Income Tax Act | Assessing Officer Bound to Grant Immunity from Penalty if Statutory Conditions Fulfilled: Calcutta High Court

“Reasons are live links between the narrative and the directive and that an order without reasons can also be treated as a nullity”— In a seminal ruling, the Calcutta High Court, comprising Justice Om Narayan Rai, has set aside an unreasoned order rejecting an assessee's application for immunity from penalty, holding that the Assessing Officer is statutorily bound to grant immunity under Section 270AA of the Income Tax Act, 1961, once the prescribed conditions are fulfilled.

The Factual Matrix: From Substantial Demand to Nil Liability

The case arose from a writ petition filed by Amalgam Steel Private Limited, challenging an order dated May 27, 2025, passed by the Assistant Commissioner of Income Tax. The petitioner had initially filed a return declaring 'NIL' income. However, a scrutiny assessment under Section 143(3) resulted in a substantial demand of Rs. 10,49,79,418/-. Consequently, a show-cause notice for the imposition of penalty under Section 270A for "under-reporting of income" was issued.

Pending the penalty proceedings, the petitioner filed a rectification application under Section 154. Crucially, while the rectification was pending, the petitioner applied for immunity from penalty under Section 270AA in Form 68, asserting that upon rectification, the demand would be reduced to nil. The rectification application was eventually allowed on May 1, 2025, reducing the tax demand to 'NIL'. Despite this, the Assessing Officer rejected the immunity application, merely stating that the conditions were not fulfilled and that the prayer was "not maintainable," without assigning specific reasons.

“Sub-section 3 of Section 270AA reads in mandatory terms. A meaningful reading thereof makes it clear that once an assessee satisfies the conditions... the Assessing Officer would be bound to grant immunity.”

Mandatory Nature of Section 270AA: ‘Discretion’ vs. ‘Duty’

The High Court undertook a deep textual analysis of Section 270AA(3) of the Act. The Court observed that the provision is couched in mandatory terms, utilizing the word "shall." The Bench clarified that the legislative intent is to encourage compliance and reduce litigation. Therefore, once an assessee satisfies the conditions—namely, payment of tax/interest (which was nil in this case post-rectification) and non-filing of an appeal—the Assessing Officer has no discretion to deny immunity.

The Court noted that the petitioner had filed the application within the statutory timeline and had satisfied the requirement of tax payment, as the demand stood rectified to zero. The rejection of the application in a mechanical manner was held to be contrary to the statutory scheme.

The Requirement of a Speaking Order

A significant portion of the judgment addressed the principles of Administrative Law regarding reasoned orders. The Court criticized the impugned order for being cryptic and non-speaking. The Assessing Officer had failed to specify which condition of Section 270AA was violated by the assessee.

“The order impugned... does not evince any application of mind to the matter by the Assessing Officer concerned and it does not cite any reason... therefore, the same cannot withstand judicial scrutiny.”

Relying on the Delhi High Court’s decision in Schneider Electric South East Asia (HQ) Pte. Ltd., the Bench reiterated that orders declining immunity must disclose reasons and demonstrate an application of mind. The Court held that the absence of reasons renders an administrative order unsustainable in law, as it violates the principles of natural justice.

The High Court allowed the writ petition, setting aside the order dated May 27, 2025. The matter was remanded to the Assessing Officer with a specific direction to reconsider the application afresh, strictly in accordance with the law, and after granting an opportunity of hearing to the petitioners.

This judgment serves as a stern reminder to Revenue authorities that the power to grant immunity under Section 270AA is not a discretionary privilege to be dispensed at will, but a statutory obligation contingent upon objective criteria.

Date of Decision: 09/01/2026