The Income Tax Appellate Tribunal, Delhi, has clarified that the filing of an application for immunity under Section 270AA(2) of the Income Tax Act, 1961, operates as a statutory bar to penalty proceedings under Section 270A. This ruling reinforces procedural compliance as a non-negotiable condition for imposing penalties, offering critical guidance to tax practitioners handling assessment disputes.
Background & Facts
The Dispute
The appellant, Sankyu India Logistics & Engineering Private Limited, faced penalty proceedings under Section 270A of the Income Tax Act, 1961, for two assessment years: 2017-18 and 2018-19. The Assessing Officer (AO) imposed penalties of Rs. 5,07,847 for A.Y. 2017-18 and a similar penalty for A.Y. 2018-19, both dated 21.09.2021. The appellant challenged these orders before the Commissioner of Income Tax (Appeals) [CIT(A)], which dismissed the appeals. The appellant then filed appeals before the Income Tax Appellate Tribunal (ITAT), Delhi.
Key Facts
- For A.Y. 2017-18: The appellant filed an application in Form No. 68 under Section 270AA(2) on 30.01.2020 seeking immunity from penalty.
- For A.Y. 2018-19: The appellant filed a similar application in Form No. 68, and immunity under Section 270AA(4) was expressly granted by the Revenue.
- Despite these applications, the AO passed penalty orders on 21.09.2021 without disposing of the immunity applications.
- The CIT(A) upheld the penalty orders in both cases, relying on the AO’s reasoning.
- The Revenue did not produce any record contradicting the appellant’s claim that the immunity applications remained pending or were granted.
Procedural History
- 30.01.2020: Application in Form No. 68 filed by appellant for A.Y. 2017-18 seeking immunity under Section 270AA(2)
- 21.09.2021: AO passed penalty order under Section 270A for A.Y. 2017-18 (Rs. 5,07,847)
- 21.09.2021: AO passed penalty order under Section 270A for A.Y. 2018-19
- Before 21.09.2021: Immunity under Section 270AA(4) was granted for A.Y. 2018-19 (as per Tribunal’s finding)
- Date unspecified: CIT(A) dismissed appeals for both years
- ITA No. 7300/Del/2025 & ITA No. 7301/Del/2025: Filed before ITAT Delhi
- 23.03.2026: Hearing before ITAT
- 15.04.2026: Judgment pronounced
The Parties' Positions
For the Appellant
- Contended that the application under Section 270AA(2) for A.Y. 2017-18 was filed on time and remained pending.
- Argued that the AO had no jurisdiction to impose penalty while the immunity application was pending.
- For A.Y. 2018-19, submitted that immunity had already been granted under Section 270AA(4), making the penalty order legally void.
- Relied on the statutory mandate that penalty proceedings must be stayed until immunity is decided.
For the Respondent
- Relied on the orders of the AO and CIT(A), which held that the penalty was justified due to underreporting of income.
- Did not dispute the filing of Form 68 or the grant of immunity in A.Y. 2018-19.
- Failed to produce any record showing that the immunity application for A.Y. 2017-18 was considered or rejected.
Relief Sought
The appellant sought:
- Setting aside of the penalty orders dated 21.09.2021 for both assessment years.
- Direction to the AO to decide the pending immunity application under Section 270AA(2) for A.Y. 2017-18.
- Cancellation of the penalty order for A.Y. 2018-19 on the ground that immunity had already been granted.
The Legal Issue
The central question was whether the Assessing Officer can proceed to impose penalty under Section 270A when an application for immunity under Section 270AA(2) is pending, or when immunity under Section 270AA(4) has already been granted.
Arguments Presented
For the Appellant
The appellant relied on the mandatory language of Section 270AA, which provides that if an assessee files an application in Form No. 68 and pays the tax and interest due, the AO is statutorily barred from initiating or continuing penalty proceedings until the immunity application is decided. The appellant emphasized that the AO’s failure to consider the application for A.Y. 2017-18 rendered the penalty order void ab initio. For A.Y. 2018-19, the grant of immunity under Section 270AA(4) was conclusive and rendered the penalty order legally unsustainable.
For the Respondent
The Revenue did not contest the factual assertions regarding the filing of Form 68 or the grant of immunity. It merely relied on the lower authorities’ orders without adducing evidence to rebut the appellant’s claims. No legal argument was advanced to justify proceeding with penalty despite the statutory bar.
The Court's Analysis
The Tribunal examined the statutory scheme under Section 270AA, which was introduced to encourage voluntary compliance by offering immunity from penalty upon payment of tax and interest, coupled with a formal application. The Court noted that Section 270AA(2) creates a mandatory obligation on the AO to consider the immunity application before proceeding with penalty. The Tribunal held that the AO’s failure to decide the application for A.Y. 2017-18 was a violation of statutory procedure.
"The Revenue has not brought any material to contradict the said facts canvassed by the Ld. Assessee's Representative."
The Tribunal further observed that once immunity is granted under Section 270AA(4), the penalty proceedings are extinguished. The AO’s subsequent issuance of a penalty order in A.Y. 2018-19 was therefore a clear legal error. The Tribunal emphasized that statutory immunities under the Income Tax Act are not discretionary privileges but procedural safeguards designed to promote compliance.
The Court rejected the notion that penalty proceedings could proceed in parallel with immunity applications. It held that the AO’s action in both cases amounted to a breach of natural justice and statutory mandate. The Tribunal concluded that the only lawful course was to set aside the penalty orders and direct the AO to first decide the immunity application.
The Verdict
The appellant succeeded in both appeals. The Tribunal set aside the penalty orders dated 21.09.2021 for both A.Y. 2017-18 and A.Y. 2018-19. For A.Y. 2017-18, the AO was directed to decide the pending immunity application filed on 30.01.2020. If immunity is granted, no penalty may be imposed. If immunity is rejected, fresh penalty proceedings may be initiated. For A.Y. 2018-19, the penalty order was set aside outright, as immunity had already been granted. No monetary penalty, interest, or costs were directed.
What This Means For Similar Cases
Immunity Application Halts Penalty Proceedings
- Practitioners must immediately raise the pendency of Form 68 as a jurisdictional bar when penalty notices are issued.
- AO’s failure to decide immunity applications within a reasonable time does not empower them to proceed with penalties.
- Any penalty order passed while immunity is pending is void and liable to be set aside.
Grant of Immunity Under Section 270AA(4) Is Absolute
- Once immunity is granted under Section 270AA(4), the penalty order is null and void - no appeal or review can revive it.
- Revenue authorities cannot re-initiate penalty proceedings after granting immunity unless new facts emerge.
- Taxpayers should retain proof of immunity grant (e.g., order copy, acknowledgment) to defend against future penalty notices.
Procedural Compliance Is Non-Negotiable
- The Tribunal treated the statutory process under Section 270AA as mandatory, not directory.
- This judgment reinforces that procedural lapses by revenue authorities cannot be cured by subsequent justification.
- Practitioners should file Form 68 promptly upon receipt of notice of underreporting and follow up in writing to ensure record of submission.
