During quashing an SCN issued via the department for initiation of penalty proceedings under section 270A in a vague manner, a categorical finding of ‘misreporting/ under-reporting’ is essential for the levy of penalty under section 270A, Delhi HC ruled.
An order dismissing immunity asserted via taxpayer u/s 270AA and dropping the penalty proceedings under section 270A due to AO’s failure to indicate a precise charge of misreporting or under-reporting in show cause notice is been set aside by the High Court.
Section 270A of the Income Tax Act remarks that an assessing officer, a commissioner (appeals), a principal commissioner, or a commissioner may demand a person to file a penalty if he under-reports or misreports his income. The range of the same penalty may vary from 50% to 200%.
The Division Bench including Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav while indicating ‘under-reporting’ as well as ‘misreporting’ are separate and distinct misdemeanours, noted that in the absence of the assessing officer (AO) having specified the transgression of the petitioner and which could be shown counted within the ambit of sub-section (9) of Section 270A, proceedings for imposition of penalty could not have been mechanically commenced. (Para 22 & 23)
Case Facts
The taxpayer, a non-resident entity concerned with the business of furnishing IT and IT support services comprising the software licenses to Indian entities, was categorized as a transfer of intellectual property, and levied to tax on the payments obtained from these entities as royalty as per Section 9(1)(vi) of the Income-tax Act read with Article 12 of the India-USA DTAA.
Therefore, u/s 270A penalty proceedings were initiated. Even though the taxpayer had claimed MAP for AY 2017-2018, paid the demands for AY 2018-2019 and 2019-2020, and submitted an application for immunity under section 270AA, the application was rejected by AO stating mere payment of demand does not, ipso facto, amount to protection against misreporting as envisaged by section 270A(9).
High Court Words
SCN that arrived to be issued for the beginning of action under section 270A were themselves vague and not clear since the same was unable to quote whether the taxpayer was being assessed with under-reporting or misreporting of income, the bench remarked.
A condition is provided that a prayer for the immunity can be refused as per section 270AA(3) merely when the same was a matter of misreporting, the Bench expressed that SCN is not able to show the particular charge that asked to be relied against the taxpayer.
The perspective of the bench is that while analyzing the application for immunity, it was essential for AO to find if the provisions of section 270A stood drawn either on the anvil of under-reporting or misreporting.
On the AO the very obligation was undertaken to be enabled to reject these immunity applications from a penalty just when the same discovered that penalty is revealed on a charge which was referable to section 270 A (9), Bench added.
The bench noted that a finding of misrepresentation, failure to record investments, expenditure not confirmed via proof, and recording of false entries in the books of account indicated under section 270A(9) has neither been returned nor recorded in the assessment order.
Bench has the perspective that Show Case Notice (SCN) as per which the measure under section 270A arrived to be executed unable to quote whether the taxpayer was being attempted on an allegation of under-reporting or misreporting.
A transparent failure of the Revenue to base the impugned proceedings on a violation pertinent to Section 270A(9), the Bench said that the application for immunity cannot have been rejected.
Revealing that the taxpayer had duly complied with the legal pre-conditions designated in section 270AA(1), the High Court stated that the same was important on the revenue to have the conclusion of a firm that the taxpayer’s matter fell in the class of misreporting as that itself shall warrant rejection of its application for immunity.
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The High Court explained the non-payment of tax via taxpayer as of uncertainty in the statutory position existing during the filing of the income return and explained that these cases shall be outside the scope of misreporting.
Therefore, the taxpayer’s petition has been permitted by the High Court and quashed the SCN initiating penalty proceedings under section 270A.
| Case Title | GE Capital US Holdings INC Vs DCIT |
| Case No.: | W.P.(C) 1646/2022 |
| Date | 31.05.2024 |
| Counsel For Petitioner | Mr Sachit Jolly, Ms Soumya Singh, Ms Disha Jham, Mr Devansh Jain, Mr Aditya Rathore and Mr Abhyudaya Shankar Bajpai, Advs. |
| Counsel For Respondents | Mr Puneet Rai, Mr Ashvini Kumar, Mr Rishabh Nangia, SCs and Mr Nikhil Jain, Advocates for Income Tax Dept. Mr Ravi Prakash, CGSC for UOI |
| Delhi High Court | Read Order |