Direct Tax Alert - Section 270AA requires Tax Officer to mandatorily pass an order on application seeking immunity from penalty, even if filed belatedly

BACKGROUND

Section 270A of the Income-tax Act, 1961 (IT Act) provides for penalties for underreporting and misreporting of income. The tax officer has the power of directing the taxpayers who have underreported income to pay the penalty in addition to taxes. Taxpayers have the option to make an application under section 270AA of the IT Act to the tax officer in Form 68 seeking immunity from this penalty. The tax officer shall, within a period of one month from the end of the month in which the application is received, pass an order accepting or rejecting such application.

Recently, the Hyderabad Tax Tribunal¹ had an occasion to examine whether the tax officer is required to consider the request for condonation of delay in filing the application for granting immunity under section 270AA of the IT Act. We, at BDO in India, have summarised the ruling of the Hyderabad Tax Tribunal and provided our comments on the impact of this decision.

FACTS OF THE CASE

• Taxpayer, an individual had filed return of income for FY 2016-17. Subsequently, the case was selected for scrutiny to verify the ‘Foreign Asset’ and notices under section 143(2)² and 142(1) of the IT Act were issued for certain information.
• In response to the notices, the taxpayer uploaded the information as called for electronically and explained the details of total foreign assets. After verification of information furnished by the taxpayer, the tax officer made certain additions and passed the assessment order. Further, since the taxpayer had underreported income for the year under consideration, the tax officer also initiated penalty proceedings under section 274³ of the IT Act read with Section 270A of the IT Act.
• The taxpayer filed an application to the tax officer to grant immunity as contemplated under section 270AA of the IT Act and filed Form 68 with a delay of 4 days from the time provided for those purposes.
• Since the application was filed belatedly, the tax officer did not pass an order either accepting or rejecting such application. It did not condone the delay and levied penalty under section 270A of the IT Act.
• Aggrieved, the taxpayer filed an appeal before the First-Appellate Authority who granted partial relief to taxpayer. Aggrieved, taxpayer filed an appeal before the Hyderabad Tax Tribunal.

TRIBUNAL RULING

The Hyderabad Tax Tribunal made following observations while ruling in favour of the taxpayer:

• The taxpayer is required to make an application to the tax officer to grant an immunity for imposition of penalty under section 270AA of the IT Act. The said application is required to be filed within one month from the end of the month, in which the order has been received by the taxpayer.
• From the reading of section 270AA of the IT Act, it is clear that nowhere it is mentioned that in case the taxpayer filed Form 68 after a period of 30 days, then the tax officer/ First-Appellate Authority was not empowered to condone the delay in filing the requisite form. As per clause 4 of section 270AA of the IT Act, it casts a duty on the tax officer to mandatorily pass order accepting or rejecting such application, if filed by the taxpayer.
• Although it is required by law for the taxpayer to make an application within one month as per clause 2 of section 270AA of the IT Act, there is no provision which prohibits the taxpayer to move an application thereafter whereby he was prevented from filing the application within a period of limitation.
• Even if the taxpayer filed a belated application, the tax officer was duty-bound to pass an order as per clause 4 of section 270AA of the IT Act either accepting or rejecting the application of the taxpayer.
• The power of condoning delay vests with all the quasi-judicial authorities and judicial authorities in case a reasonable cause has been shown by the taxpayer or plaintiff or person(s) for not filing the requisite application within the period provided in the IT Act. Similar powers are also available with the First-Appellate Authority while adjudicating the appeal or condoning the delay as mentioned in section 249(3) of the IT Act.
• The whole purpose of granting immunity to the taxpayer is to give quits to the litigation in case the taxpayer accepts and pays due taxes. Hence, the matter is remanded back to the First-Appellate Authority with a direction to consider and condone the delay in filing the application for grant of immunity under section 270AA of the IT Act in case the taxpayer provides a reasonable cause.

BDO INDIA COMMENTS

This is a welcome ruling for the taxpayer and may provide relief in cases where Form 68 is not filed within the prescribed time limit due to some genuine cause such as a technical glitch or any other reasonable cause, but the taxpayer has substantially complied with all conditions for availing the said immunity.