Under-reporting of Income due to Disallowance by AO: Delhi HC quashes Proceedings as it does not amount to 'Mis-Reporting' [Read Order]

A division bench of the Delhi High Court comprising of Justices Manmohan and Manmeet Pritam Singh Arora has ruled that where the underreporting of income allegedly done by the assessee is due to the re-computation of the disallowance under Section 14A of the Income Tax Act, 1961 by the Assessing Officer, it would not amount to misreporting of income.

The petitioner, Prem Brothers Infrastructure LLP, sought a direction from the department to grant immunity under Section 270AA of the Act to the Petitioner from the imposition of penalty and prosecution under Section 270A of the Act in respect of the income assessed vide assessment order dated 30th April 2021 for the Assessment Year 2018-19.

Allowing the contentions of the petitioner, the High Court observed that the only addition in the assessment order framed by Respondent is in respect of disallowance under section 14A of the Act.

“The Petitioner has made a disallowance of Rs.3,20,14,010/- which was recomputed by the Assessing Officer at Rs.6,82,45,759/-. Thus, this is a case where the amount of underreporting of income is consequent to increase in the disallowance voluntarily estimated by the assessee. This court is conscious of the fact that there can be cases where underreporting of income may result in misreporting of income, however, in peculiar facts of the present case, 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 bench said.

The Court further 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.”

To Read the full text of the Order CLICK HERE

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