ITAT Cancels ₹5.86 Lakh Penalty After Assessee Sought Immunity Under Section 270AA

Background of the Case

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, allowed the appeal of Mehul Pravinchandra Sheth and quashed a penalty of ₹5.86 lakh imposed under Section 270A of the Income Tax Act for Assessment Year 2019–20. The Tribunal held that the penalty could not be sustained because the assessee had already applied for immunity under Section 270AA after paying the tax demand. The assessee, a salaried employee of Trejhara Solutions Limited, originally filed his return declaring income of ₹35.91 lakh. Following a search action involving the Hiranandani Group, the case was reopened under Section 148. The Assessing Officer completed reassessment under Section 143(3) read with Section 147 and made additions totaling ₹9.40 lakh. These included denial of House Rent Allowance (HRA) exemption under Section 10(13A) amounting to ₹8.40 lakh and disallowance of a ₹1 lakh deduction claimed under Section 80GGC for donation to a political party. Subsequently, the Assessing Officer initiated penalty proceedings under Section 270A and imposed a penalty of ₹5.86 lakh by treating the additions as cases of “misreporting of income.” The Commissioner of Income Tax (Appeals) upheld the penalty order, after which the assessee approached the Tribunal.

Tribunal’s Findings and Decision

The Tribunal noted that after the assessment order, the assessee paid the entire tax liability of ₹4.03 lakh and filed Form No. 68 within the prescribed time seeking immunity from penalty under Section 270AA. The assessee had also fulfilled all statutory conditions required for claiming such immunity, including payment of tax and interest and not filing an appeal against the assessment order. However, the Assessing Officer neither passed a reasoned order rejecting the immunity application nor explained why the benefit of Section 270AA should be denied. Instead, the penalty was imposed directly. The Tribunal observed that once the statutory conditions for immunity are satisfied, the Assessing Officer must consider and decide the application through a speaking order.

Relying on earlier judicial precedent, the Tribunal held that failure to dispose of the immunity application vitiated the penalty proceedings. Accordingly, the ITAT ruled that the penalty of ₹5,86,574 was unsustainable and ordered its deletion, allowing the assessee’s appeal.