Penalty u/s 270A will not attract by Mere Reference of Misreporting of Income: Delhi HC [Read Order]

The division bench of Delhi High Court presided by Mr. Justice Manmohan and Ms. Justice Manmeet Pritam Singh Arora has held that penalty u/s 270A will not attract by mere reference of misreporting of Income.

The petitioner, Prem Brothers Infrastructure LLP. approached High Court against the order of respondent, National Faceless Assessment Centre imposing a penalty of Rs.2,50,78,168/- under section 270A of the Act alleging misreporting of income.

The counsel for the petitioner submitted that the only addition in the assessment order is in respect of disallowance under section 14A of the Act. The Petitioner itself has made a disallowance of Rs.3,20,14,010/- which was more than the exempt income of Rs.45,08,371/-. The respondent has enhanced this disallowance to Rs.6,82,45,759/-.

The petitioner by relying the judgement of High Court in Joint Investments Pvt Ltd Versus Commissioner of Income Tax has submitted that when disallowance over and above exempt income itself is not permissible, there can’t be any misreporting of income. The issue involved herein is of estimation of disallowance under section 14A of the Act. As per clause (c) of section 270A(6) of the Act, no penalty is leviable where the amount of underreported income is determined on the basis of an estimate, if the assessee has on his own, estimated a lower amount of disallowance on the same issue and had included such income in the computation of his income.

The High Court has observed that the underreporting allegedly done by the assessee cannot amount to misreporting as the assessee had furnished all the details of the transactions relating to disallowance made under Section 14A of the Act and the AO as well as assessee has used the same details to arrive at different conclusions i.e. differing quantum of disallowances under Section 14A of the Act. This by no stretch of imagination can be held to be ‘misreporting’.

The High Court while quashing the penalty order has held that “there is not even a whisper as to which limb of Section 270A of the Act is attracted and how the ingredient of sub-section (9) of Section 270A is satisfied. In the absence of such particulars, the mere reference to the word "misreporting" by the Respondents in the penalty order to deny immunity from imposition of penalty and prosecution makes the impugned order manifestly arbitrary”. The High Court directs the respondent to grant immunity under Section 270AA of the Act to the Petitioner.

Advocate Mr. Ved Kumar Jain and Advocate Mr. Sanjay Kumar appeared for the petitioner and respondent respectively.

To Read the full text of the Order CLICK HERE

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