The Rajasthan High Court ruled that voluntary disclosure misreporting of GST ( Goods and Services Tax ) Input Tax Credit ( ITC ) during scrutiny negated the basis for misreporting under the Section 270A(9) of the GST Act, 2017. It quashed the order passed by the assessing authority rejecting application under Section 270AA and the order passed by the revisional authority rejecting revision petition.
The bench of Justice Arun Bansali and Justice Shubha Mehta observed that “though several notices were issued under Section 142 of the Act, during the course of scrutiny proceedings and as many as ten issues were raised, on which the authority could not make any additions, the aspect of merging GST Input Credit with expenses was not pointed out/detected and the same was only pointed out voluntarily by the petitioner and, therefore, apparently sub-Clauses (a) and (c) of Section 270A (9) of the Act are not attracted.”
The petitioner, Chambal Fertilisers and Chemicals Limited originally filed its income tax return for the Assessment Year 2018-19 on November 30, 2018, under Section 139(1) of the Act and later revised it on March 29, 2019, under Section 139(5).
The case was selected for complete scrutiny, and numerous issues were highlighted in a notice issued on September 22, 2019. Various notices under Section 142(1) of the Act were subsequently issued, and responses were duly submitted by the petitioner.
During the scrutiny process, the petitioner discovered an inadvertent error where a ‘provision for doubtful GST input tax credit’ amounting to ₹16,30,91,496 had been incorrectly merged with another expense account. Realising the mistake, the petitioner proactively revised its return and added back the erroneous amount to the total income, notifying the authorities on February 24, 2021.
Despite this, the National E-Assessment Centre ( NeAC ) passed an assessment order under Section 143(3) of the Act, including the voluntarily surrendered amount of ₹16,30,91,496, and noted that a penalty under Section 270A of the Act was imposed for misreporting income.
The petitioner’s application under Section 270AA seeking immunity from the penalty was rejected by the Deputy Commissioner on July 27, 2021, without providing an opportunity for a hearing, as mandated by the Act. This prompted the petitioner to file a revision petition under Section 264, arguing that the rejection was not in compliance with Section 270AA, as it did not specify the grounds for misreporting of income.
The petitioner’s counsel argued that the petitioner had voluntarily disclosed the income during scrutiny proceedings and that the error did not constitute misreporting or suppression of facts as per the relevant clauses of the Act. The counsel cited the case of Schneider Electric South East Asia (HQ) PTE Ltd. vs. Assistant Commissioner of Income Tax to support the argument.
The respondents maintained that the petitioner had merged the provision for doubtful GST input tax credit in an expense account, which was only corrected during the scrutiny proceedings, justifying the penalty.
The High Court found that the Deputy Commissioner had violated the provisions by not providing an opportunity for a hearing and that the orders passed were non-speaking and lacked clarity on how the case fell within the misreporting criteria.
Consequently, the court allowed the writ petition, quashing the impugned orders of July 27, 2021, and March 13, 2023. The respondents were directed to grant immunity to the petitioner under Section 270AA of the Income Tax Act, thus overturning the earlier decisions and providing relief to the petitioner.
Mr. Sanjay Jhanwar, Sr. Advocate assisted by Ms. Vrinda Lakhotia, Mr. Rajat Sharma & Mr. Aryan Singh Chouhan appeared for the Petitioner. And, Mr. Shantanu Sharma with Ms. Bhawana Laddha appeared for the respondents.
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