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The Delhi High Court granted relief in a writ petition filed challenging the levy of a penalty of Rs.2,50,78,168 under Section 270A of the Income Tax Act, 1961. It ruled that where income is underreported by the assessee due to re-calculation of the disallowance under S.14A of the Income Tax Act, 1961 by the Assessing officer, it would not amount to misreporting of income.
The bench, consisting of Justices Manmohan and Manmeet Pritam Singh Arora, observed that the underreporting of income by the assessee was consequent to the increase in the disallowance made under Section 14A, which was voluntarily estimated by the assessee and later recalculated by the Assessing Officer on the basis of the same material.
Court observed that it is conscious of the fact that there can be cases where underreporting of income may result in misreporting of income. However, in the peculiar facts of the present case, the underreporting allegedly done by the assessee cannot amount to misreporting as the assessee had furnished all the details of the transactions relating to disallowance made under Section 14A of the Act and the AO as well as assessee has used the same details to arrive at different conclusions i.e. differing quantum of disallowances under Section 14A of the Act, Court added.
"This by no stretch of imagination can be held to be misreporting", observed the Court.
Court further stated that the Impugned Order levying the penalty does not specify as to which part of Section 270A of the Act was attracted and how the ingredients of subsection (9) of Section 270A were satisfied.
"In the absence of such particulars, the mere reference to the word 'misreporting' by the Respondents in the penalty order to deny immunity from imposition of penalty and prosecution makes the impugned order manifestly arbitrary", observed the Court.
The revenue department levied a penalty on the assessee Prem Brothers Infrastructure LLP under Section 270A of the Income Tax Act, 1961 for misreporting of income. Against this, the assessee filed a writ petition before the Delhi High Court. The assessee also sought a direction to the revenue department to grant immunity to the assessee under Section 270AA from imposition of penalty and prosecution under Section 270A.
The assessee Prem Brothers Infrastructure submitted before the Delhi High Court that it had filed an application under Section 270AA of the Income Tax Act seeking immunity from imposition of penalty and prosecution under Section 270A for misreporting of income. The assessee averred that the revenue department did not pass any independent order on the said application filed by the assessee and that it simply rejected the said application.
The revenue department contended that the assessee was not entitled to the benefit of immunity under Section 270AA. The revenue department averred that the assessee did not make the correct disallowance under Section 14A of the Income Tax Act, and thus the assessee not only underreported its income but also misreported its income. Therefore, the revenue department submitted that the Assessing Officer had rightly imposed the penalty under Section 270A and declined to grant immunity under Section 270AA.
The assessee submitted that it had made a disallowance under Section 14A of the Income Tax Act on the basis of its own estimation, which was enhanced by the revenue department.
The assessee contended that disallowance under Section 14A of the Income Tax Act does not fall in any limb of "misreporting" of income under Section 270A (9) of the Income Tax Act.
Section 270A (1) of the Income Tax Act provides that the specified income tax authorities may, during the course of any proceedings under the Income Tax Act, direct that any person who has underreported his income shall be liable to pay a penalty in addition to the tax, if any, on the underreported income.
Section 270A (8) provides that where the underreported income is in consequence of any misreporting, the penalty imposed on the assessee shall be equal to two hundred per cent of the amount of tax payable on the underreported income. Section 270A (9) enumerates the cases which shall constitute misreporting of income.
Section 270AA provides that the assessee may make an application to the Assessing Officer to grant him immunity from imposition of penalty under Section 270A of the Income Tax Act, if the assessee fulfils the specified conditions.
Cause Title:- Prem Brothers Infrastructure LLP. v National Faceless Assessment Centre & Anr.
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