Dhanuka Agritech Ltd. Vs ACIT (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT), Delhi, allowed the assessee’s appeal against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2017-18, which had upheld the levy of penalty under Section 270A of the Income-tax Act, 1961 in respect of the disallowance of leave encashment expenditure.
The assessee challenged the penalty on several grounds. It contended that the penalty order was illegal and void, that the claim for leave encashment had been made on a provisional basis relying upon judicial precedents, that the issue was debatable and involved a substantial question of law, that full disclosure of the claim had been made, and that the Supreme Court, while staying the judgment in Exide Industries Ltd. vs. Union of India, had permitted assessees to continue making such claims in their returns. The assessee further contended that the penalty of 200% of tax payable on under-reporting of income due to alleged misreporting was unjustified because its case did not fall under any of the categories specified in Section 270A(9).
The assessee, engaged in the business of manufacturing and trading of Power & Energy, filed its return of income declaring total income of ₹118,61,64,030 and claiming a refund of ₹6,35,89,969. The return was processed under Section 143(1) and was subsequently selected for scrutiny under the Computer Assisted Scrutiny Selection (CASS). Assessment was completed under Section 143(3) on 23.12.2019 by disallowing the claim of leave encashment under Section 43B amounting to ₹4,87,28,296 on the ground that the amount had not been paid on or before the due date for filing the return of income. Penalty proceedings under Section 270A were also initiated.
Before the Tribunal, the assessee reiterated that the claim for leave encashment had been made on a provisional basis by relying upon judicial precedents, including the decision of the coordinate bench in M/s Sicpa India Pvt. Ltd. vs. Addl. CIT. It was argued that the allowability of leave encashment expenditure was a debatable issue and, therefore, penalty was not leviable. The assessee also submitted that while passing the penalty order, the Assessing Officer merely alleged under-reporting and misreporting of income but failed to specify under which clause of Section 270A(9) the case was treated as one of misreporting. It was further submitted that the claim was bona fide in view of the prevailing legal position and that the Commissioner (Appeals) himself had noted that the assessee had paid advance tax on the impugned amount and later claimed deduction.
The Tribunal examined Section 270A(6)(a), which provides that under-reported income does not include income in respect of which the assessee offers a bona fide explanation and discloses all material facts necessary to substantiate that explanation.
The Tribunal noted the assessee’s contention that the Commissioner (Appeals) had incorrectly concluded that the assessee had suppressed facts and that the case fell within Section 270A(9). It observed that neither of the lower authorities had specifically denied that the assessee had furnished a bona fide explanation regarding the claim. The Tribunal further observed that the assessee had adequately disclosed the leave encashment claim in its annual accounts and that the Commissioner (Appeals) rejected the explanation without assigning strong reasons. It also found that although the Commissioner (Appeals) inferred that there was no reasonable cause for making the claim, there was no finding that the claim itself lacked bona fides.
Considering the overall facts, the Tribunal found merit in the assessee’s submissions that the claim for leave encashment was made on a provisional basis, involved a debatable issue, and was supported by bona fide belief. It held that the imposition of penalty under Section 270A was therefore unsustainable.
Accordingly, the Tribunal allowed the appeal and deleted the penalty.
FULL TEXT OF THE ORDER OF ITAT DELHI
