consequence of misreporting.” Merely because the precise sub-clause of section 270A(9) was not specifically mentioned did not render the notice arbitrary or violative of the principles of natural justice.
The Court further noted that the petitioner had already been put on notice through the assessment order regarding the factual basis on which the Assessing Officer considered the income to have been misreported. The assessment order had specifically referred to the failure of the petitioner to produce accounting records relating to the income derived from its solar plant unit. Therefore, the petitioner could not contend that it was unaware of the nature or basis of the allegations.
On the question of denial of an opportunity of hearing, the Court held that the petitioner’s case itself fell outside the statutory framework of section 270AA because of the applicability of section 270A(9). Consequently, the petitioner could not successfully invoke the procedural safeguards available for a valid application seeking statutory immunity.
Similarly, the Court rejected the contention regarding delay in deciding the application. Since immunity was not statutorily available in a case involving under-reporting in consequence of misreporting, the Department was not obliged to process such an application as one falling within the statutory immunity mechanism.
Outcome
The writ petition was dismissed.
The Rajasthan High Court upheld the rejection of the petitioner’s application for immunity under section 270AA and rejected the challenge based on:
- alleged vagueness in the show-cause notice;
- non-specification of the particular sub-clause of section 270A(9);
- alleged denial of an opportunity of hearing; and
- delay in deciding the immunity application.
The Court held that since the penalty proceedings concerned under-reporting in consequence of misreporting of income, the petitioner was outside the scope of statutory immunity under section 270AA.
Ratio. Section 270AA grants immunity only in eligible cases of under-reporting of income and expressly excludes cases where penalty proceedings are initiated under the circumstances specified in section 270A(9), namely under-reporting resulting from misreporting of income. Where the assessee has already been made aware of the factual basis of the alleged misreporting, mere omission to mention the precise sub-clause of section 270A(9) in the show-cause notice does not invalidate the proceedings. A person whose case falls outside the statutory immunity framework cannot claim immunity merely by satisfying procedural conditions such as payment of tax, interest and non-filing of appeal.
Cases Relied Upon
- CIT v. Reliance Petroproducts Pvt. Ltd. 2010 (3) TMI 80 – Supreme Court
- Chambal Fertilizers and Chemicals Ltd. v. Office of the Principal Commissioner of Income Tax & Ors. 2024 (1) TMI 316 – Rajasthan High Court
- G.R. Infraprojects Ltd. v. Assistant Commissioner of Income-tax & Ors. 2024 (1) TMI 163 – Rajasthan High Court
- Prem Brothers Infrastructure LLP v. National Faceless Assessment Centre & Anr. 2022 (6) TMI 130 – Delhi High Court
- Schneider Electric South East Asia (HQ) Pte. Ltd. v. ACIT 2022 (3) TMI 1295 – Delhi High Court
FULL TEXT OF THE JUDGMENT/ORDER OF RAJASTHAN HIGH COURT
1. Through the instant writ petition, the petitioner challenges the impugned order (Annexure 8), which dismissed the petitioner’s request for immunity from penalties arising from the show-cause notice issued under Section 270A of the Income Tax Act, 1961 (For brevity, hereinafter referred to as the ‘Act’).
2. The factual matrix is that the petitioner filed its return (Annexure 1) for the Assessment Year 2018-19 and vide Assessment Order dated 24.2.2021 (Annexure 2), the petitioner’s claim for deductions under Section 80 of the Act was disallowed. Instead of opting for an appeal, the petitioner deposited the assessed demand and the Assessing Officer issued a notice for penalty under Section 274 read with Section 270A of the Act (Annexure-3). The petitioner filed his response (Annexure 5) and sought immunity under Section 270AA of the Act by duly complying with Form 68.
3. By means of the impugned order dated 13.01.2022 (Annexure-8), the petitioner’s prayer for immunity from the imposition of penalty under Section 270A was rejected and an order dated 03.02.2022 (Annexure-10) imposing a penalty was passed.
4. The learned petitioner’s counsel submits that the show-cause notice and the impugned order (Annexure 8) lack specific reasons for the alleged misreported income and without providing an opportunity for personal hearing, as mandated under Section 270AA(4), are thus legally infirm. In support of his submissions, he has placed reliance upon the following judgments:
(iii) Schneider Electric South East Asia (HQ) PTE Ltd. v. ACIT, [2022] 145 taxmann.com 665
(iv) Prem Brothers Infrastructure LLP v. NFAC, [2022] 142 taxmann.com 38 (Delhi)
(v) CIT Vs Reliance Petroproducts Private Limited [2010] 189 taxmann.com 322
5. Furthermore, the counsel contends that the impugned order was issued beyond the statutory timeline prescribed in Section 270AA(4) of the Act, which stipulates one month.
6. Per contra, the learned counsel for the respondents defends the impugned order, asserting that under Sub-section (9) of Section 270A of the Act, immunity is not permissible and the Act also prohibits the Assessing Officer (AO) from initiating proceedings concerning an immunity application for “under-reporting of income in consequence of misreporting thereof.” Immunity is only available for “under-reporting of income.” The learned counsel refers to Section 277AA of the Act.
7. The respondents’ counsel further explains that the delay in issuing the order was due to the COVID-19 pandemic and pursuant to Board Notification No. SO 3814(E) dated 17.9.2021, such delay was condoned.
8. Before examining the core issues, it is essential to refer to the relevant provisions of the Act concerning immunity, specifically Sections 270A and 270AA, which are reproduced as follows:
270A. Penalty for under-reporting and misreporting of income:
(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.
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 97[three months] 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 98[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.
9. Section 270AA of the Income Tax Act, 1961, clearly clarifies issues related to immunity from penalties. Under Section 270(1), taxpayers can seek immunity if their case falls under Section 270A, 276C, or 276CC. Consequently, Section 270AA is specifically intended for filing applications for immunity in these cases. The exemption outlined in section 270AA(3) completely bars the petitioner from seeking immunity for misreporting income, as specified under Section 277A(9) of the Act.
10. Section 270A addresses cases involving under-reported income. Thus, cases involving misreporting of income fall outside the scope of Section 270AA, as confirmed upon examining the applicable provisions.
11. In the present case, the penalty was imposed for ‘under-reporting due to misreporting,’ aligned with subsection (9) of Section 270A.
12. A show-cause notice issued to the petitioner indicates that, although a specific subcategory of Section 270A(9) was not explicitly mentioned, it refers to the petitioner’s case as falling under “under-reporting consequences of misreporting.”
13. The Assessing Officer, upon reviewing the provisions of Section 270AA, concluded that the petitioner’s case does not fall within the clause of under-reporting but rather falls under under-reporting of income resulting from misreporting, which, as per subsection (9) of Section 270A, excludes it from the immunity clause. The absence of explicit mention of the sub-category in the notice does not, by itself, constitute arbitrariness or violate principles of natural justice. Although the assessment order and penalty proceedings are separate, the petitioner was aware before the initiation of penalty proceedings that the assessing officer explicitly indicated in the assessment order that the petitioner failed to produce accounting records for income derived from its solar plant unit, thereby bringing it within the scope of “under-reporting in consequence of misreporting.”
14. The second ground raised by the petitioner that the respondents did not adhere to the one-month timeline stipulated in Section 270(4) of the Act, is also unfounded. Statutory provisions do not require that immunity applications in cases of income misreporting be decided within this period. Therefore, the department was under no obligation to decide the petitioner’s application within the prescribed timeline, and the filing of the petitioner’s application seeking exemption is outside the statutory framework.
15. Accordingly, we are not persuaded that the show-cause notice and the impugned order are fraught with illegality warranting judicial quashing.
16. In view of the foregoing discussion, we find no substance in the instant writ petition. The same is, accordingly, dismissed.
17. All pending applications stand disposed of.
