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Facts
The assessee, a cooperative bank, had its Section 143(3) assessment revised under Section 263. During the revised assessment, a provision for leave encashment of Rs. 66,00,000/- was disallowed, leading to a penalty of Rs. 22,43,340/- under Section 271(1)(c) for furnishing inaccurate particulars. The assessee argued that the claim was made based on a prevailing decision of the Hon'ble Calcutta High Court.
Held
The Tribunal found that the assessee made the claim for leave encashment under a bona fide understanding of the law, relying on a Calcutta High Court decision that was in operation at the relevant time, even though it was later reversed by the Supreme Court. Since all details were provided, the Tribunal held that penalty under Section 271(1)(c) was not attracted, and accordingly, the penalty was deleted.
Key Issues
Whether a penalty under Section 271(1)(c) for furnishing inaccurate particulars can be levied when a claim for provision of leave encashment was made based on a bona fide legal interpretation supported by a High Court decision prevalent at the time, despite its subsequent disallowance or reversal.
Sections Cited
271(1)(c), 274, 143(3), 263, 43B(f), 139(1)
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Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAHUL CHAUDHARY
This appeal by the assessee is directed against order dated 22.01.2025 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short „the Ld. CIT(A)‟] for assessment year 2008-09, in relation to penalty u/s 271(1)(C) of the Income Tax Act [in short „the Act‟] levied by the Assessing officer. The ground raised by the assessee is reproduced as under:- “The following grounds of appeal are without prejudice to one another.
1. On the facts and circumstances of the Appellant's case and in law, the Id. CIT(A) erred in confirming the action of Id. AO in issuing notice 274 r.w.s 271(1)(c) of the Act and the consequential penalty order passed u/s 271(1)(c) of the Act, which is bad in law and not sustainable in the eyes of law.
2. On the facts and circumstances of the Appellant's case and in law, the Id. CIT (A) uphelding the action of Id. AO in levying a penalty u/s 271(1)(c) of the Act amounting to Rs. 22,43,340/- for the reasons stated in the impugned order or otherwise.
3. The appellant craves leaves to alter, amend, withdraw or substitute any ground or grounds or to add any new ground or grounds of appeal on or before the hearing. The appellant prays this Hon'ble Tribunal to delete the addition made by the Id. AO, which is confirmed by the Id. CIT (A).”
2. Briefly stated facts of the case are that the assessee was engaged in the business of banking in cooperative sector. The assessment u/s 143(3) of the Act was completed in the case of assessee on 28.10.2010, wherein return of income filed by the assessee was accepted, but later on, the Ld. PCIT called for the assessment records and after examination, he held the assessment order as erroneous in so far as prejudicial to the interest of the Revenue and directed the assessing officer to pass a fresh assessment order as per direction issued u/s 263 of the Income-tax Act, 1961( In short the „Act‟). Consequently, the Assessing Officer passed the impugned assessment order, wherein he made various addition including addition of Rs. 66,00,000/- for provision of leave encashment. On further appeal, the Ld. CIT(A) deleted the addition other than the amount of Rs. 67,00,928/- including addition of provision for levy encashment of Rs. 66,00,000/-. The Assessing officer, accordingly issued show cause notice to the assessee as why the penalty corresponding to the said addition of Rs. 66,00,000/- might not be levied for filing inaccurate particulars in return of income. In response, the assessee submitted that said claim for provision for leave encashment was made in view of the decision of the Hon’ble Calcutta High Court in the case of Exide Industries Limited V/s. Union Of India reported in 292 ITR 470, wherein it is held that leave encashment was not a statutory liability, but it was a trading liability not to be affected by the provision of section 43(B)(f) of the Act and section 43B(f) of the Act was struck down being arbitrary. The Ld. assessing officer rejected the contention of the assessee and held the assessee in default filing inaccurate particulars of income to reduce its tax liability. The Ld. assessing officer accordingly levied penalty at the rate of 100% of the tax sought to be evaded, which was computed to Rs. 22,43,340/- 3. On further appeal Ld. CIT(A) upheld the penalty observing as under “7.2. The appellant submissions and case laws relied are considered and the same are not found to be acceptable. The penalty proceedings u/s. 271(1)(c) of the Act are invoked in case if income has been concealed by the appellant or inaccurate particulars has been furnished. In the instant case, an addition of Rs. 1,14,30,000/-was made by disallowing various expenses claimed as per the provisions of the Act and the Assessing Officer has rightly invoked the Impugned penal provisions for concealment of income. The contention of the appellant that penalty cannot be levied since it was mere rejection of claim cannot be accepted as there is no merit in appellant's submission. The appellant has also contended that the mistake was due to unaware of the provisions and no inaccurate particulars has been furnished intentionally cannot be accepted as it is evident that the appellant has not debited the expenses towards bonus and provision for leave encashment and claimed as deduction without making payment before the filing of return of income u/s. 139(1), which was against the provisions of the Act The additions made in the assessment order are well settled issues and it is proved that Appellant also has accepted the said additions since no further appeal was preferred by the appellant on the additions confirmed by the Ld. CIT(A)-3, Thane. Further, the appellant's claim that the furnishing of inaccurate particulars was due to mistake also cannot be considered since the auditor was the person employed by the appellant and he should have been aware of the provisions of the Act. The malafide intention of the appellant is clearly established since the appellant has not accepted the additions as proposed by the AO at first even after the appellant knowing the inaccurate particulars furnished in the return of income.”
3.1 The Ld. CIT(A) supported his finding by placing reliance on the decision of the Hon’ble Delhi High Court in the case of CIT V/s. Zoom Communication Private Limited ITA 7/2010.
We have heard rival submissions of the parties and perused the relevant materials on record. Before us Ld. Counsel of the assessee raised a legal ground by way of oral plea that particular limb of charge for penalty, whether the penalty was initiated on account of concealment of income or furnishing of inaccurate particular of income , was not struck out in the notice issued for levy of penalty by the assessing officer. The Ld. DR. did not object to raising additional ground by the assessee and accordingly same was admitted for adjudication being purely a legal ground not requiring investigation of fresh facts.
We have heard rival submission of the party in respect of the additional ground. Before us the Ld. DR referred to the impugned order of penalty and submitted that before levy of penalty a show caused was issued to the assessee, wherein the charges of furnishing of inaccurate particulars of income have been referred clearly, whereas, Ld. Counsel for the assessee referred to notice u/s 271(1)(C) of the Act r.w.s. 274 of the Act dated 03.01.2014 i.e. issued alongwith the assessment order wherein particular limb of the charge of the penalty has not been stricken out. In view of the aforesaid arguments of the parties, we are of the opinion that once in the final show cause notice issued before levy of the penalty, the charges have been clear and there was no ambiguity to the assessee about charges for levy of penalty, there is no violation of principal of natural justice. In the circumstance the decision relied on the ld. Counsel upon the assessee are not applicable on the facts of the instant case and accordingly, we reject the additional ground raised
by the ld. counsel for the assessee.
6. As far as merit of the penalty is concerned, the Ld. counsel for the assessee submitted that in the return of income assessee had already shown that the provision for leave encashment was not paid on or before the due date of the filing of return. The only issues therefore, was whether the said provision for leave encashment was allowable under provision of sub-section 43B(f) of the Act or not.
The ld counsel submitted that the assessee made claim following the decision of Hon‟ble Calcutta High Court in the case of Exide Industries Limited V/s. Union Of India (Supra) , which has been reversed by the Hon‟ble Supreme Court 24.04.2020 as reported in 425 ITR 1. Therefore, the assessee had made claim under the bonafide understanding based on the decision of the Hon‟ble Calcutta High court (supra), which was prevalent during the relevant period of the date of filing of return of income by the assessee. The Ld. Counsel referred to the decision of the Hon‟ble Supreme Court in the case of CIT v. Reliance Petroproducts (P) Ltd. (2010) 322 ITR 158 where in its held that by any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing in accurate particulars. Merely because the Assessee claimed of deduction of interest expenditure has not been accepted by the Revenue, penalty under section 271(1)(c) is not attracted. In our opinion in the instant case, the assessee has provided all details in respect of claim of the leave encashment and also mentioned that same was not paid on or before the due date of filing of return but the claim was made in view of the decision of the Hon‟ble Calcutta High Court bench which was in operation during the relevant period. In our opinion in such circumstances, the decision of the Hon‟ble Delhi High Court in the case of Zoom Communication Private Limited (supra) is also not applicable. In the said decision the Hon‟ble High Court has held that when a claim is not only incorrect in law but also without any basis and the explanation furnished by the assessee is also not bonafide, an assessee could be held liable for penalty, but, in the instant case the claim of the assessee is under bonafide understanding of law during the relevant period.
The Ld. Counsel for the assessee also relied on the decision of the Coordinate bench of the Tribunal in the case of Eimco Elecon (India) Ltd. in 2013 taxmann.com 476 (Ahmedabad), wherein also the provision for leave encashment has been allowed by the bench of following the decision of the Hon‟ble Calcutta High Court in the case of Exide Industries Limited V/s. Union Of India 8. In view of the above discussion, we setaside the order of Ld. CIT(A) of the issue in dispute and delete the penalty sustained by the Ld. CIT(A). The grounds of the appeal raised on merit are accordingly allowed.
In the result, appeal of the assessee is accordingly allowed.
Order pronounced in the open Court on 29/04/2025.