Non payment of tax due to uncertain legal position is out of the scope of ‘Mis Reporting’

 GE Capital Us Holdings Inc Vs DCIT

Case Number: W.P.(C) 1646/2022 Facts: 1. The assessee, a non-resident entity involved in the business of providing IT and IT support services including software licenses to Indian entities, was classified as transfer of intellectual property, and assessed to tax on the payments received from these entities as royalty in terms of Section 9(1)(vi) of the Income tax Act read with Article 12 of the India-USA DTAA. 2. Consequently, penalty proceedings were also initiated u/s 270A. Even though the assessee had availed MAP for AY 2017-2018, paid the demands for AY 2018-2019 and 2019-2020, and filed application for immunity u/s 270AA, the AO rejected the application stating mere payment of demand does not, ipso facto, amount to protection against misreporting as envisaged by section 270A(9). 3. The assessee maintained that non-payment of tax was due to uncertainty in legal position existing at the time of filing the return of income and so penalty proceedings be dropped. Hon Delhi HC held as below: 1. The non-payment of tax by assessee due to uncertainty in legal position existing at the time of filing the return of income, would be outside the scope of 'mis-reporting'. 2. Show Cause Notice which came to be issued for commencement of action u/s 270A were themselves vague and unclear, as it failed to specify whether the assessee was being charged with under-reporting or misreporting of income. 3. While examining an application for immunity, it was incumbent upon the AO to ascertain whether the provisions of Section 270A stood attracted either on the anvil of under-reporting or misreporting. 4. A finding of misrepresentation, failure to record investments, expenditure not substantiated by evidence, recording of false entry in the books of account alluded to u/s 270A(9) has neither been returned nor recorded in the assessment order. 5. The penalty proceedings u/s 270A be dropped, due to AO's failure to allude to specific charge of misreporting or under-reporting in show cause notice.