Non-Specification of Limb under which Penalty is Initiated is Arbitrary: Delhi HC says Assessee eligible for Immunity and shall be Incentivized [Read Order]

A two-judge bench of the Delhi High Court has ruled that the action of income tax authorities denying the benefit of immunity from penalty under Section 270AA of the Income Tax Act to the assessee on the ground that the penalty was initiated under Section 270A for misreporting of income is arbitrary since the penalty notice issued by the authorities failed to specify the limb under which the penalty proceedings were initiated.

The Bench, consisting of Justices Manmohan and Dinesh Kumar Sharma, held that since the authorities had failed to specify whether action was taken against the assessee for "underreporting" or "misreporting" of income under Section 270A of the Act, the order of the income tax authorities denying immunity from imposition of penalty was erroneous and arbitrary.

The bench held that the Petitioner is not entitled to the benefit of immunity under Section 270AA of the Act. th March, 2022, this Court is of the view that the Respondents’ action of denying the benefit of immunity on the ground that the penalty was initiated under Section 270A of the Act for misreporting of income is not only erroneous but also arbitrary and bereft of any reason as in the penalty notice the Respondents have failed to specify the limb - "underreporting" or "misreporting" of income, under which the penalty proceedings had been initiated.

In concluding the order, the Court found that the entire edifice of the assessment order framed by Respondent No.1 was actually voluntary computation of income filed by the Petitioner to buy peace and avoid litigation, which fact has been duly noted and accepted in the assessment order as well and consequently, there is no question of any misreporting.

“This Court is further of the view that the impugned action of Respondent No.1 is contrary to the avowed Legislative intent of Section 270AA of the Act to encourage/incentivize a taxpayer to (i) fast-track settlement of issue, (ii) recover tax demand; and (iii) reduce protracted litigation,” the Court said.

To Read the full text of the Order CLICK HERE

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