HC Quashes Penalty u/s 270A where claim was based on binding jurisdictional precedent at time of ITR filing

The petitioner, GM Modular Private Limited, filed its return for AY 2019-20 declaring income of Rs. 70.11 crore. While processing under Section 143(1), an adjustment of Rs. 26.72 lakh was made towards the delayed deposit of employees’ PF/ESI contribution under Section 36(1)(va). Thereafter, in an assessment under Section 143(3) read with Section 153A, the Assessing Officer merely reiterated the same disallowance.

Though the CIT(A) deleted the addition, the ITAT restored it, relying on the Supreme Court ruling in Checkmate Services Pvt. Ltd v. CIT. Based on this, a penalty of Rs. 4.67 lakh was imposed under Section 270A for alleged under-reporting of income. The petitioner’s revision application under Section 264 was summarily rejected without reasons, leading to the present writ petition.

Issues Raised: Whether a penalty under Section 270A can be levied when the addition was already made at the stage of Section 143(1) intimation, the claim was based on a binding jurisdictional precedent at the time of filing the return, and the revision under Section 264 was rejected without proper consideration.

HC’s Decision: The Hon’ble High Court allowed the writ petition and quashed both the penalty order and the revision order. The Court held that powers under Section 264 are wide and cannot be declined merely because an appeal remedy exists. The Commissioner failed to exercise jurisdiction by rejecting the revision without examining the merits.

The Court ruled that no “under-reported income” existed since the assessed income did not exceed the income already determined under Section 143(1). Therefore, the basic condition under Section 270A(2) was not satisfied.

The claim was made relying on the decision by CIT v. Ghatge Patil Transports Ltd, which was binding at the time. But the same was reversed by the Supreme Court in Checkmate Services Pvt. Ltd. v. CIT, which cannot retrospectively support a penalty.

The Court reiterated that the penalty is discretionary and cannot be imposed merely because an addition is sustained, especially where the issue is debatable, and the assessee has made full disclosure. Reliance was also placed on CIT v. Reliance Petroproducts Pvt. Ltd to hold that a bona fide claim does not amount to furnishing inaccurate particulars.

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