NARAYANA HRUDAYALAYA LIMITED ,BENGALURU vs. ACIT, CIRCLE-2(3)(1), BANGALORE
Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI & SHRI SOUNDARARAJAN K.Assessment year : 2012-13
Per Prashant Maharishi, Vice President 1. This appeal is filed by Narayana Hrudayalaya Ltd. (the assessee/appellant) for the assessment year 2012-13 against the appellate order passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(A)] dated 3.1.2025 where in appeal of assessee preferred against the penalty order passed by Assessment Unit dated Page 2 of 11
2.2023 u/s 271(1)(c) of the Income Tax Act, 1961 [the Act], was confirmed. 2. The brief facts of the case show that assessee is engaged in the business of providing medical and healthcare facilities, filed its return of income on 29.9.2012 declaring total income of Rs.32,64,49,980 under the normal provisions of computation of income tax and book profit u/s. 115JB of the Act was computed at Rs.45,03,38,975. The return of income was selected for scrutiny and subsequently it resulted into assessment order u/s. 143(3) on 31.3.2015 wherein the total income of the assessee was assessed at Rs.36,55,20,239 wherein several additions were made. 3. The assessee aggrieved with the same preferred appeal before the ld. CIT(A), Bangalore, who passed an order and deleted all the additions vide order on 30.4.2019. 4. Subsequently appeal of the Revenue was filed before the Tribunal, wherein the appeal of the Revenue was allowed on two issues for statistical purposes and restored the matter for verification. The appellate order was passed on 24.8.2021. 5. Pursuant to the order of the coordinate Bench, the assessment order was passed u/s. 143(3) r.w.s. 254 r.w.s. 144B of the Act on 27.9.2022 determining the total income of the assessee at Rs.33,46.36,995. The ld. AO made the disallowance of unpaid amount of provision for leave salary amounting to Rs.81,87,015. Page 3 of 11
On this addition, show cause notice was issued u/s. 274 r.w.s. 271(1)(c) of the Act for furnishing of inaccurate particulars of income. Against this show cause notice, the assessee submitted 2 responses on 14.10.2022 and 19.11.2022. The ld. AO after considering the reply of the assessee held that assessee is liable for penal action because assessee did not disclose the true amount of income voluntarily and it was because of the efforts of the AO and staff of the income tax department that the aforementioned disallowance of leavy salary provision was detected. Had the same not been selected for scrutiny, the income would not have been assessed to tax. Further non levy of penalty would lead to injustice to the honest taxpayers. Accordingly minimum penalty of Rs.25,29,788 was levied for deliberately furnishing inaccurate particulars of income. Penalty order u/s. 271(1)(c) of the Act was passed on 21.2.2023. The assessee aggrieved with the same, preferred an appeal before the ld. CIT(A). 7. Assessee aggrieved with the penalty order u/s 271 (1) 9c) preferred appeal before the ld. CIT (A). The assessee contesting the penalty submitted that there is no furnishing of inaccurate particulars of income. Before the ld. CIT(A) it was submitted that the above provision was not disallowed based on the decision of Hon’ble Calcutta High Court in the case of Exide Industries and the decisions of the coordinate Bench, as those decisions were in favour of the assessee. Therefore, at the time of filing of return of income, there was a High Court decision in favour of the assessee and several decisions of the coordinate Bench. Thus, at the time of filing of return, the claim of the Page 4 of 11
assessee was supported by judicial precedents, it was not disallowable, which cannot be said to be furnishing of inaccurate particulars of income. It was further stated that it was one of the plausible views.
Even otherwise, it was a debatable issue and therefore disallowance was made on account of debatable issue, penalty could not have been levied. The assessee relied upon the decision of Hon’ble Supreme
Court also.
8. The ld. CIT(A) held that there is an addition of Rs.81,87,015 on account of provision for leave salary which is hit by the provisions of section 43B(f). The assessee has made provision for leave salary to employees amounting to Rs.1,92,23,239 and has paid the leave salary of only Rs.1,10,36,224 leaving a sum of Rs.81,87,015 as unpaid. This itself shows that part of leave salary provision made by the assessee was not an allowable deduction. He further held that it is a settled issue against the assessee by the decision of Hon’ble Supreme Court in the case of UOI v. Exide Industries, 116 taxmann.com 378 wherein the constitutional validity of provisions of section 43B(f) of the Act was upheld. Thus, the contention of the assessee that it is a debatable issue is not acceptable. He further supported the reasons given by the AO for levy of penalty and accordingly the penalty levied of Rs.25,29,788
was confirmed. The assessee who aggrieved with that order is in appeal before us.
9. The ld. AR submitted a paperbook containing 195 pages and his contention was that assessee has claimed leave salary provision as Page 5 of 11
allowable expenditure based on the decision of Hon’ble Calcutta High
Court and several decisions of the coordinate Bench. Subsequently the Hon’ble Supreme Court reversed the decision of Hon’ble Calcutta High
Court and that is how the disallowance is confirmed in the hands of the assessee. But when the return of income was filed, there were judicial precedents including the decision of Calcutta High Court in favour of the assessee along with the Tribunal decisions. Therefore, based on these decisions, the assessee has claimed the deduction. Merely because the deduction is denied to the assessee, there is no reason that penalty should have been levied u/s. 271(1)(c) for furnishing of inaccurate particulars. He further referred to the decision of Hon’ble
Calcutta High Court in the case of Exide Industries v. UOI, 292 ITR
470 as well as the decision of the coordinate Bench in the case of Krishna Grameena Bank v. ACIT in ITA No.146/Bang/2011 dated
15.6.2012 and the decision in the case of Intervalve Poonawalla P. Ltd.
v. DCIT in ITA No.637/PUN/2025. He further referred to the list of dates in Chronological Order at page 194-195 of PB to substantiate that as on the date of filing of return of income by the assessee on 29.9.2012 the decision of Hon’ble Calcutta High Court dated 27.6.2007
was in favour of assessee. The decision of Hon’ble Supreme Court was rendered on 24.4.2020 in UOI v. Exide Industries Ltd. [2020] 116
taxmann.com 378 (SC). Further the coordinate Bench also passed the order in the case of assessee on 24.8.2021. Thus, this date chart shows that as on the date of filing of return of income, the claim made by the assessee was sustainable, allowable and supported by judicial
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precedents. Subsequently on reversal of the decision it cannot be said that the original return of income filed by the assessee contained inaccurate particulars of income. It was therefore stated that the penalty levied by the AO and confirmed by the ld. CIT(A) is improper and deserves to be deleted.
10. The ld. DR vehemently supported the order of the ld. lower authorities.
11. We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. The assessee filed its return of income on 29.9.2012 wherein the provision for leave encashment was not disallowed u/s. 43B(f) of the Act. As on that date assessee was supported by the decision of the Hon’ble Calcutta High Court in the case of Exide Industries Ltd. v. UOI wherein it has been held that the provisions of section 43B(f) are arbitrary, unconscionable and de hors the Apex Court decision in the case of Bharat Earth Movers v. CIT,
245 ITR 428. This was in the case of a Writ Petition filed by that assessee contending that the provisions of section 43B(f) are ultra vires. In that case the Single Judge dismissed the Writ Petition of the assessee whereas the Division Bench allowed the Writ Petition of the assessee and held that section 43B(f) is struck down being arbitrary, unconscionable and de hors the Apex Court decision in the case of Bharat Earth Movers (supra). Thus, the Writ Petition was allowed.
12. Subsequently the above decision of the Hon’ble Calcutta High Court was challenged before the Hon’ble Supreme Court. The Hon’ble
Supreme Court in 116 taxmann.com 378 wherein the above decision of Page 7 of 11
the Calcutta High Court was reversed. Whether on these facts, penalty u/s. 271(1)(c) of the Act can be levied on the assessee or not?
13. Identical issue arose before the coordinate Bench in Intervalve
Poonawalla Ltd. v. DCIT in ITA No.637/PUN/2025 for AY 2014-15
dated 4.6.2025. Vide para 10 to 12 of that order the coordinate Bench has cancelled the penalty levied relying on the decision of the Supreme
Court in the case of CIT v. Reliance Petroproducts Ltd. 322 ITR 158
(SC). Therefore, the issue is squarely covered in favour of the assessee by that decision. The coordinate Bench has considered the whole issue as below: -
“10. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) /
NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. The only issue in the instant appeal is regarding the levy of penalty u/s 271(1)(c) of the Act on account of disallowance of provision for leave encashment of Rs.11,08,482/- which was claimed by the assessee by debiting the same to the Profit and Loss Account. It is an admitted fact that the assessee in the note at the end of the computation has stated that the provisions of section 43B(f) of the Act are not applicable in the case of provision for leave encashment based on actuarial valuation. At the same time, it is also an admitted fact that the amendment to provisions of section 43B was held to be ultra vires by the Hon'ble Calcutta High Court in the case of Exide Industries Ltd. vs. Union of India (supra) and the decision of the Hon'ble Supreme Court reversing the decision of the Hon'ble Calcutta High Court was pronounced in the year
2020. Under these circumstances, we find merit in the submission of the Ld. Counsel for the assessee that since the matter was in favour of the assessee till the reversal of the decision by the Hon'ble Supreme Court, the assessee made a claim to keep the innings open.
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We find the Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd. (supra) has held that a mere making of claim which is not sustainable in law, by itself, will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing of inaccurate particulars of income. The relevant observations of the Hon'ble Supreme Court read as under:
"9. We are not concerned in the present case with the mens rea.
However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as:-
"not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript".
We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous.
We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.
10. It was tried to be suggested that Section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried
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to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently;
(ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature.
11. In this behalf the observations of this Court made in Sree Krishna
Electricals v. State of Tamil Nadu & Anr. [(2009) 23VST 249
(SC)] as regards the penalty are apposite. In the aforementioned decision which pertained to the penalty proceedings in Tamil
Nadu General Sales Tax Act, the Court had found that the authorities below had found that there were some incorrect statements made in the Return. However, the said transactions were reflected in the accounts of the assessee. This Court, therefore, observed:
"So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's account books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside."
The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its Return.
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The Tribunal, as well as, the Commissioner of Income Tax (Appeals) and the High Court have correctly reached this conclusion and, therefore, the appeal filed by the Revenue has no merits and is dismissed." 12. Since the assessee in the instant case has filed all the relevant details in the notes to the computation statement and nothing was hidden from the department, there was a favourable decision in favour of the assessee at the relevant time and that the penalty proceedings u/s 271(1)(c) of the Act were dropped for assessment year 2010-11 despite the addition confirmed by the Tribunal, therefore, considering the totality of the facts of the case and following the decision of the Hon'ble Supreme Court cited (supra), we are of the considered opinion that the Ld. CIT(A) / NFAC is not justified in sustaining the penalty levied by the Assessing Officer u/s 271(1)(c) of the Act on account of the claim of leave encashment. The grounds raised by the assessee are accordingly allowed.” 14. The ld. DR could not show us any contrary decisions. Thus, the issue is squarely covered by the above decision of coordinate bench. 15. When assessee filed ROI, the claim was allowable as it supported by the decisions of Honourable High court and coordinate benches that there cannot be any disallowance u/s 43B (f) in case of unpaid leave salary as the above provision was held to be unconstitutional. Subsequently, the decision of Honourable high court was reversed by the Honourable supreme court. Based on decision of Honourable Supreme court , the disallowance was upheld. On this disallowance penalty is levied. Thus, the issue is definitely debatable in nature. On debatable issues assessee cannot be said to have furnished inaccurate particulars. Further at the time of filing of the ROI, the issue was covered in favour of the assessee. The issue of furnishing of inaccurate Page 11 of 11
particulars requires to be seen at the time of filing of ROI, and at that time the claim of the assessee was sustainable. Therefore on such a disallowance it cannot be said that assessee has furnished inaccurate particulars of income by claiming deduction of unpaid leave salary and not disallowing it u/s 43B ( f) of the Act.
16. In view of the above facts, we direct the ld. AO to delete the levy of penalty of Rs.25,29,788 on disallowance of leave encashment provision u/s. 43B(f) of the Act as there are no inaccurate particulars were filed by the assessee at the time of filing of Return of Income. The orders of the ld. lower authorities are reversed and the appeal of the assessee is allowed.
17. In the result, the appeal by the assessee is allowed.
Pronounced in the open court on this 26th day of August, 2025. ( SOUNDARARAJAN K. )
VICE PRESIDENT
Bangalore,
Dated, the 26th August, 2025. /Desai S Murthy /
Copy to:
1. Appellant
2. Respondent
3. Pr. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
By order