Case Law Details
IBS Software Private Limited Vs Union Of India (Kerala High Court)
Introduction: The legal battle between IBS Software Private Limited and the Union of India reached a pivotal point with the Kerala High Court’s judgment on the rejection of IBS’s application for immunity under Section 270AA of the Income Tax Act, 1961. The court’s decision, as outlined in Ext.P11, holds significance in cases involving the underreporting of income and misrepresentation of facts.
Detailed Analysis:
1. Background of the Case: IBS Software filed a writ petition challenging the order in Ext.P11, which denied the petitioner’s application for immunity from penalty under Section 270AA. The rejection was based on the grounds that the case fell under sub-Section (9) of Section 270A of the Income Tax Act.
2. Provisions of Section 270AA: Section 270AA provides provisions for immunity from the imposition of penalties under certain conditions. An assessee can apply for immunity if the tax and interest specified in the assessment order have been paid, and no appeal against the order has been filed within the stipulated period. However, sub-Section (9) of Section 270A lists scenarios where misreporting of income includes misrepresentation or suppression of facts.
3. Assessing Officer’s Findings: The assessing officer, as per the assessment order in Ext.P1, specifically noted that the petitioner not only underreported income but also misrepresented facts by claiming deductions for expenses that were self-disallowed. The order initiated penalty proceedings under sub-Section (9) of Section 270A.
4. Bar on Application under Section 270AA: The court emphasized that if there is a specific finding in the assessment order that the assessee underreported income through misrepresentation of facts, the application under Section 270AA is not maintainable. The assessing officer cannot reexamine the correctness of the assessment order during the Section 270AA application process.
5. Court’s Verdict: The court concluded that the rejection order, Ext.P11, did not suffer from any legal or factual illegality. The writ petition was dismissed, affirming the assessing officer’s decision.
Conclusion: The Kerala High Court’s ruling in the IBS Software vs Union of India case underscores the importance of adhering to the provisions of Section 270AA while seeking immunity from penalty. Businesses must carefully assess their eligibility and compliance with the conditions laid out in the Income Tax Act. The court’s decision reaffirms the principle that misreporting, especially involving misrepresentation of facts, is not eligible for immunity under Section 270AA, highlighting the need for precision and accuracy in tax filings.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
Heard Sri. Rajakannan, learned counsel for the petitioner, and Sri .Christopher Abraham, learned Standing Counsel for the Income Tax Department.
2. The present writ petition has been filed impugning the order in Ext.P11, whereby the petitioner’s application in Ext.P3 filed under Section 270AA of the Income Tax Act, 1961 [“Act”, for short] seeking immunity from imposition of penalty in pursuance to the assessment order in P1 has been rejected, on the ground that the case is not eligible to be considered for grant of immunity from imposition of penalty as the facts of the case are covered under sub-Section (9) of Section 270A of the Act.
3. Section 270AA of the Act laid down the provisions for immunity from imposition of penalty, The said Section, on reproduction, reads thus:
“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 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.”
4. Thus, the assessing officer has to process the application under Section 270AA of the Act seeking immunity from imposition of penalty, inter alia, only if the case does not fall on any of the circumstances mentioned in sub-Section (9) of Section 270A of the Act.
5. Sub-Section (9) of Section 270A of the Act reads as under:
“270A. Penalty for under-reporting and misreporting of income.-
xxx xxx xxx
(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;
(f) failure to record any receipt in books of account having a bearing on total income; and
(g) 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.”
6. On a perusal of sub-Section (9) of Section 270A of the Act, it is seen that if there has been misrepresentation or suppression of facts by the assessee, then the application seeking immunity from imposition/payment of penalty under Section 270AA of the Act shall not be maintainable.
7. In paragraph No.3.10 of the assessment order dated 24.9.2022 in Ext.P1, the assessing authority has specifically recorded that while computing the income of the assessee and its return of income, it was not just under-reported the income, but also misrepresented the facts claiming deduction of expenses, which were already self disallowed, and therefore, it was a fit case for penalty proceedings under Section 270A of the Act. It was also stated that penalty proceedings should be initiated separately under sub-Section (9) of Section 270A of the Act. Paragraph No.3.10 of the assessment order dated 24.9.2022 in Ext.P1 is reproduced hereunder:
“3.10 Accordingly, the facts and representation of the assessee in computation of income and its Return of income is not just under-reporting of income, but under reporting of income on account of specific misrepresentation of facts and claiming the deduction of expenses which are already self-disallowed, is fit case for initiation of Penalty proceedings u/s 270A of the I.T. Act for mis-reporting of income under sub-section (9) of section 270A of the Income Tax Act, Thus, penalty proceedings under sub‑ section (9) of Section 270A are initiated separately.”
8. The assessing authority while examining the application under Section 270AA of the Act cannot sit in appeal against its own assessment order to record a different finding than what was recorded in the assessment order. The assessing officer cannot examine the correctness or otherwise of the assessment order while examining the application under Section 270AA of the Act seeking immunity from imposition/payment of penalty, etc. If there is a specific finding recorded in the assessment order that the assessee had underreported the income by misrepresenting the facts in the return of its income, then the application under Section 270AA of the Act would not be maintainable, in view of the express bar under Section 270A of the Act.
I do not find that the impugned order, Ext.P11, rejecting the application of the petitioner under Section 270AA of the Act suffers from any illegality on facts or law. Therefore, the present writ petition is hereby dismissed. Pending interlocutory application, if any, in the writ petition stands dismissed.
