The Assessing Officer raised my own section 14A disallowance and then called it misreporting, so he refused me immunity under section 270AA and levied penalty under section 270A. Can he do that?
No. The Delhi High Court quashed the penalty order and directed the Assessing Officer to grant immunity under section 270AA. The only addition was a recomputation of a section 14A disallowance the assessee had itself estimated and disclosed. Both sides worked from the same details and reached different figures; the Court said that by no stretch of imagination can that be called misreporting. It also found that the penalty order did not say which limb of section 270A was attracted or how sub-section (9) was satisfied, and that the bare use of the word misreporting made the order manifestly arbitrary.
Decided by the High Court (High Court of Delhi at New Delhi; Manmohan and Manmeet Pritam Singh Arora, JJ (judgment by Manmohan, J)) on 2022-05-31, reported as W.P.(C) 7092/2022 (Delhi High Court). It bears on section 270A, section 270AA, section 270A(9), section 14A of the Income Tax Act 1961, in Penalty and Assessment & Scrutiny matters.
Section 270AA gives the assessee an immunity that the Assessing Officer cannot refuse at will: it is available where penalty is initiated for under-reporting but not where the case is one of misreporting under section 270A(9). This judgment stops the Department turning every enhanced disallowance into misreporting to defeat that immunity. It draws the line at disclosure - where the assessee has furnished all the details and the dispute is only about the quantum of an estimate made from those same details, the case is at most under-reporting. It also imports into section 270AA the requirement, familiar from the old section 271(1)(c) case law, that the officer must identify the limb he is proceeding under and show how its ingredients are met. It applies and extends Schneider Electric South East Asia (HQ) PTE Ltd, decided by the same Court two months earlier.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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For assessment year 2018-19 the assessee, an LLP, had itself disallowed Rs.3,20,14,010 under section 14A, a figure already higher than its exempt income of Rs.45,08,371. In the assessment order dated 30 April 2021 the Assessing Officer recomputed the disallowance at Rs.6,82,45,759. That was the only addition. The assessee applied under section 270AA for immunity from penalty and prosecution. No separate order was passed on that application within the month allowed by section 270AA(4). Instead, by an order dated 28 March 2022, the Assessing Officer levied penalty of Rs.2,50,78,168 under section 270A alleging misreporting of income and rejected the immunity application in the same order. The assessee moved the High Court under Article 226 challenging the penalty order and seeking a direction to grant immunity. The Revenue's answer was that an incorrect section 14A disallowance amounted to both under-reporting and misreporting.
The writ petition was allowed. The penalty order dated 28 March 2022 under section 270A was quashed and the Assessing Officer was directed to grant immunity under section 270AA. The Court held that the under-reporting alleged here could not amount to misreporting: the assessee had furnished all the details of the transactions relating to the section 14A disallowance, and the officer and the assessee had used those same details to arrive at differing quantums. The Court added that there was not a whisper in the penalty order as to which limb of section 270A was attracted or how the ingredients of sub-section (9) were satisfied, and that the mere reference to the word misreporting to deny immunity made the order manifestly arbitrary. The Court accepted that there can be cases where under-reporting does result in misreporting, but held this was not one.
The Court reasoned in two steps, each independently fatal to the penalty order. First, on the character of the addition: the only addition was an enhancement of a disallowance the assessee had voluntarily estimated, so the under-reporting was consequent to the officer differing on quantum. Because the assessee had furnished all the details of the transactions and both sides used the same details to reach different conclusions, nothing was concealed or falsified, and section 270A(9) - which is directed at things like false entries, unsubstantiated claims and suppression of receipts - could not be engaged. Second, on the form of the order: even leaving the merits aside, the officer had not identified which limb of section 270A he was proceeding under, nor shown how the ingredients of sub-section (9) were met. Following Schneider Electric South East Asia (HQ) PTE Ltd, decided on 28 March 2022, the Court held that in the absence of such particulars the bare use of the word misreporting to deny immunity is manifestly arbitrary. The Schneider passage the Court set out also records the legislative purpose behind section 270AA - to fast-track settlement, recover demand and reduce litigation - so that a refusal of immunity on an unreasoned assertion works against the object of the provision. Immunity being the statutory consequence once misreporting is out of the way, the Court did not remand but directed that it be granted.
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
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Handle my notice → Ask a CA on WhatsAppNo. The Delhi High Court quashed the penalty order and directed the Assessing Officer to grant immunity under section 270AA. The only addition was a recomputation of a section 14A disallowance the assessee had itself estimated and disclosed. Both sides worked from the same details and reached different figures; the Court said that by no stretch of imagination can that be called misreporting. It also found that the penalty order did not say which limb of section 270A was attracted or how sub-section (9) was satisfied, and that the bare use of the word misreporting made the order manifestly arbitrary. This was decided by the High Court (High Court of Delhi at New Delhi; Manmohan and Manmeet Pritam Singh Arora, JJ (judgment by Manmohan, J)) and bears on section 270A, section 270AA, section 270A(9), section 14A of the Income Tax Act 1961. It is reported as W.P.(C) 7092/2022 (Delhi High Court). Section 270AA gives the assessee an immunity that the Assessing Officer cannot refuse at will: it is available where penalty is initiated for under-reporting but not where the case is one of misreporting under section 270A(9). This judgment stops the Department turning every enhanced disallowance into misreporting to defeat that immunity. It draws the line at disclosure - where the assessee has furnished all the details and the dispute is only about the quantum of an estimate made from those same details, the case is at most under-reporting. It also imports into section 270AA the requirement, familiar from the old section 271(1)(c) case law, that the officer must identify the limb he is proceeding under and show how its ingredients are met. It applies and extends Schneider Electric South East Asia (HQ) PTE Ltd, decided by the same Court two months earlier. If it applies to you, the first step is this: Apply under section 270AA within the time allowed and press for a separate, reasoned order under section 270AA(4); note the one month limitation and take the point if it is breached.
For assessment year 2018-19 the assessee, an LLP, had itself disallowed Rs.3,20,14,010 under section 14A, a figure already higher than its exempt income of Rs.45,08,371. In the assessment order dated 30 April 2021 the Assessing Officer recomputed the disallowance at Rs.6,82,45,759. That was the only addition. The assessee applied under section 270AA for immunity from penalty and prosecution. No separate order was passed on that application within the month allowed by section 270AA(4). Instead, by an order dated 28 March 2022, the Assessing Officer levied penalty of Rs.2,50,78,168 under section 270A alleging misreporting of income and rejected the immunity application in the same order. The assessee moved the High Court under Article 226 challenging the penalty order and seeking a direction to grant immunity. The Revenue's answer was that an incorrect section 14A disallowance amounted to both under-reporting and misreporting. The matter was decided on 2022-05-31 by the High Court (High Court of Delhi at New Delhi; Manmohan and Manmeet Pritam Singh Arora, JJ (judgment by Manmohan, J)). On those facts the High Court held as follows. The writ petition was allowed. The penalty order dated 28 March 2022 under section 270A was quashed and the Assessing Officer was directed to grant immunity under section 270AA. The Court held that the under-reporting alleged here could not amount to misreporting: the assessee had furnished all the details of the transactions relating to the section 14A disallowance, and the officer and the assessee had used those same details to arrive at differing quantums. The Court added that there was not a whisper in the penalty order as to which limb of section 270A was attracted or how the ingredients of sub-section (9) were satisfied, and that the mere reference to the word misreporting to deny immunity made the order manifestly arbitrary. The Court accepted that there can be cases where under-reporting does result in misreporting, but held this was not one.
The Court reasoned in two steps, each independently fatal to the penalty order. First, on the character of the addition: the only addition was an enhancement of a disallowance the assessee had voluntarily estimated, so the under-reporting was consequent to the officer differing on quantum. Because the assessee had furnished all the details of the transactions and both sides used the same details to reach different conclusions, nothing was concealed or falsified, and section 270A(9) - which is directed at things like false entries, unsubstantiated claims and suppression of receipts - could not be engaged. Second, on the form of the order: even leaving the merits aside, the officer had not identified which limb of section 270A he was proceeding under, nor shown how the ingredients of sub-section (9) were met. Following Schneider Electric South East Asia (HQ) PTE Ltd, decided on 28 March 2022, the Court held that in the absence of such particulars the bare use of the word misreporting to deny immunity is manifestly arbitrary. The Schneider passage the Court set out also records the legislative purpose behind section 270AA - to fast-track settlement, recover demand and reduce litigation - so that a refusal of immunity on an unreasoned assertion works against the object of the provision. Immunity being the statutory consequence once misreporting is out of the way, the Court did not remand but directed that it be granted. In the words reproduced by the source cited on this page: "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"
It was decided by the High Court on 2022-05-31 and is reported as W.P.(C) 7092/2022 (Delhi High Court). 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 270A, section 270AA, section 270A(9), section 14A, 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 28 March 2022 under section 270A was quashed and the Assessing Officer was directed to grant immunity under section 270AA. The Court held that the under-reporting alleged here could not amount to misreporting: the assessee had furnished all the details of the transactions relating to the section 14A disallowance, and the officer and the assessee had used those same details to arrive at differing quantums. The Court added that there was not a whisper in the penalty order as to which limb of section 270A was attracted or how the ingredients of sub-section (9) were satisfied, and that the mere reference to the word misreporting to deny immunity made the order manifestly arbitrary. The Court accepted that there can be cases where under-reporting does result in misreporting, but held this was not one. It arises in Penalty and Assessment & Scrutiny matters, on section 270A, section 270AA, section 270A(9), section 14A of the Income Tax Act 1961, and was decided by High Court of Delhi at New Delhi; Manmohan and Manmeet Pritam Singh Arora, JJ (judgment by Manmohan, 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. Show in your reply that every figure the officer used came from your own disclosure - the same details, a different estimate - and that no falsity or suppression is alleged. Ask the officer to state which clause of section 270A(9) he says applies and how its ingredients are made out; a penalty order that merely uses the word misreporting is open to challenge as arbitrary. Where the addition is an estimate and you had estimated a lower figure yourself on the same issue, take the separate exemption in section 270A(6)(c) as well.
Validity check could not be completed. No later history was checked. The judgment applies the same Court's decision in Schneider Electric South East Asia (HQ) PTE Ltd of 28 March 2022, but nothing subsequent - including any appeal from this order - has been established from the material read. 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 batch line carried no reporter citations, so the case number from the judgment's own first page is used. The batch line lists section 270A(9) and section 270AA; the judgment also turns on section 14A, which is added, and mentions section 270A(6)(c) only in counsel's argument. The Court did not rule on two points the assessee argued: whether the immunity application was in fact barred by limitation because no order was passed under section 270AA(4) within one month, and whether a section 14A disallowance can exceed exempt income under Joint Investments Pvt Ltd. Both were left untouched, so this judgment is no authority on either. The judgment does not reproduce the penalty notice or the assessment order, so the reader cannot see exactly what the officer did say about the limb relied on. 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 28 March 2022 under section 270A was quashed and the Assessing Officer was directed to grant immunity under section 270AA. The Court held that the under-reporting alleged here could not amount to misreporting: the assessee had furnished all the details of the transactions relating to the section 14A disallowance, and the officer and the assessee had used those same details to arrive at differing quantums. The Court added that there was not a whisper in the penalty order as to which limb of section 270A was attracted or how the ingredients of sub-section (9) were satisfied, and that the mere reference to the word misreporting to deny immunity made the order manifestly arbitrary. The Court accepted that there can be cases where under-reporting does result in misreporting, but held this was not one.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
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