Immunity From Penalty Cannot Be Denied Once Conditions Under Income Tax Act Are Met: Calcutta High Court

The Calcutta High Court has recently clarified that the income tax department cannot deny immunity from penalty for under-reporting of income once a taxpayer meets the conditions prescribed under the law.

A bench of Justice Om Narayan Rai said Section 270AA of the Income Tax Act leaves no discretion with the Assessing Officer. The provision allows immunity where the taxpayer has paid the tax demand, has not filed an appeal, and has applied for immunity within the prescribed time. It also requires that the case should not involve misreporting of income

Referring to the provision, the court observed, “once an assessee satisfies the conditions mentioned in the earlier limbs of the said section, the Assessing Officer would be bound to grant immunity to such assessee.”

The ruling came in a case involving Amalgam Steel Private Limited. The company had filed its income tax return for the assessment year 2023–24 declaring nil income. The return was processed in the usual manner. The case was later taken up for scrutiny. An assessment order was passed raising a tax demand of over Rs 10.49 crore.

The company sought rectification, saying it had no taxable income. While that request was pending, the tax department issued a notice proposing penalty proceedings for under-reporting of income.

The company then applied for immunity from penalty by filing the prescribed form within the statutory time limit. The rectification application was later allowed, and the final tax demand was reduced to nil. Despite this, the Assessing Officer rejected the company's request for immunity, stating that the conditions for the grant of immunity were not fulfilled and that the application was “not maintainable.”

Before the High Court, the company argued that the rejection order did not deal with its immunity application at all. It said no reasons were given to explain why immunity had been denied or which condition had allegedly not been met. The tax department claimed that the immunity application was not available in its records or on the online portal and argued that the company was not entitled to the benefit.

The court was not persuaded. It noted that the rejection order itself recorded that the application for immunity had been filed. The bench said the order could not have been passed “without disclosing the basis for the conclusion as to why was (is) the petitioner not entitled to immunity and which of the conditions mentioned in Section 270AA of the said Act of 1961 the petitioner has failed to fulfil.”

It added that “There is no indication in the order impugned as to how have the petitioner‟s contention in its application for immunity been dealt with.”

Justice Rai stressed that reasons are an essential part of any administrative decision. The court observed that the order showed no application of mind and cited no reasons for reaching its conclusion.

In view of the above, the bench allowed the petition and set aside the Assessing Officer's order dated May 27, 2025 denying immunity to the taxpayer-company.