Loading judgment…
Facts
The assessee company, engaged in manufacturing and trading of Power & Energy, filed its return of income. The case was selected for scrutiny, and the assessment was completed by disallowing the claim of leave encashment and imposing a penalty under Section 270A of the Act.
Held
The Tribunal held that the imposition of penalty was unsustainable. The claim for leave encashment was considered debatable and made on a provisional basis with bona fides, and therefore, the penalty should not have been imposed.
Key Issues
Whether penalty under Section 270A is leviable when the claim for leave encashment was made on a provisional and debatable basis with bona fides.
Sections Cited
270A, 143(1), 143(3), 43B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH: ‘B’: NEW DELHI
Before: SHRI SHAMIM YAHYA & SHRI SUDHIR PAREEK
The captioned appeal has been preferred by the Assessee against the order of Commissioner of Income Tax (Appeals)-23, New ITA No.-1794/Del/2023 DhanukaAgritech Ltd. Delhi- 110055, [in short (Ld. CIT(A)] dated 13.04.2023 for Assessment Year 2017-18.
1.1. The Assessee has raised the following grounds of appeal: “ 1.0 That on the facts and in the circumstances of the case, the imposition of penalty and interest with reference thereto has been grossly unjustified, erroneous and unsustainable and necessary direction be given to the AO to give appropriate relief in accordance with law. 1.1That on the facts and in the circumstances of the case, the Ld. CIT-(A) erred in upholding the penalty order passed in utter disregard to the provisions of the Act and hence, was illegal and void ab initio. 2.0That on the facts and in the circumstances of the case, the Ld. CIT-(A) erred in sustaining the penalty imposed_u/s 270A of the Act for disallowance of claim of leave encashment without considering the fact that it was claimed on provisional basis after relying on various judicial pronouncements including that from jurisdictional ITAT. 3.0That on the facts and in the circumstances of the case, the Ld. CIT-(A) erred in upholding the levy of penalty u/s 270A of the Act without considering the fact that the allowability of leave encashment expenditure on provisional basis was a debatable issue and therefore, no penalty should have been imposed. 4.0That on the facts and in the circumstances of the case, the Ld. CIT-(A) erred in upholding the levy of penalty u/s 270A of the Act without considering the fact that a substantial question of law was involved in the appellant's claim. 5.0That on the facts and in the circumstances of the case, the Ld. CIT-(A) erred in sustaining the imposition of penalty u/s 270A of the Act without considering the fact that the appellant adequately disclosed its claim of leave encashment expenditure wherever required. 6.0 That on the facts and in the circumstances of the case, the Ld. CIT-(A) erred in upholding the levy of penalty u/s 270A of 2. ITA No.-1794/Del/2023 DhanukaAgritech Ltd. the Act without considering the fact that while imposing stay on the decision of Exide Industries Ltd. vs. Union of India [2007] 292 ITR 470 (High Court of Calcutta), Hon'ble Supreme Court simultaneously entitled the assessce to make claim of leave encashment expenditure in its returns. 7.0Without prejudice to the above, that on the facts and in the circumstances of the case, the Ld. CIT-(A) erred in upholding the levy of penalty equal to two hundred percent of the amount of tax payable on under-reporting of income in consequence of misreporting, without considering the fact that the appellant's case does not fall under any clause of Section 270A(9) of the Act. 8.0That the appellant craves leave, to add, to amend, modify, rescind, supplement, or alter any of the grounds stated here-in- above, either before or at the time of hearing of this appeal.”
2. The brief facts of the case are the assessee company, engaged in the business of manufacturing and trading of Power & Energy, had filed its return of income declaring a total income of Rs. 118,61,64,030 by claiming refund of Rs. 6,35,89,969/- and the same was processed u/s 143(1) of the Act, on 16.03.2019. 2.1 Thereafter the case was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS) and the assessment was completed u/s 143(3) of the Act, for the A.Y. 2017-18 on 23.12.2019 at an assessed income of Rs. 1,23,48,92,320/- after making the following additions, by disallowing the claim of leave encashment and imposed penalty u/s 270A:
ITA No.-1794/Del/2023 DhanukaAgritech Ltd. Sl.No. Additions Amount (Rs.) 1 Addition on account of disallowance 4,87,28,296/- under section 43B (on account of non-payment of leave encashment on or before due date of filing of return of income) Total 4,87,28,296/-
Heard rival submissions and carefully perused the material available on record. Reiterated the grounds of appeal
, the Learned AR submitted that the Ld. AO disallowed the claim of leave encashment without considering the fact that it was claimed on provisional basis after relying on various judicial pronouncement including the jurisdictional ITAT. Further, he submitted that the allowability of leave encashment expenditure on provisional basis is a debatable issue and therefore, no penalty should have been imposed and the Hon’ble Supreme Court, while imposing stay on the decision of Exide Industries Ltd. vs. Union of India [2007] 2923 ITR 470 (high court of Calcutta), simultaneously entitled the assessee to make claim of leave encashment expenditure in its return. The assessee adequately disclosed its claim of leave encashment expenditure wherever required and the Ld. CIT-(A) erroneously upheld the levy of penalty equal to two hundred percent of the amount of tax payable on under-reporting of income in 4 ITA No.-1794/Del/2023 DhanukaAgritech Ltd. consequence of misreporting, without considering the fact that the appellant's case does not fall under any clause of Section 270A(9) of the Act
4. Per Contra, Ld. CIT(DR) has relied upon the orders of the authorities below.
5. In the course of hearing, the Learned AR submitted that during the year under consideration, assessee made the provision for leave encashment by relying upon various judicial pronouncements wherein leave encashment has been allowed on provisional basis i.e. by the coordinate bench in the case of M/S Sicpa India Pvt Ltd v/s Addnl CIT (ITA No 704/Kol/2015). It is also submitted that in the impugned order of penalty dated 25-03-2022, the Learned AO alleged that the assessee has under reported and misreported it’s income by way of claiming deduction on account of leave encashment not paid on or before due date of filing of return of income, but the Learned AO has not specifically pointed out as under which clause of section 270A(9) of the Act in which matter has considered appellants claim as misreporting. Further submitted that the claim of the assessee was quite bona fide as per the prevailing legal position and assessee has not under reported the 5 ITA No.-1794/Del/2023 DhanukaAgritech Ltd. income in consequence of any misreporting. It is also submitted that the Learned CIT(A) also observed that the assessee paid advance tax on the impugned amount and subsequently claimed deduction.
6. As per section 270A(6)(a) of the Act, the under reported income shall not include the amount of income in respect of which the assessee offers bona fide explanation and disclosed all the material facts to substantiate the explanation offered. The Learned AR emphatically argued that the Learned CIT(A) erroneously concluded that the assessee had suppressed the facts and so the case of the assessee falls u/s 270A(9) of the Act, which is quite contrary to facts available on record. It is also submitted that the both lower authorities nowhere specifically denied that the assessee has offered a bona fide explanation for under reported or misreported income in it's reply. It is also submitted that despite adequate disclosure in the annual accounts regarding the leave encashments, the Learned CIT(A) declined to accept without any strong reasons by quoted it incorrect and fallacious. The Learned AR contended that the Learned CIT(A) however, inferred that there was no reasonable cause for making the claim but there is no any single whisper in the 6 ITA No.-1794/Del/2023 DhanukaAgritech Ltd. impugned order that claim in question was not bona fide. On the basis of foregoing fact situation, we finds material substance in the submissions advanced on behalf of the assessee that the claim in question was on provisional basis having debatable issue with it’s bona fides and so imposition of penalty was not called for. Hence, appeal of the assessee deserves to be allowed as imposition of penalty in question is unsustainable.