BHARAT KUMAR JAISHINH SONI ,MUMBAI vs. ITO , WARD 42(2)(1), MUMBAI

The first appellate authority concurred with the Assessing Officer. While noting the Delhi High Court’s observations and the subsequent Notification dated 24 May 2023 enhancing the exemption limit to ₹ 25 lakhs with effect from 1 April 2023, the Commissioner (Appeals) held that the assessee’s reliance thereon was misplaced and that he was fully aware of his ineligibility as a PSU employee. The penalty was thus sustained.

Before us, the learned counsel for the assessee submitted that the case is one of a bona fide interpretative claim and not of concealment or misreporting. He pointed out that all primary facts were truly disclosed, the claim was made openly in the revised return, and the legal position had since been rendered fluid by subsequent governmental action raising the exemption threshold. Reliance was also placed on several coordinate-bench decisions which, in quantum appeals, have taken a liberal view in similar circumstances.

The learned Departmental Representative, on the other hand, defended the impugned order, submitting that the assessee’s conduct fell within clauses (a) and (c) of section 270A(9) viz., misrepresentation or suppression of facts and Bharat Kumar Jaishinh Soni claim of expenditure (or allowance) not substantiated by evidence and that the full exemption claim was a deliberate overstatement contrary to the unambiguous provision of law.

We have carefully considered the rival submissions and examined the record. The pivotal question is whether the act of the assessee in claiming full exemption of leave encashment can, on these admitted facts, be categorised as misreporting of income within the meaning of section 270A(9).

Section 270A, introduced by the Finance Act 2016, delineates two distinct classes of defaults under-reporting and misreporting of income. While under-reporting invites penalty at 50 per cent of the tax thereon, misreporting, being a graver infraction implying deliberate falsity or suppression, attracts a higher penalty at 200 per cent. Sub-section (9) specifies six exhaustive categories constituting misreporting: (a) misrepresentation or suppression of facts; (b) failure to record investments in books; (c) claim of expenditure not substantiated by evidence; (d) recording of any false entry in the books; (e) failure to record any receipt having a bearing on income; and (f) failure to report international or specified domestic transactions.

A careful reading of the statutory scheme reveals that misreporting is predicated on mens rea a conscious act of Bharat Kumar Jaishinh Soni falsification, concealment, or distortion of fact leading to an incorrect computation of income. The legislature has deliberately confined it to situations involving deception or fabrication. Mere erroneous interpretation of law, or a claim founded on an arguable or debatable view, however untenable it may subsequently appear, does not partake the character of “misreporting.” It falls, if at all, within the realm of under- reporting, and even then penalty may not ensue where the explanation is bona fide and all material facts have been disclosed.

When these principles are applied to the case before us, it becomes manifest that none of the clauses of section 270A(9) are attracted. The assessee disclosed the receipt of leave-encashment in full, both in the original and in the revised returns. There was no suppression, concealment, or falsification of any primary fact. The only difference lay in the quantum of exemption claimed an issue turning purely on legal interpretation. Clause (a), which contemplates “misrepresentation or suppression of facts,” therefore stands excluded.

Clause (c) refers to “claim of expenditure not substantiated by any evidence.” The present claim is not one of expenditure but of exemption; the underlying payment is a verifiable retirement benefit received through the employer. Hence, the very genus of default envisaged in clause (c) is absent. Clauses (b), (d), (e) and (f) are patently inapplicable, Bharat Kumar Jaishinh Soni as there is no unrecorded investment, false entry, unrecorded receipt, or international transaction involved.

The conduct of the assessee further bears the imprimatur of bona fide. The claim was made in reliance on judicial observation of a constitutional court and in anticipation of the Government’s acceptance thereof a development that in fact materialised when the CBDT, vide Notification No. 31/2023 dated 24 May 2023, enhanced the exemption limit to ₹ 25 lakhs. That the notification was given prospective effect does not retrospectively stigmatise those who, guided by the same reasoning, had earlier taken a liberal view of the provision. In tax jurisprudence, a claim founded on a plausible construction of law or on a subsequently recognised equitable principle cannot, by any stretch, be branded as misreporting.

It is trite that penalty provisions are quasi-criminal in nature and must be construed strictly. Unless the charge of deliberate falsity is clearly established, the assessee cannot be visited with the rigour of section 270A(9). Here, every figure in the return emanated from the employer’s certificate; nothing was hidden from the Department; the dispute was only as to the extent of statutory relief admissible. To characterise such disclosure as “misreporting” would be to blur the boundary between error and evasion.

In light of the above discussion, we hold that the case does not fall within any limb of sub-section (9) of section Bharat Kumar Jaishinh Soni 270A. The explanation offered by the assessee is reasonable and bona fide, supported by contemporaneous judicial precedent and subsequent legislative recognition. The penalty imposed by the Assessing Officer and sustained by the Commissioner (Appeals) therefore cannot be upheld.

Accordingly, the penalty of ₹ 5,51,016 levied under section 270A(9) is hereby deleted, and the appeal of the assessee stands allowed.

In the result, appeal of the assessee is allowed.