I withdrew my education cess claim after the Finance Act 2022 inserted section 155(18). Can the officer still treat it as under-reported income and levy penalty?
The Rajasthan High Court set the penalty aside and directed that immunity under s.270AA be granted. Where the company withdrew its cess claim by letter dated 19 March 2022, before s.155(18) came into force on 1 April 2022, and accepted the proposed variation, it was entitled to immunity from penalty under s.270A, and the initiation was in any event non est because the officer never specified which limb of s.270A(9) was attracted.
Decided by the High Court (Vijay Bishnoi J and Munnuri Laxman J) on 2024-01-02, reported as D.B. Civil Writ Petition No. 5594/2023 (Rajasthan High Court, Jodhpur); [2023:RJ-JD:44789-DB]. It bears on section 155, section 155(18), section 270A, section 270A(3), section 270A(9), section 270AA, section 154, section 154(7), section 156, section 40 of the Income Tax Act 1961, in Penalty, Deductions & Disallowances and Assessment & Scrutiny matters.
Section 155(18) is the machinery by which a cess deduction already claimed and allowed is undone: the claim is deemed to be under-reported income for s.270A(3) notwithstanding s.270A(6), the Assessing Officer must recompute total income and make the necessary amendment, and s.154 applies with the four years in s.154(7) reckoned from the end of the previous year commencing 1 April 2021. The proviso is the escape route — an application in the prescribed form and time for recomputation without the cess deduction, with payment of the tax due, keeps the claim out of under-reported income. This judgment shows what happens to an officer who ignores that structure and mechanically imposes a 200 per cent penalty.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioner is a public limited company executing turnkey infrastructure projects. It filed its return for assessment year 2020-21 on 13 February 2021. A s.143(2) notice issued on 29 June 2021 was followed by s.142(1) notices on 26 November 2021 and 26 February 2022, and the company was asked to show cause why its claim for deduction of education cess of Rs 12,85,58,982 should not be disallowed and added back, with penalty proceedings under s.270A. By reply dated 19 March 2022 the company withdrew its claim for deduction of education cess and accepted the proposed variation. The assessment order dated 22 September 2022 made the single addition of Rs 12,85,58,982 and directed initiation of penalty proceedings under s.270A for misreporting by way of under-reporting of income, with a s.274 notice of the same date. The company replied on 18 October 2022 and also filed an application under s.270AA in the prescribed form seeking immunity. Further show cause notices followed on 6 February 2023, replied to on 13 February 2023, and on 30 March 2023 requiring a reply by 5 pm on 31 March 2023. The company said it replied in time; the Department nevertheless passed a penalty order on 31 March 2023 imposing 200 per cent of tax, followed by a s.156 demand notice. The company came to the High Court, relying on the Delhi High Court decisions in Schneider Electric South East Asia (HQ) Pte Ltd, Ultimate Infratech Private Limited and Rohit Kapur.
The writ petition was allowed. The penalty order dated 31 March 2023 under s.270A was set aside, the s.156 demand notice was set aside, and the Assessing Officer was directed to grant the company immunity under s.270AA (para 30). Neither the assessment order nor the show cause notices nor the penalty order specified which part of s.270A(9) was said to be attracted, and that omission made the initiation non est (paras 27 and 28). Because the company had withdrawn its cess claim by letter dated 19 March 2022, before s.155(18) came into force on 1 April 2022, it was entitled to immunity from penalty under s.270A even though penalty proceedings had been initiated; the officer's conclusion that the company did not satisfy s.270AA(3) was illegal (para 28). Independently, the s.270AA application had not been decided within the one month allowed by s.270AA(4), which was a further reason to set the penalty aside (para 29).
The Court reproduced s.155(18), s.270A(9) and s.270AA (para 19) and explained the scheme: s.155(18), inserted by the Finance Act 2022 with effect from 1 April 2022, deems a claim for deduction of surcharge or cess that is not allowable under s.40 to be under-reported income for the purposes of penalty under s.270A, but the proviso allows an assessee to apply in the prescribed form and time for recomputation of income without the cess deduction and, on paying the difference within the specified time, keeps the claim out of under-reported income (para 20). Section 270AA(3) obliges the officer to grant immunity where the conditions in s.270AA(1) are met and penalty has not been initiated in the circumstances in s.270A(9), and s.270AA(4) requires an order accepting or rejecting the application within one month from the end of the month of receipt, after hearing (paras 22 and 23). Applying the Delhi High Court decisions relied on, the Court found the officer had never identified the limb of s.270A(9) said to apply, had passed the order mechanically without dealing with the company's justification, and had not decided the immunity application in time.
We are of the view that once the petitioner-company has withdrawn its claim vide letter dated 19.03.2022 for deduction of education cess in view of insertion of sub-Section (18) of Section 155 before it came into force w.e.f. 01.04.2022, the petitioner-company is entitled for immunity from imposition of penalty under Section 270A of the Act though the proceedings against it were initiated for imposition of penalty.
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Handle my notice → Ask a CA on WhatsAppThe Rajasthan High Court set the penalty aside and directed that immunity under s.270AA be granted. Where the company withdrew its cess claim by letter dated 19 March 2022, before s.155(18) came into force on 1 April 2022, and accepted the proposed variation, it was entitled to immunity from penalty under s.270A, and the initiation was in any event non est because the officer never specified which limb of s.270A(9) was attracted. This was decided by the High Court (Vijay Bishnoi J and Munnuri Laxman J) and bears on section 155, section 155(18), section 270A, section 270A(3), section 270A(9), section 270AA, section 154, section 154(7), section 156, section 40 of the Income Tax Act 1961. It is reported as D.B. Civil Writ Petition No. 5594/2023 (Rajasthan High Court, Jodhpur); [2023:RJ-JD:44789-DB]. Section 155(18) is the machinery by which a cess deduction already claimed and allowed is undone: the claim is deemed to be under-reported income for s.270A(3) notwithstanding s.270A(6), the Assessing Officer must recompute total income and make the necessary amendment, and s.154 applies with the four years in s.154(7) reckoned from the end of the previous year commencing 1 April 2021. The proviso is the escape route — an application in the prescribed form and time for recomputation without the cess deduction, with payment of the tax due, keeps the claim out of under-reported income. This judgment shows what happens to an officer who ignores that structure and mechanically imposes a 200 per cent penalty. If it applies to you, the first step is this: Work out which route you are on. If the cess claim was allowed in a completed assessment, use the proviso to s.155(18): apply in the prescribed form and within the prescribed time for recomputation without the cess deduction and pay the tax due, and the claim is not deemed under-reported income.
The petitioner is a public limited company executing turnkey infrastructure projects. It filed its return for assessment year 2020-21 on 13 February 2021. A s.143(2) notice issued on 29 June 2021 was followed by s.142(1) notices on 26 November 2021 and 26 February 2022, and the company was asked to show cause why its claim for deduction of education cess of Rs 12,85,58,982 should not be disallowed and added back, with penalty proceedings under s.270A. By reply dated 19 March 2022 the company withdrew its claim for deduction of education cess and accepted the proposed variation. The assessment order dated 22 September 2022 made the single addition of Rs 12,85,58,982 and directed initiation of penalty proceedings under s.270A for misreporting by way of under-reporting of income, with a s.274 notice of the same date. The company replied on 18 October 2022 and also filed an application under s.270AA in the prescribed form seeking immunity. Further show cause notices followed on 6 February 2023, replied to on 13 February 2023, and on 30 March 2023 requiring a reply by 5 pm on 31 March 2023. The company said it replied in time; the Department nevertheless passed a penalty order on 31 March 2023 imposing 200 per cent of tax, followed by a s.156 demand notice. The company came to the High Court, relying on the Delhi High Court decisions in Schneider Electric South East Asia (HQ) Pte Ltd, Ultimate Infratech Private Limited and Rohit Kapur. The matter was decided on 2024-01-02 by the High Court (Vijay Bishnoi J and Munnuri Laxman J). On those facts the High Court held as follows. The writ petition was allowed. The penalty order dated 31 March 2023 under s.270A was set aside, the s.156 demand notice was set aside, and the Assessing Officer was directed to grant the company immunity under s.270AA (para 30). Neither the assessment order nor the show cause notices nor the penalty order specified which part of s.270A(9) was said to be attracted, and that omission made the initiation non est (paras 27 and 28). Because the company had withdrawn its cess claim by letter dated 19 March 2022, before s.155(18) came into force on 1 April 2022, it was entitled to immunity from penalty under s.270A even though penalty proceedings had been initiated; the officer's conclusion that the company did not satisfy s.270AA(3) was illegal (para 28). Independently, the s.270AA application had not been decided within the one month allowed by s.270AA(4), which was a further reason to set the penalty aside (para 29).
The Court reproduced s.155(18), s.270A(9) and s.270AA (para 19) and explained the scheme: s.155(18), inserted by the Finance Act 2022 with effect from 1 April 2022, deems a claim for deduction of surcharge or cess that is not allowable under s.40 to be under-reported income for the purposes of penalty under s.270A, but the proviso allows an assessee to apply in the prescribed form and time for recomputation of income without the cess deduction and, on paying the difference within the specified time, keeps the claim out of under-reported income (para 20). Section 270AA(3) obliges the officer to grant immunity where the conditions in s.270AA(1) are met and penalty has not been initiated in the circumstances in s.270A(9), and s.270AA(4) requires an order accepting or rejecting the application within one month from the end of the month of receipt, after hearing (paras 22 and 23). Applying the Delhi High Court decisions relied on, the Court found the officer had never identified the limb of s.270A(9) said to apply, had passed the order mechanically without dealing with the company's justification, and had not decided the immunity application in time. In the words reproduced by the source cited on this page: "We are of the view that once the petitioner-company has withdrawn its claim vide letter dated 19.03.2022 for deduction of education cess in view of insertion of sub-Section (18) of Section 155 before it came into force w.e.f. 01.04.2022, the petitioner-company is entitled for immunity from imposition of penalty under Section 270A of the Act though the proceedings against it were initiated for imposition of penalty." The decision followed or applied Schneider Electric South East Asia (HQ) Pte Ltd (Delhi High Court) — applied; Ultimate Infratech Private Limited v. National Faceless Assessment Centre Delhi (Delhi High Court) — applied; Rohit Kapur v. Principal Commissioner of Income Tax-7, New Delhi (Delhi High Court) — applied.
It was decided by the High Court on 2024-01-02 and is reported as D.B. Civil Writ Petition No. 5594/2023 (Rajasthan High Court, Jodhpur); [2023:RJ-JD:44789-DB]. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 155, section 155(18), section 270A, section 270A(3), section 270A(9), section 270AA, section 154, section 154(7), section 156, section 40, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The writ petition was allowed. The penalty order dated 31 March 2023 under s.270A was set aside, the s.156 demand notice was set aside, and the Assessing Officer was directed to grant the company immunity under s.270AA (para 30). Neither the assessment order nor the show cause notices nor the penalty order specified which part of s.270A(9) was said to be attracted, and that omission made the initiation non est (paras 27 and 28). Because the company had withdrawn its cess claim by letter dated 19 March 2022, before s.155(18) came into force on 1 April 2022, it was entitled to immunity from penalty under s.270A even though penalty proceedings had been initiated; the officer's conclusion that the company did not satisfy s.270AA(3) was illegal (para 28). Independently, the s.270AA application had not been decided within the one month allowed by s.270AA(4), which was a further reason to set the penalty aside (para 29). It arises in Penalty, Deductions & Disallowances and Assessment & Scrutiny matters, on section 155, section 155(18), section 270A, section 270A(3), section 270A(9), section 270AA, section 154, section 154(7), section 156, section 40 of the Income Tax Act 1961, and was decided by Vijay Bishnoi J and Munnuri Laxman J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Note the special limitation: for a s.155(18) amendment the four years in s.154(7) run from the end of the previous year commencing on 1 April 2021, not from the year of the order being amended. If a s.270A penalty is proposed, demand that the notice and the order specify which clause of s.270A(9) is said to apply; failure to do so made the initiation non est here. Where you have paid the tax and interest and not appealed, file the s.270AA application within one month from the end of the month in which the assessment order was received, and hold the officer to the one-month period in s.270AA(4) for deciding it. Keep proof of the date and terms of any letter withdrawing the claim; the letter of 19 March 2022 is what carried this case.
Still good law. The judgment, reported at [2024] 158 taxmann.com 80 (Raj.), is being applied across Tribunal benches at Jaipur, Pune, Delhi, Mumbai and Chennai. The clearest application is Jaipur Telecom Pvt Ltd v DCIT (Income Tax Appellate Tribunal, Jaipur, 22 April 2024), where the Bench adopted the ratio in its own findings at paragraph 11 and quashed the penalty at paragraph 12. Nothing overruling, doubting or confining it has been found, and no Supreme Court matter against it is on record here. Two things about the shape of the decision should be carried with it. It rests on two independent grounds, and the second is the stronger for general use: the penalty initiation was non est because neither the assessment order nor the show cause notices nor the penalty order specified which limb of section 270A(9) was said to be attracted. That ground has nothing to do with education cess and is available against any misreporting penalty, which is why the judgment is cited far beyond its own subject. The first ground is narrower and is tied to a closing window: the company had withdrawn its cess claim by letter dated 19 March 2022, before section 155(18) came into force on 1 April 2022, and that is what entitled it to immunity under section 270AA notwithstanding the initiation. An assessee whose claim was still standing on 1 April 2022 is inside section 155(18) and must use the proviso — an application in the prescribed form and time for recomputation without the cess deduction, with payment of the tax due — rather than rely on this case. The third ground, that the section 270AA application was not decided within the one month allowed by section 270AA(4), is also general and worth pleading wherever it is available. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment runs to 31 numbered paragraphs, with the disposal at paragraphs 30 and 31, and carries the neutral citation [2023:RJ-JD:44789-DB]. Two slips in the judgment should be noticed before any of it is quoted. Paragraph 21 says 'sub-section (9) of Section 270AA of the Act categorizes the cases of misreporting of income'; it is section 270A(9) that does so, and the Court itself refers correctly to section 270A(9) at paragraphs 27 and 28, so the reference in paragraph 21 is a slip and not a different provision. Paragraph 28 refers to 'the impugned order dated 31.03.2022' where the penalty order is elsewhere consistently dated 31 March 2023; the 2022 date is a slip, and quoting paragraph 28 without saying so invites an argument about which order the Court was setting aside. The text of section 155(18) reproduced at paragraph 19 is given as printed in the judgment and has not been independently checked against the section itself, so anyone relying on the exact words of the proviso — the application for recomputation and the payment of tax within the specified time — should read the section rather than the reproduction. Three points of substance to carry with the entry. The relief granted was specific: the penalty order and the section 156 demand notice were set aside and the Assessing Officer was directed to grant immunity under section 270AA, which is a direction to grant and not a remand to reconsider. The Court reached that on three grounds — the failure to identify the limb of section 270A(9), the withdrawal of the cess claim before section 155(18) commenced, and the failure to decide the section 270AA application within the month allowed by section 270AA(4) — and each is independent, so a later Bench distinguishing one does not dispose of the case. And the machinery the judgment describes is worth knowing in its own right: section 155(18) deems a cess or surcharge claim not allowable under section 40 to be under-reported income for section 270A(3) notwithstanding section 270A(6), directs recomputation, and applies section 154 with the four years in section 154(7) reckoned from the end of the previous year commencing 1 April 2021. Two limits on the entry. The Court did not decide whether a cess claim withdrawn after 1 April 2022 but before assessment attracts section 155(18) at all, and it did not decide what happens where the assessee uses the proviso but pays the tax late. Both are open, and neither can be answered out of this judgment. Nor does the judgment touch the underlying question, settled against assessees by amendment, whether cess was ever deductible under section 40(a)(ii); it assumes the disallowance and deals only with penalty. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The writ petition was allowed. The penalty order dated 31 March 2023 under s.270A was set aside, the s.156 demand notice was set aside, and the Assessing Officer was directed to grant the company immunity under s.270AA (para 30). Neither the assessment order nor the show cause notices nor the penalty order specified which part of s.270A(9) was said to be attracted, and that omission made the initiation non est (paras 27 and 28). Because the company had withdrawn its cess claim by letter dated 19 March 2022, before s.155(18) came into force on 1 April 2022, it was entitled to immunity from penalty under s.270A even though penalty proceedings had been initiated; the officer's conclusion that the company did not satisfy s.270AA(3) was illegal (para 28). Independently, the s.270AA application had not been decided within the one month allowed by s.270AA(4), which was a further reason to set the penalty aside (para 29).
TaxSphere, “G R Infraprojects Limited v ACIT”, https://taxnotice.vittsphere.com/caselaw/case/gr-infraprojects-155-18-education-cess-withdrawn-before-commencement/ (validity last checked 2026-09-08)
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