Jaipur, 4th January 2024 – In a significant ruling, the High Court of Judicature for Rajasthan at Jaipur quashed the penalty imposition under Section 270A of the Income Tax Act on Chambal Fertilizers and Chemicals Limited (the petitioner), granting immunity under Section 270AA of the Act. The Court held that the petitioner had voluntarily disclosed an error regarding the “provision for doubtful GST input tax credit” in its return and, therefore, did not fall within the scope of misreporting of income under the law.
The case revolves around the petitioner’s income tax assessment for the year 2018-19. The petitioner had initially filed its return of income and later revised it after realizing that a provision for doubtful GST input tax credit amounting to ₹16.3 crore had been erroneously merged with another expense account. This mistake was rectified by the petitioner, who voluntarily added the amount back to its total income during the course of scrutiny proceedings.
Despite the petitioner’s voluntary disclosure, the Assessing Officer imposed a penalty for misreporting income under Section 270A of the Income Tax Act. In response, the petitioner sought immunity from the penalty by filing an application under Section 270AA. However, the Deputy Commissioner rejected the application, failing to provide a hearing to the petitioner and issuing a non-speaking order that did not specify under which sub-clause of Section 270A(9) the penalty was imposed.
The petitioner appealed the rejection in a revision petition, but the Revisional Authority upheld the penalty imposition, citing that the case fell within the ambit of misrepresentation or suppression of facts under Section 270A(9). This decision was challenged in the Rajasthan High Court.
The Court, after considering the submissions, noted that the petitioner had voluntarily disclosed the error and cooperated fully during the scrutiny proceedings. It emphasized that the Deputy Commissioner had violated the provisions of Section 270AA(4) by not granting the petitioner an opportunity of hearing. Furthermore, the Revisional Authority had failed to provide clear reasons for why the case fell under Sections 270A(9)(a) or (c), which deal with misrepresentation and unsubstantiated claims.
The Court relied on the Delhi High Court’s decision in Schneider Electric South East Asia (HQ) PTE Ltd. v. Assistant Commissioner of Income Tax, which emphasized the need for clarity and reasoned findings when imposing penalties.
In light of these deficiencies, the Court quashed both the penalty order and the revisional order, directing the respondents to grant immunity under Section 270AA. This judgment reinforces the principle of encouraging voluntary compliance and fair treatment of taxpayers under the Income Tax Act.
This ruling is expected to have far-reaching implications for tax compliance, particularly in cases where errors are rectified voluntarily by the taxpayer without any intention of misreporting or suppressing facts.
The matter is now set to be reviewed by the concerned tax authorities, with the petitioner entitled to the immunity granted by the Court.