The Delhi High Court quashed the show cause notice (SCN) initiating action under Section 270A of the Income Tax Act, 1961 on the failure to note allegation of under-reporting or misreporting.
The writ petitions impugned the orders pursuant to which the applications of the petitioner referable to Section 270AA(4) of the Income Tax Act, 1961 for being accorded immunity from imposition of penalty have come to be rejected. Pursuant to the amendments which were permitted to be moved in the instant writ petitions, the petitioner has now additionally challenged the notices for levy of penalty under Section 270A of the Income Tax Act.
The counsel for the petitioner, submitted that the respondent has acted wholly arbitrarily in rejecting the application for grant of immunity bearing in mind the undisputed position that the petitioner had duly complied with the conditions prescribed by Section 270AA(1) of the Income Tax Act. It was the submission of learned counsel that once the petitioner had complied with the aforesaid conditions, the respondent was bound to process the applications for immunity in accordance with Section 270AA(3) of the Income Tax Act.
The counsel for the respondent submitted that while it is true that the SCNs’ referable to Section 270A had referred to both under-reporting/misreporting, the assessment orders had with adequate clarity identified the case against the petitioner as being liable to be viewed as that of misreporting. In view of the aforesaid, learned counsel contended that the petitioner had been placed on due notice of the charge which stood raised against it. According to the counsel, the aforesaid facets of this particular case would be sufficient to negate the challenge which stands raised to the action under Section 270A.
A Division Bench of Justices Yashwant Varma and Purushaindra Kumar Kaurav observed that “Even the assessment orders fail to base the direction for initiation of proceedings under Section 270A on any considered finding of the conduct of the petitioner being liable to be placed within the sweep of sub-section (9) of that provision. The order of assessment as well as the SCNs’ clearly fail to meet the test of ―specific limb as propounded in Minu Bakshi and Schneider Electric. A case of misreporting, in any case, cannot possibly be said to have been made out bearing in mind the fact that the petitioner had questioned the taxability of income asserting that the same would not constitute royalty.”
“The petitioner had duly complied with the statutory pre-conditions set out in Section 270AA(1). It was thus incumbent upon the respondent to have come to the firm conclusion that the case of the petitioner fell in the category of misreporting since that alone would have warranted a rejection of its application for immunity. On an overall conspectus of the aforesaid, we come to the firm conclusion that the impugned orders would not sustain” the Court noted.
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