Delhi High Court Holds an Assessing Officer Cannot Demand Negative Evidence Before Granting Immunity From Penalty

Kaustav Chowdhury

6 days ago

5 min read

Background and Facts

An assessee who pays the demand and gives up its right of appeal in exchange for immunity from penalty should not then be asked to prove a negative. The Delhi High Court has set aside an order rejecting an immunity application under Section 270AA of the Income-tax Act, 1961 on the ground that the assessee had produced no documentary evidence that it had not filed an appeal. The judgment in Shantijanak Estates Private Limited v. Assistant Commissioner of Income Tax, Circle 22(2), Delhi [W.P.(C) 12741/2026] was reported on September 23, 2026.

The petitioner leases property. For assessment year 2024-25 it returned income of Rs 5,43,52,210 as profits and gains of business or profession. The Assessing Officer assessed the income at Rs 6,68,07,690, treating the rental receipts as income from house property, and initiated penalty proceedings under Section 270A for under-reporting.

The petitioner then took the statutory bargain. It paid the entire demand of Rs 37,99,340 on April 22, 2026, within the period allowed, and filed Form 68 seeking immunity. The Assessing Officer rejected the application, recording that the assessee had furnished no documentary evidence that no appeal had been filed, and also recording that no reply had been received, although a reply had in fact been filed and was visible on the portal.

Key Legal Issue

Whether an Assessing Officer considering an application under Section 270AA of the Income-tax Act, 1961 may require an assessee to produce documentary evidence that it has not filed an appeal, when the prescribed form already carries that declaration.

The Delhi High Court's Ruling

The Court set aside the rejection order and directed a fresh decision on the application.

A Negative Cannot Be Proved by Documents

The Court described the demand as incomprehensible. An assessee cannot produce a document evidencing the non-existence of an appeal it never filed. What the officer can do is take the assessee's declaration to that effect, and the Court said as much:

"the AO can at the best take a declaration from the assessee that it has not filed any appeal". Since Form 68 already contains that declaration, a separate demand for proof added nothing.

There was a second and independent defect. The order recorded that no reply had been filed when the portal showed that one had been. An order that proceeds on a factually wrong premise about the record cannot stand, whatever the merits of the underlying claim.

Why the Statutory Bargain Matters

Section 270AA is a trade. On an application, the Assessing Officer grants immunity from penalty under Section 270A and from initiation of proceedings under Section 276C or Section 276CC, if the assessee has paid the tax and interest payable under the assessment or reassessment order within the period specified in the notice of demand, and has not appealed against that order. The assessee gives up the appeal; the Revenue gives up the penalty and the prosecution.

The consideration on the assessee's side is irreversible in practice, because the time to appeal runs while the application is pending. An officer who treats the application as an occasion for further proof is therefore not imposing a procedural inconvenience. He is putting the assessee in a position where it has surrendered the appeal and may still face the penalty.

The Limits of the Immunity

The immunity is not unconditional, and the judgment does not make it so. Immunity is available under sub-section (3) where the penalty proceedings under Section 270A have not been initiated in the circumstances referred to in sub-section (9) of that section, which is to say where the case is one of under-reporting rather than misreporting. Sub-section (9) lists the misreporting cases: misrepresentation or suppression of facts, failure to record investments in the books, a claim of expenditure unsubstantiated by evidence, a false entry in the books, failure to record a receipt bearing on total income, and failure to report an international transaction or specified domestic transaction to which Chapter X applies.

The distinction is worth money. Under Section 270A(7) the penalty for under-reporting is fifty per cent of the tax payable on the under-reported income. Under sub-section (8), where the under-reporting is in consequence of misreporting, it is two hundred per cent.

Practice Notes

In practice, the judgment is a reminder that the immunity route is worth using and easy to lose:

Check which limb the penalty notice invokes first: If the notice alleges misreporting within Section 270A(9), Section 270AA is not available and the application will fail. The first question is whether the case is under-reporting or misreporting, not whether the demand can be paid.
Pay within the notice period, not merely before applying: The condition is payment of the tax and interest within the period specified in the notice of demand. Payment after that period, even if before the application, does not satisfy the section.
Rely on the form, and say so: Form 68 carries the declaration about the appeal. Where an officer asks for more, the answer is to reiterate the declaration and point to the form rather than to assemble documents that cannot exist.
Keep proof that the reply reached the portal: The second defect in this case was an order that overlooked a filed reply. Retain the acknowledgement and the portal view history, because it is the cheapest ground on which a rejection can be set aside.
Do not file a protective appeal: An appeal against the assessment order defeats the condition in the section. Where the immunity route is chosen, it has to be chosen cleanly, which is why the decision on which route to take should be made before anything is filed.

Key Provisions Discussed

Section 270A of the Income-tax Act, 1961: Penalty for under-reporting and misreporting of income, at fifty per cent of the tax payable on under-reported income under sub-section (7) and two hundred per cent where the under-reporting is in consequence of misreporting under sub-section (8), with sub-section (9) listing the cases that count as misreporting.
Section 270AA of the Income-tax Act, 1961: Immunity from imposition of penalty under Section 270A and from initiation of proceedings under Section 276C or Section 276CC, on an application made within one month from the end of the month in which the assessment or reassessment order was received, where the tax and interest have been paid within the period specified in the notice of demand and no appeal has been filed. The Assessing Officer must decide within one month from the end of the month of receipt of the application, cannot reject it without a hearing, and the order is final.
Section 276C of the Income-tax Act, 1961: Prosecution for wilful attempt to evade tax, proceedings under which Section 270AA immunity covers.
Section 276CC of the Income-tax Act, 1961: Prosecution for failure to furnish a return of income, proceedings under which Section 270AA immunity also covers.

Case Details

Case: Shantijanak Estates Private Limited v. Assistant Commissioner of Income Tax, Circle 22(2), Delhi
Case No: W.P.(C) 12741/2026
Court: High Court of Delhi at New Delhi
Reported: September 23, 2026
Assessment Year: 2024-25
Outcome: The order rejecting the application for immunity set aside and the application remitted for fresh consideration.

Sources and References

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice specific to their circumstances.