Once Deduction Claim Of Education Cess Is Withdrawn, Assessee Immuned From Imposition Of Section 270A Penalty: Rajasthan High Court

The Rajasthan High Court has held that once the deduction claim for education cess is withdrawn, the assessee is immune from the imposition of a penalty under Section 270A of the Income Tax Act.

The bench of Justice Vijay Bishnoi and Justice Munnuri Laxman has observed that neither in the assessment order nor in the subsequent show-cause notices, the Assessing Officer specify that the case of the petitioner-company is covered under which part of Section 270A(9). Even in the order, it is not specified which part of Section 270A(9) is attracted.

Section 270A of the Income Tax Act is in respect of the penalty for underreporting and misreporting of income.

The petitioner/assessee is a public limited company engaged in the execution of turnkey infrastructure projects. The petitioner company filed the return of income for the financial year 2019-2020, i.e., the assessment year 2020-21, on February 13, 2021. A show cause notice dated June 29, 2021, under Section 143(2) was issued to the petitioner company. Subsequently, notices under Section 142(1) of the Act were issued to the petitioner company, which were replied to by the petitioner company.

The petitioner-company was asked to show cause why its claim for deduction of education cess of Rs. 12,85,58,982 be disallowed and be added back to its income for the relevant financial year and penalty proceedings be initiated under Section 270-A.

In response to the notice, the petitioner company withdrew its claim for deduction of the education cess and accepted the proposed variation. The Assessing Officer has passed the assessment order by which a single addition in relation to the deduction of education cess of Rs. 12,85,58,982 is made and added back to the income of the petitioner-company and ordered for initiating a penalty proceeding under Section 270A for misreporting by way of underreporting of income.

Simultaneously, notice was issued to the petitioner company under Section 274 read with Section 270A to show cause why a penalty should not be imposed on it.

In response to the notice, the petitioner company filed its response and filed an application under Section 270AA seeking immunity from the imposition of penalties under Section 270A of the Act under the prescribed form.

Another show cause notice under Section 270A was issued by the Assessing Officer for imposing a penalty, which was also replied to by the petitioner company.

The penalty order imposed a penalty of 200% of tax on the petitioner company. Consequently, a notice of demand under Section 156 of the Income Tax Act was issued to the petitioner company.

The assessee contended that the benefit of allowable deduction of education cess was claimed by the petitioner-company when it was permitted as per law; however, as soon as the amendment under Section 155 was introduced by way of inserting sub-section (18), the petitioner-company immediately suo moto withdrew its claim for cess to buy mental peace and to avoid litigation and levy of penalty, etc. It cannot be said that the petitioner company has concealed any fact or misrepresented it. It cannot be said that the petitioner company has underreported the income by way of misreporting.

The department contended that the respondent department has not committed any illegality in passing the impugned order as the petitioner company is not eligible for immunity from penalty levying under Section 270AA.

The court held that the application filed by the petitioner-company under Section 270AA seeking immunity from imposition of penalty has not been decided by the Assessing Officer within the prescribed time as per Section 270AA(4), and the action of the Assessing Officer in imposing the penalty against the petitioner-company is liable to be set aside.

Counsel For Petitioner: Vikas Balia

Counsel For Respondent: K. K. Bissa

Case Title: G R Infraprojects Limited Versus Assistant Commissioner Of Income-Tax

Case No.: D.B. Civil Writ Petition No. 5594/2023

Citation: Citation: 2024 LiveLaw (Raj) 3

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