Income Tax Act, 1961, Section
270A
Penalty under
section 270A--Misreporting
or under-reporting of income--Assessee under a bona fide belief claimed extended exemption of gratuity--Leviability of
Conclusion: Where assessee rendered part of his service tenure as State Government
employee and balance part as employee of PSU and he under a bona fide belief
claimed extended exemption of gratuity under section 10(10), which was only
available to Government employees, in such case, the benefit of doubt would be
given to assessee and hence, penalty levied under section 270A was liable to be
deleted.
Assessee was an employee of Maharashtra State Electricity
Generation Company Ltd (MSEGCL), State Government of Maharashtra (GoM) owned
company, wherefrom he got retired. He filed his original return, which was
subsequently revised by claiming exemption of gratuity under section 10(10) to
Rs. 20 lakhs as against original claim of Rs. 10 lakhs. AO made addition by
restricting the said claim to Rs. 10 lakhs as against claim of Rs. 20 lakhs
made in revised return. Pursuant to the said addition, the AO levied penalty
under section 270A for misreporting of income. Held: Undisputedly,
assessee joined his services with MSEB as GoM employee, however owning to its
restructuring, his employer became State owned PSU company i.e. MSEGCL, from
which, the assessee ultimately retired. Therefore, assessee rendered part of
his service tenure as State Government employee and balance part as employee of
PSU. That coupled with CBDT's Notification, dated 08-3-2019, which was
issued enhancing exemption ceiling to Rs. 20 lakhs, led him to claim extended
exemption in revised return. Thus, levy of penalty in the said case was not
warranted as admittedly, for part of the service, the assessee was State
Government employee, thus, the belief under which full/extended exemption was
claimed in revised return, was not incorrect in its entirety and was certainly
a bonafide belief. Further, explanation offered by assessee in support
of his mistaken but bonafide belief and disclosure of all material facts
of his service and circumstance, which swayed him to claim full exemption,
would squarely fall within section 270A(6)(a). Further, it is settled law that
in case of benefit of doubt or ambiguity in taxing the income, the benefit of
doubt goes to State. However, in respect of penalty in fiscal laws, the
principle followed is more like the principle in criminal cases. That is to
say, the benefit of doubt is more easily given to assessee. Hence, penalty
levied under section 270A was deleted.
Decision: In
assessee's favour
Followed: Commissioner
of Customs (Import), Mumbai v. M/s. Dilip Kumar and Company & Ors. (2018) 9
SCC 1 (SC) : 2018 TaxPub(EX) 737 (SC), Commissioner of Central Excise, Calcutta
v. Calcutta Springs Ltd. (2008) 229 ELT 161(SC) : 2008 TaxPub(EX) 1953 (SC),
VV. IYER v. Collector of Customs (1999) 110 ELT 414 (SC) : 1999 TaxPub(EX) 1546
(SC), Adinath Vasantrao Wandhekar v. ITO, Ward-4, Panvel, Mumbai [ITA No.
1388/PUN/2023, dt. 8-3-2024]
Income Tax Act, 1961, Section
270A
Penalty under
section 270A--Misreporting
or under-reporting of income--
Conclusion: Where on
the date of filing of return by assessee, the amount of interest earned as
appearing in Form No 26AS, had been rightly offered to tax, however, the
difference in interest income came to the light post filing of return and the
same was on account of delayed reporting by payer-bank/financial institution,
the same could not tantamount to under-reporting of income and consequently de-horses
from attracting any penalty under section 270A.
AO made addition on account of difference of interest
income offered to tax as against income reported in Form 26AS. On the basis of
the said addition, the AO levied penalty under section 270A for misreporting of
income. CIT(A) upheld the penalty. Held: Since on the date of
filing of return by assessee, the amount of interest earned as appearing in
Form No 26AS, had been rightly offered to tax, however, the difference in
interest income came to the light post filing of return and the same was on
account of delayed reporting by payer-bank/financial institution, the same
could not tantamount to under-reporting of income and consequently de-horses
from attracting any penalty under section 270A.
Decision: In
assessee's favour
IN THE ITAT NAGPUR BENCH
S. S. GODARA, J.M. & G. D. PADMAHSHALI, A.M.
Ravindra Madhukar Kharche v. Asstt. CIT
ITA No. 228/NAG/2023
16 April, 2024
Assessee by: None
Revenue by: Abay Marathe
(learned Departmental Representative')
G.D. Padmahshali, A.M.
The present appeal of the assessee is filed challenging DIN
& order No. ITBA/NFAC/S/250/2023-24/1053289950(1) dated 29-5-2023 passed
under section 250 of the Income-tax Act, 1961 (in short 'the Act') by National
Faceless Appeal Centre, Delhi (in short 'NFAC'),
2. Pithily stated facts of
present case are that;
2.1 The assessee an
individual and was an employee of Maharashtra State Electricity Generation
Company Ltd (in short 'MSEGCL'), a State Government of Maharashtra (in short
'GoM') owned company, wherefrom the assessee retired on 31/05/2016. Declaring
total income of Rs. 44,68,490 with NIL tax liability the assessee filed his
original return of income (in short 'ITR') which subsequently was revised
claiming tax refund of Rs. 3,09,000 owning to upward revision of claim of
exemption of Gratuity to Rs. 20 Lakhs as against original claim of Rs. 10
Lakhs. The said ITR was initially processed under section 143(1) of the Act and
later subjected to complete scrutiny by a notice served under section 143(2) of
the Act.
2.2 While framing assessment
under section 143(3) of the Act, the learned assessing officer made two
additions viz; (a) addition of Rs. 10 Lakhs arising on account of restricting
the claim of exemption of gratuity to Rs. 10 Lakhs u/c (ii) of section 10(10) of
the Act as against the claim of Rs. 20 Lakhs made in revised ITR. (b) addition
of Rs. 21,550 being difference of interest income offered to tax as against the
income reported in form 26AS. The assessee did not challenge the disallowances
and the consequential additions in appeal.
2.3 Pursuant to aforestated
disallowance/additions, the learned assessing officer initiated penal
proceedings for misreporting of income under section 270A of the Act and after
considering the submission of the assessee, by a DIN & order
ITBA/PNL/F/270A/2021-22/1041650935(1) dated 26-3-2022 imposed a penalty of
Rs. 6,02,858 @ an accelerated rate of 200% of tax sought to evaded under
section 270A(8) of the Act.
2.4 The first appeal against
the aforestated imposition did fail to settle dispute in favour of the
assessee, for the reasons the assessee came in present appeal on a solitary
ground that the levy of penalty is devoid of facts, merits of the case and
without considering the bonafied mistake in claiming enhanced ceiling.
3. The case was called
twice; none appeared at the bequest of the assessee, in absence of any letter
seeking adjournment, we deem it fit to proceed to adjudicate the matter
ex-parte on merits under section 24 of the ITAT-Rules, 1963. Heard the learned
Departmental Representative and perused case records in the light of rule 18 of
ITAT, Rules 1963 and considered the facts in the light settled legal position.
4. Insofar as incorrect
reporting of interest income is concerned, it is on record that, as on the date
of filing of return the amount of interest earned as appearing in Form No 26AS
has been rightly offered to tax. As such the difference in interest income came
to light post filing of ITR and on account of delayed reporting by the
deductor/payer bank/Financial Institution. In view thereof in our considered
view same cannot tantamount to under-reporting of income, consequently
de-horses from attracting any penalty under section 270A of the Act.
5. Insofar as the penalty
imposed against disallowance of enhanced claim of gratuity exemption is
concerned, we observed that, the appellant assessee was in service previously
with Maharashtra Electricity Board (in short 'MSEB') which was constituted in
1960 & operating under the direct control of GoM. Owning to reforms by
virtue of amendment brought in Electricity Act, 2003 the erstwhile MSEB
demerged its three principal activities i.e. generation, transmission and
distribution through restructuring and assigned it to three newly formed
companies for the stated purpose. The appellant's employer MSEGCL is one of
such company engaged in generation of electricity, from which the appellant
assessee received afforested gratuity in terms of MSEGCL employee service
regulation, 2005.
6. Undisputedly, the
appellant joined his services with MSEB as GoM employee, however owning to its
restructuring his employer became State owned PSU company i.e. MSEGCL from
which the appellant ultimately retired. In stricter sense, the appellant
rendered part of his service tenure as State Government employee and balance
part of it was as an employee of PSU. This coupled with CBDT notification dated
08-3-2019 issued enhancing exemption ceiling Rs. 20 Lakhs led to his bonafied
belief in claiming extended exemptions in the revised ITR. The learned
assessing officer however stand corrected the claim by restricting the
exemption to maximum ceiling Rs. 10 Lakhs as available to non-government
employee and is very well accepted by the appellant by discharge of determined
taxes. In view of the acceptance of addition made on account of disallowance of
enhanced claim of exemption, the tax authorities levied penalty under section
270A @ accelerated rate of 200% of tax sought to be evaded for mis-reporting of
income through excess claims made in the revised ITR filed.
7. Though we are not dealing
with the correctness of disallowance whereby the exemption claims were
restricted to the extent of maximum ceiling fixed in relation to non-government
employees, but it would not be out of the box to state that, insofar as the gratuity
is concerned, undisputedly it was accrued to the appellant evenly throughout
his service tenure. Therefore, the portion of gratuity which is accrued to him
from the year of joining his services with MSEB upto the year of transfer of
his service to MSEGCL was entitled to full exemption being Government Service.
The balance gratuity thus represents accrued from MSEGCL being non-governmental
service which alone can only be subjected to ceiling limit prescribed under
section 10(10)(ii) of the Act. However, the tax authorities have perfunctory
pressed into service the ceiling without first analysing the facts holistically
while dealing with assessment. In the penalty proceedings there were
indifferent in dealing with the matter.
8. Having considered facts
and circumstance of the case, levy of penalty in this case in our considered
view was not warranted for the reasons that; (i) admittedly for part of the
service the appellant was State Government employee whose employment by enforcement
of electricity Act, 2003 and MSEGCL employee Service Regulation 2005 was
converted into non-governmental service/employment. Therefore, the belief under
which full/extended exemption of retirement benefit claimed in the ITR filed
was in first not incorrect in its entirety and certainly it was bonafied and
not synthetic one (ii) secondly, the explanation offered by the appellant in
support of his mistaken but bonafied belief and disclosed all material facts of
his service & the circumstance which swayed to claim full exemption in his
ITR in our considered view squarely falls within clause (a) of s/s (6) of
section 270A of the Act, therefore pardonable (iii) and finally, the imposition
of penalty is at the discretion of learned assessing officer, since s/s (1) of
section 270A of the Act, refers to the word 'may' and not as 'shall'. However,
the tax authorities below in our considered view were failed to appreciate the
facts and circumstance of the present case holistically and further in right
spirit of law, but dealt therewith without application of mind and perfunctory
imposed/confirmed the penalty @ accelerated rate of 200% under section 270A of
the Act in unwarranted case like this. A similar view can also be traced in the
decision of co-ordinate bench in ITA No. 1388/PUN/2023 AV Wandhekar v. ITO.
dated 8-3-2024.
9. Before parting, it is apt
to note here that, the possibility of presence of doubt in the mind of learned
assessing officer while deciding the ceiling of exemption as to whether status
of employment as at the time of joining or at the time of retirement is to be
considered, cannot be completely ruled out. However, the learned assessing
officer disallowed the excess claim of exemption which stands fortified by the
Hon'ble Apex Court in 'CCE v. Calcutta Springs' (2008) 229 ELT 161(SC) :
2008 TaxPub(EX) 1953 (SC) which has been followed subsequently in landmark
judgement 'CoC v. Dilip Kumar & Co' reported in (2018) 9 SCC 1
(SC) : 2018 TaxPub(EX) 737 (SC) wherein their Hon'ble lordship have
held that, 'in case of benefit of doubt or ambiguity in taxing the income, the
benefit of doubt goes to State'. However, in respect of penalty in fiscal laws
the principle followed is more like the principle in criminal cases. That is to
say the benefit of doubt is more easily given to the assessee, and this finds
expounded in 'V V Iyer v. CC' (1999) 110 ELT 414 (SC) : 1999
TaxPub(EX) 1546 (SC).
10. Respectfully following
the former judicial precedents to the case in hand, we deem it proper to
set-aside the impugned order of learned NFAC and quashed the order of penalty
as unwarranted in its entirety. Ordered accordingly.
11. In result, the appeal of
the assessee stands ALLOWED.
In terms of rule 34 of ITAT Rules, the order pronounced in
the open court on this Tuesday 16-4-2024.