The Rajasthan High Court has held that the Penalty under section 270A of the Income Tax Act, 1961 is imposable when a deduction claim of education cess was withdrawn.
G R Infraprojects Limited, the petitioner is a publiclimited company engaged in the execution of turnkey infraprojects. The petitioner company is regularly filing its income tax return as per applicable provisions of the Income Tax Act, 1961.
The petitioner company filed a return of income for the financial year 2019-2020 i.e. assessment year 2020-21 on 13.02.2021. A show cause notice was issued under Section 143(2) of the Act to the petitioner company. The petitioner-company was asked to show cause why not its claim for deduction of education cess of Rs.12,85,58,982/- be disallowed and be added back to its income for the relevant financial year and penalty proceeding be initiated under Section 270-A of the Act.
The petitioner company vide reply has withdrawn its claim for deduction of education cess and accepted the proposed variation. The Assessing Officer has passed the assessment order whereby a single addition to deduction of education cess of Rs.12,85,58,982/- is made and added back to the income of the petitioner-company and ordered for initiating penalty proceeding under Section 270A of the Act for misreporting by way of underreporting of income. Consequently, a notice of demand dated 31.03.2023 under Section 156 of the Income Tax Act was issued to the petitioner company.
The respondent’s preliminary objection regarding the maintainability of the writ petition is raised on the grounds of the availability of an alternative remedy of filing an appeal. The petitioner has submitted that though the impugned order dated 31.03.2023 passed under Section 270A of the Act is appealable under Section 246A of the Act as the impugned order has been passed in violation of the principle of natural justice and contravention of the statutory scheme of the Act, the petitioner-company has invoked the extraordinary powers of this Court under Article 226 of the Constitution of India.
A division bench comprising Justice Vijay Bishnoi and Justice Munnuri Laxman observed that “Moreover, while initiating the said proceedings vide order dated 22.09.2022, the Assessing Officer has failed to specify that which part of sub-Section (9) of Section 270A is attracted in the case of petitioner-company, the said initiation is honest. The respondent vides impugned order dated 31.03.2022 has clarified that the petitioner-company is fulfilling the conditions mentioned in subsection (1) and (2) of Section 270AA, however, its conclusion that the petitioner-company does not fulfil the condition mentioned in sub-section (3) of Section 270AA of the Act is illegal and cannot be sustained.”
Apart from that the application filed by the petitioner-company under Section 270AA of the Act seeking immunity from imposition of penalty has not been decided by the Assessing Officer within the prescribed time as per sub-section (4) of Section 270AA of the Act, the impugned action of the Assessing Officer of imposing penalty against the petitioner-companywas set aside by the court.
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