Failure To Decide Immunity Application U/S 270AA Vitiates Penalty Proceedings: ITAT

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has quashed a penalty of ₹5.86 lakh imposed on an individual taxpayer after holding that the Assessing Officer (AO) failed to decide the assessee’s application seeking immunity under Section 270AA of the Income Tax Act. The bench of Anikesh Banerjee (Judicial Member) and Girish Agrawal (Accountant Member) has observed that once the statutory conditions for immunity are fulfilled, the AO must pass a reasoned order on the application before proceeding with penalty proceedings. The appeal arose from a penalty order passed under Section 270A of the Income Tax Act for the assessment year 2019–20. The assessee, a salaried individual employed with Trejhara Solutions Limited, had originally filed his income tax return on 31 August 2019 declaring a total income of ₹35.91 lakh. Subsequently, a search and survey operation under Sections 132 and 133A of the Act was conducted in March 2022 in connection with certain real estate group entities. The assessee’s case was also covered during the search proceedings, leading the tax department to reopen the assessment under Section 148 of the Act. During reassessment proceedings, the AO completed the assessment under Sections 143(3) read with 147 and enhanced the taxpayer’s income to ₹45.31 lakh by making additions of ₹9.40 lakh. The additions comprised disallowance of house rent allowance (HRA) exemption claimed under Section 10(13A) amounting to ₹8.40 lakh and disallowance of a ₹1 lakh deduction claimed as donation to a political party under Section 80GGC. Following the assessment order, the department initiated penalty proceedings alleging misreporting of income. The AO eventually imposed a penalty of ₹5.86 lakh under Section 270A, treating both additions as cases of misreporting. However, the assessee argued that he had paid the entire tax demand of ₹4.03 lakh within the stipulated time and had filed Form No. 68 under Section 270AA seeking immunity from penalty. The application was submitted electronically on 18 June 2023 after full payment of tax and interest, and the assessee also refrained from filing any appeal against the assessment order, thereby fulfilling the statutory requirements for immunity. Despite this, the AO proceeded to levy the penalty without passing any order on the immunity application as required under the Act. The assessee challenged the penalty before the Commissioner of Income Tax (Appeals), who upheld the penalty, prompting the matter to be taken to the Tribunal. After examining the records, the Tribunal noted that the assessee had complied with all the mandatory conditions prescribed under Section 270AA. These included payment of the tax and interest as per the assessment order, filing the prescribed application in Form No. 68 within the stipulated time, and not filing any appeal against the assessment order. The Tribunal emphasized that once such an application is filed, the AO is required under Section 270AA(4) to pass a speaking order either granting or rejecting the request for immunity. In the present case, the AO neither rejected the application nor provided any reasons for denying immunity, yet proceeded to impose penalty. The Bench also observed that the penalty had been levied on the ground of “misreporting of income,” but the department failed to demonstrate how the case fell within the specific categories of misreporting under Section 270A(9) that would justify denial of immunity. Relying on a similar ruling of the ITAT Patna Bench in Sangam Almirah Pvt. Ltd. v. NFAC, the Tribunal held that failure to decide an immunity application under Section 270AA vitiates the subsequent penalty proceedings. The Tribunal concluded that the penalty of ₹5,86,574 imposed under Section 270A was unsustainable in law and ordered it to be quashed, allowing the assessee’s appeal. Case Details Case Title: Mehul Pravinchandra Sheth Versus DCIT Citation: JURISHOUR-236-ITA-2026(MUM) Case No.: ITA No.4702/Mum/2025 Date: 05/03/2026 Counsel For Appellant: Vijay Mehta Counsel For Respondent: Sushil B. Shende (Sr DR) Click Here To Read Order Read More: LTCG From Sale of Shares Eligible for S. 10(38) Exemption for Insurers: ITAT

Failure To Decide Immunity Application U/S 270AA Vitiates Penalty Proceedings: ITAT

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