Mr. Abhisek Singhvi, Advs v. Assistant Commissioner Of Income Tax

$~17 * IN THE HIGH COURT OF DELHI AT NEW DELHI+ W.P.(C) 12906/2021 NEIL BUILDERS PVT LTD .....Petitioner .....Petitioner Through: Mr. Aniket D. Agrawal and Mr. Abhisek Singhvi, Advs. versus ASSISTANT COMMISSIONER OF INCOME TAX .....Respondent Through: Mr. Shlok Chandra, Sr.SC with Ms. Madhavi Shukla, Jr.SC, Ms. Priya Sarkar, Jr.SC and Mr. Ujjwal Jain, Adv. CORAM:HON'BLE MR. JUSTICE YASHWANT VARMAHON'BLE MR. JUSTICE RAVINDER DUDEJA O R D E R % 12.07.2024 1. This writ petition has been preferred seeking the following reliefs:- “i. quashing/set-aside and reversing the order dated 31.08.2021 passed by the Respondent under section 270AA(4) rejecting the application filed by the Petitioner seeking immunity from imposition of penalty under section 270A in respect of the income assessed vide assessment order dated 25.06.2021 passed under section 143(3) for the assessment year 2018-19; ii. directing Respondent to grant immunity under section 270AA to the Petitioner from imposition of penalty under section 270A and initiation of prosecution proceedings under section 276C or section 276CC of the Income Tax Act, 1961 in respect of the income assessed vide assessment order dated 25.06.2021 for the assessment year 2018-19.;” 2. The petitioner is essentially aggrieved by a refusal by the respondents from according immunity as contemplated under Section 270AA of the Income Tax Act, 1961 [‘Act’]. For the purposes of disposal of the instant writ petition, we take note of the following essential facts. 3. Survey operations under Section 133A of the Act are stated to have been initiated on 16 May 2017 with respect to the premises of the petitioner. For Assessment Year [‘A.Y.’] 2018-2019, the petitioner furnished its return of income on 25 September 2018. The aforesaid assessment ultimately concluded with an assessment order being drawn on 25 June 2021. Insofar as the issue of penalty is concerned, we note that in the assessment order all that was observed was as under :- “Penalty proceedings u/s 270A of the Act is being initiated separately on this issue for the year under consideration.” 4. Pursuant to the aforesaid, a Show Cause Notice [‘SCN’] came to be issued to the petitioner. The said SCN dated 04 August 2021 made the following allegations:- “Whereas in the course of proceedings before me for the Assessment Year 2018-19, it appears to me that you have under-reported income.” 5. It is thus manifest that although the assessment order did not allude to either an ‘underreporting’ or ‘misreporting’ of income, the SCN at least places the case of the respondents in the category of ‘underreporting’ of income. It is in the aforesaid backdrop that we find ourselves unable to sustain the order impugned. This since undisputedly the application for immunity would be clearly maintainable if it be a case of underreporting as opposed to a misreporting of income. 6. As would be evident from the conclusion as ultimately recorded in paras 7 & 8 of the impugned order, the authority has proceeded on the premise that the case of the assessee was liable to be treated as that of ‘misreporting’ of income. This becomes evident from a reading of paras 7 & 8 which are extracted herein below:- “7. The reply of the assessee company has been considered but the same is not tenable. The contention of the assessee company that 6. As would be evident from the conclusion as ultimately recorded in paras 7 & 8 of the impugned order, the authority has proceeded on the premise that the case of the assessee was liable to be treated as that of ‘misreporting’ of income. This becomes evident from a reading of paras 7 & 8 which are extracted herein below:- “7. The reply of the assessee company has been considered but the same is not tenable. The contention of the assessee company that there was no misrepresentation or suppression of facts at the end of assessee is far from reality. It is pertinent to note here that the during the course of survey proceedings, it has been noticed from the perusal of impounded material that assessee had passed an entry on 31.03.2011 that Rs. 65,00,000/- has been paid by M/s Stawelly Hospitality Pvt. Ltd. on behalf of company. Further, the said liability continued to be appearing in the balance sheet of F.Y. 2017-18 pertaining to A.Y. 2018-19 and on enquiry of the same, the assessee company failed to explain the issue of Rs. 65,00,000/- shown as liability in B/S along with proper documentary evidences, both during post survey investigations and during the assessment proceedings despite availing sufficient opportunities. Therefore, the assessee has shown a false trading liability in its books of account which clearly hits provision of section 270A(9)(d) of the Act. The issue has been discussed in assessment order in detail. Further, the assessee company has suppressed this fact before the department and never offered this income for taxation on account of cessation of liability and this fact was noticed during the survey proceedings. If the survey was not conducted, no details in this respect would came into notice of the department. Therefore, it is clear that the assessee company has not provided correct facts before the department and the same is considered as misrepresentation or suppression of facts by the assessee company and the company has recorded a false entry in the form of trading liability which was nonexistent during the year under consideration (AY 2018-19). 8. Secondly, the assessee company has stated that proceedings for penalty u/s 270A has not been initiated on account of misreporting of income is not tenable. The penalty proceedings were initiated u/s 270A of the Act for under reporting of income which has taken place in consequence of mis-reporting of income as per section 270A(8) of the Act.” 7. However and as was noticed hereinabove, the SCN itself was founded only on an allegation of ‘under reporting’ of income. We are thus of the considered opinion that the impugned order is rendered wholly unsustainable and the conclusions that the case set up against the petitioner was of ‘misreporting’ is clearly misconceived. 8. Learned counsel for the respondents however sought to draw sustenance from Section 270A(8) of the Act and submitted that the allegations against the petitioner are liable to be placed in the category of ‘under reporting’ of income which is in consequence of ‘misreporting’. We, however, find ourselves unable to sustain that contention, bearing in mind the plain language in which the SCN itself stands framed. In any case, learned counsel was also unable to draw our attention to any part of the assessment order in which such a foundation may have been laid. 9. We further find that the issue which is raised here stands concluded in light of our judgment rendered in GE Capital US Holding Inc vs. Dy. Commissioner of Income Tax (International Taxation) Circle 1(13)(1), New Delhi & Ors. [2024 SCC OnLine Del 4233], where while dealing with the validity of initiation of penalty proceedings we had held as under: ‘misreporting’. We, however, find ourselves unable to sustain that contention, bearing in mind the plain language in which the SCN itself stands framed. In any case, learned counsel was also unable to draw our attention to any part of the assessment order in which such a foundation may have been laid. 9. We further find that the issue which is raised here stands concluded in light of our judgment rendered in GE Capital US Holding Inc vs. Dy. Commissioner of Income Tax (International Taxation) Circle 1(13)(1), New Delhi & Ors. [2024 SCC OnLine Del 4233], where while dealing with the validity of initiation of penalty proceedings we had held as under: “22. As is evident from a reading of Section 270A(1), a person would be liable to be considered to have under-reported its income if the contingencies spoken of in clauses (a) to (g) of Section -270A(2) were attracted. In terms of Section 270A(3), the underreported income is thereafter liable to be computed in accordancewith the stipulations prescribed therein. However, the subject ofmisreporting of income is dealt with separately in accordance with-the provisions comprised in subsections (9) and (10) of Section270A. It is thus evident that both under-reporting as well asmisreporting are viewed as separate and distinct misdemeanors. 23. However, and as we read the orders of assessment which were passed, the same carry no findings which may be viewed asindicative of the contingencies spelt out in clauses (a) to (f) ofSection 270A(9) being attracted. In our considered opinion, in theabsence of the AO having specified the transgression of thepetitioner and which could be shown to fall within the ambit ofsub-section (9) of Section 270A, proceedings for imposition ofpenalty could not have been mechanically commenced. 24. Notwithstanding the above, we note that the SCNs’ which came to be issued for commencement of action under Section 270A were themselves vague and unclear. This since they failed to specify whether the petitioner was being charged with under-reporting or misreporting of income. The aforesaid aspect assumesadded significance bearing in mind the indisputable position that aprayer for immunity could have been denied in terms of Section270AA(3) only if it were a case of misreporting. The SCNs’ failedto indicate the specific charge which was sought to be laid against the petitioner. This, since they sought to invoke both sub-sections-(2) as well as subsection (9) of Section 270A. There was thus anabject failure on the part of the respondents to indicate the branchof Section 270A which was sought to be invoked. The SCNs’ would thus clearly fall foul of the principles which had beenenunciated in Minu Bakshi and Schneider Electric. 25. Turning then to Section 270AA, we find that sub-section (3) of that provision requires the AO to confer consideration on the following three aspects: - (a) Whether the conditions precedent specified in sub-section (1) of Section 270AA have been complied with? (b) The period for filing an appeal under Section 249(2)(b) having passed. having passed. (c) The subject matter of penalty not falling within the ambit of Section 270A (9). Section 270A (9). 26. Since an application for grant of immunity cannot possibly be pursued unless the assessee complies with clauses (a) and (b) of Section 270AA (1), the observation of the respondent that mere payment of demand would not lead to a prayer for immunity being pursued is wholly unsustainable. xxxx xxxx xxxx 25. Turning then to Section 270AA, we find that sub-section (3) of that provision requires the AO to confer consideration on the following three aspects: - (a) Whether the conditions precedent specified in sub-section (1) of Section 270AA have been complied with? (b) The period for filing an appeal under Section 249(2)(b) having passed. having passed. (c) The subject matter of penalty not falling within the ambit of Section 270A (9). Section 270A (9). 26. Since an application for grant of immunity cannot possibly be pursued unless the assessee complies with clauses (a) and (b) of Section 270AA (1), the observation of the respondent that mere payment of demand would not lead to a prayer for immunity being pursued is wholly unsustainable. xxxx xxxx xxxx 29.Since there was a clear and apparent failure on the part of therespondents to base the impugned proceedings on a contraventionrelatable to Section 270A (9), the application for immunity could not have been rejected. As was noticed hereinabove, neither theAO nor the impugned SCNs’ laid an allegation which could be saidto be reflective of the petitioner having been found to have violatedSection 270 A (9). In fact, the notices themselves sought to take awholly ambivalent stance while alleging that the petitioner hadindulged in “underreporting/misreporting”. We thus have nohesitation in holding that the impugned SCNs’ are renderedunsustainable on this short ground alone. 30. The importance of clarity and comprehensiveness which must imbue show cause notices came to be duly emphasised by us in our decision in Puri Constructions (P) Ltd. Vs. CIT:- “78. The requisites of a valid show-cause notice were lucidly explained by the Supreme Court in Gorkha Security Services v. Government (NCT of Delhi) as under: ― “Contents of the show-cause notice 21. The central issue, however, pertains to therequirement of stating the action which is proposed to be taken. The fundamental purpose behind the servingof show-cause notice is to make the noticee understandthe precise case set up against him which he has tomeet. This would require the statement of imputationsdetailing out the alleged breaches and defaults he has committed, so that he gets an opportunity to rebut thesame. Another requirement, according to us, is thenature of action which is proposed to be taken for such abreach. That should also be stated so that the noticee isable to point out that proposed action is not warranted inthe given case, even if the defaults/breaches complainedof are not satisfactorily explained. When it comes toblacklisting, this requirement becomes all the moreimperative, having regard to the fact that it is harshestpossible action. 79. Similar observations find place in UMC Technologies Pvt. Ltd. v. Food Corporation of India: “13. At the outset, it must be noted that it is the first principle of civilised jurisprudence that a person against whom any action is sought to be taken or whose right or interests are being affected should be given a reasonable opportunity to defend himself. The basic principle of natural justice is that before adjudication starts, the authority concerned should give to the affected party a notice of the case against him so that he can defend himself. Such notice should be adequate and the grounds necessitating action and the penalty/action proposed should be mentioned specifically and unambiguously. An order travelling beyond the bounds of notice is impermissible and without jurisdiction to that extent. This court in Nasir Ahmad v. Custodian General, Evacuee Property- has held that it is essential for the notice to specify the particular grounds on the basis of which an action is proposed to be taken so as to enable the noticee to answer the case against him. If these conditions are not satisfied, the person cannot be said to have been granted any reasonable opportunity of being heard.” 80. The reliance which is placed by Mr. Hossain on the decisions in Isha Beevi v. TRO and CIT v. Rajinder Nath is clearly misconceived. We note that in Isha Beevi, the writ petitioner had sought the issuance of a writ of prohibition seeking quashing of notices that were impugned. It was in the aforesaid context and the prerequisites of a writ of prohibition that the Supreme Court observed that the mere mentioning of a wrong provision would not justify the issuance of that prerogative writ and more so where the writ petitioner had failed to establish a total absence of jurisdiction.\ xxxx xxxx xxxx 83. The principle of a power otherwise inhering or existing and not being impacted by the mere mention of a wrong provision is one which we apply to ratify, save and uphold a decision which is otherwise found to be valid and sustainable. We would be wary of either readily or unhesitatingly adopting or invoking that precept at the stage of a show-cause notice especially where the noticee is left to fathom which of the more than fifty variable obligations it is alleged to have violated.” 31. We are further constrained to observe that even the assessment orders fail to base the direction for initiation of proceedings under Section 270A on any considered finding of the conduct of the petitioner being liable to be placed within the sweep of sub-section (9) of that provision. The order of assessment as well as the SCNs’ clearly fail to meet the test of ―”specific limb” as propounded in Minu Bakshi and Schneider Electric. A case of misreporting, in anycase, cannot possibly be said to have been made out bearing inmind the fact that the petitioner had questioned the taxability ofincome asserting that the same would not constitute royalty. Theissue as raised was based on an understanding of the legal regimewhich prevailed. The contentions addressed on that score canneither be said to be baseless nor specious. In fact, that stand astaken by the petitioner was based on a judgment rendered by thejurisdictional High Court which was indisputably binding upon theAO who, for reasons unfathomable, thought it fit to base itsdecision on a judgment rendered by the Karnataka High Court. The AO, it would be pertinent to recall, chose to distinguish the judgment of the Supreme Court in Engineering Analysis itself. In any event, the position which the petitioner sought to assert and canvass clearly stood redeemed in light of the decision rendered by the Supreme Court. 32.Undisputedly, the petitioner had duly complied with the-statutory preconditions set out in Section 270AA(1). It was thusincumbent upon the respondent to have come to the firmconclusion that the case of the petitioner fell in the category ofmisreporting since that alone would have warranted a rejection ofits application for immunity.On an overall conspectus of the aforesaid, we come to the firm conclusion that the impugned orders would not sustain.” 10. Accordingly and for all aforenoted reasons, we allow the instant writ petition and quash the order dated 31 August 2021. The application for immunity as placed in terms of under Section 270AA shall be taken up for consideration afresh, bearing in mind the observations made hereinabove. YASHWANT VARMA, J. RAVINDER DUDEJA, J. JULY 12, 2024/sk