Immunity under Section 270AA not available in misreporting cases: Analysis of Spunwell Syntex Private Ltd. Vs ITO (Rajasthan High Court)

1. Background and context

The Rajasthan High Court at Jodhpur, in Spunwell Syntex Private Ltd. Vs ITO (Rajasthan High Court), examined the interaction between Section 270A (penalty for under-reporting and misreporting of income) and Section 270AA (immunity from imposition of penalty, etc.) of the Income Tax Act 1961.

The core dispute was whether an assessee who has accepted the assessment, paid the tax and interest, and not filed an appeal, can still secure immunity under Section 270AA where the penalty proceedings have been initiated for “under-reporting of income in consequence of misreporting” covered by Section 270A(9).

The High Court dismissed the writ petition filed by Spunwell Syntex Private Ltd. and upheld the rejection of its Section 270AA immunity application in the context of penalty proceedings under Section 270A for Assessment Year 2018-19.

2. Essential facts of the case

2.1 Return and assessment

  • The assessee-company filed its return of income for Assessment Year 2018-19.
  • An assessment order dated 24.02.2021 was passed, in which the Assessing Officer (AO) disallowed the assessee’s deduction claim under Section 80 of the Income Tax Act 1961.
  • Instead of challenging this assessment in appeal, the assessee chose to pay the assessed demand in full.

2.2 Initiation of penalty and immunity application

  • Following completion of assessment, the AO issued a notice proposing penalty under Section 270A read with Section 274.
  • The proceedings were described in the notice as related to “under-reporting in consequence of misreporting.”
  • The assessee submitted a reply to the show-cause notice and, after payment of tax and interest and without filing any appeal, filed an application in Form No. 68 seeking immunity from penalty under Section 270AA.

2.3 Rejection order and penalty order

  • The AO rejected the immunity application by order dated 13.01.2022.
  • Thereafter, a penalty order dated 03.02.2022 was passed imposing penalty under Section 270A.
  • The assessee approached the Rajasthan High Court by way of writ petition, challenging:
    • the order rejecting immunity under Section 270AA, and
    • the consequential penalty order.

3. Grounds urged by the assessee

The assessee’s main submissions before the High Court were:

3.1 Alleged vagueness in notice and order

  • The show-cause notice issued under Section 274 read with Section 270A allegedly did not identify the specific “misreporting” clause within Section 270A(9).
  • It was contended that the notice and the immunity rejection order (Annexure 8) lacked clear reasons describing:
    • how the income was misreported, and
    • under which precise sub-category of Section 270A(9) the case was being treated.

The assessee argued that such lack of specificity violated principles of natural justice.

3.2 No opportunity of personal hearing under Section 270AA(4)

  • The assessee asserted that before rejecting the immunity application under Section 270AA, the AO was bound by the proviso to Section 270AA(4) to grant an opportunity of being heard.
  • Since no personal hearing was provided, it was argued that the order was procedurally invalid.

3.3 Alleged delay beyond statutory timeline

  • The assessee relied on Section 270AA(4), which (as applicable) requires the AO to pass an order on the immunity application within the prescribed time from the end of the month in which the application is received.
  • It was contended that the order dated 13.01.2022 fell beyond the permitted period and, therefore, was barred by limitation and liable to be set aside.

3.4 Case law relied upon

To support these arguments, the assessee referred to the following judicial precedents:

  • G.R. Infraprojects Ltd. v. Assistant Commissioner of Income-tax & Ors. [2024] 158 taxmann.com 80 (Rajasthan)
  • Chambal Fertilizers and Chemicals Ltd. v. Office of the Principal Commissioner of Income Tax & Ors. [2024] 158 taxmann.com 184 (Rajasthan)
  • Schneider Electric South East Asia (HQ) Pte. Ltd. v. ACIT [2022] 145 taxmann.com 665 (Delhi)
  • Prem Brothers Infrastructure LLP v. National Faceless Assessment Centre & Anr. [2022] 142 taxmann.com 38 (Delhi)
  • CIT v. Reliance Petroproducts Pvt. Ltd. [2010] 189 taxmann.com 322 (Supreme Court)

4. Stand of the Revenue

4.1 Characterisation as misreporting under Section 270A(9)

The Department’s position was that: