Summary: The ITAT Bangalore in Renil E.K. Kumar v. DCIT deleted penalty of ₹51.20 lakh levied under section 270A, holding that the penalty proceedings were legally unsustainable due to a defective show-cause notice and the assessee’s bona fide reliance on Form 16 issued by the employer. The assessee had claimed exemption under section 10(10CC) on ESOP-related perquisites based entirely on Form 16 issued by Wipro Limited, which treated the amount as exempt and deducted no TDS. While the Assessing Officer initiated penalty proceedings only for under-reporting of income, the final penalty order was passed for under-reporting in consequence of misreporting without specifying the exact clauses under sections 270A(2) and 270A(9). The Tribunal held that failure to communicate the precise charge violated principles of natural justice. It further observed that the assessee had disclosed all material facts and acted on a genuine belief based on the employer’s tax certificate, thereby qualifying for protection under section 270A(6)(a).
Core Issue ; The dispute before the Tribunal was whether penalty of ₹51,20,500 levied under section 270A could be sustained when the Assessing Officer failed to specify the exact statutory charge and where the assessee’s claim for exemption under section 10(10CC) was based on Form 16 issued by his employer, Wipro Limited.
Facts of the Case: The assessee was employed with Wipro Limited. In his return for Assessment Year 2022-23, he declared total income of ₹84.28 lakh after claiming exemption of ₹82.06 lakh under section 10(10CC) in respect of ESOP-related non-monetary perquisites. This claim was made entirely on the basis of Form 16 issued by the employer, which specifically reflected the amount as exempt under section 10 and on which no tax was deducted at source.
During scrutiny assessment, the Assessing Officer held that the exemption was not allowable and added the amount to the assessee’s income, assessing total income at ₹1.66 crore. The assessee accepted the assessment order, paid the additional tax and interest, and also returned the refund earlier granted under section 143(1). Thereafter, penalty proceedings were initiated and penalty at 200% of tax, amounting to ₹51,20,500, was levied under section 270A.
Tribunal’s Findings on Defective Penalty Notice
The Tribunal held that section 270A contemplates a sequential exercise. The Assessing Officer must first determine whether there is under-reporting of income under one of the clauses of section 270A(2). Only after establishing under-reporting can he examine whether such under-reporting is in consequence of any specific instance of misreporting listed in section 270A(9).
In the present case, the show-cause notice issued under section 274 read with section 270A alleged only under-reporting of income. However, the final penalty order treated the case as one of under-reporting in consequence of misreporting. The Assessing Officer did not specify which exact clause of section 270A(2) was attracted, nor did he identify the precise clause of section 270A(9) applicable to the facts. The Tribunal observed that the Assessing Officer himself appeared uncertain as to the nature of the default and had even interchanged the statutory provisions while passing the order.
The Tribunal held that non-communication of the precise charge deprived the assessee of an effective opportunity to defend himself and therefore amounted to a clear violation of the principles of natural justice. On this ground alone, the penalty proceedings were held invalid and unsustainable.
Tribunal’s Findings on Bona Fide Explanation
The Tribunal also examined whether the case fell within the protection of section 270A(6)(a). It noted that the employer, Wipro Limited, had itself issued Form 16 treating the amount as exempt under section 10 and had not deducted tax on it. In these circumstances, the assessee’s explanation that he relied on the employer’s tax certificate and believed the exemption to be correctly claimed was found to be honest and bona fide.
The Tribunal further noted that the assessee had disclosed all material facts, had not concealed any particulars, had voluntarily repaid the refund after the assessment, and had accepted the tax liability without contesting the addition. Accordingly, the case squarely fell within section 270A(6)(a), which excludes income where the explanation is bona fide and all relevant facts are disclosed.
Tribunal’s Observations on Nature of Penalty
The Tribunal emphasized that penalty under section 270A is discretionary because the statute uses the expression “may direct.” Penalty is not automatic and should not be imposed in a routine or mechanical manner merely because an addition has been made. The Revenue must clearly establish that the case falls within the exact statutory provisions authorizing levy of penalty.
Final Conclusion:-The ITAT Bangalore held that the penalty proceedings were vitiated because the Assessing Officer failed to specify a clear and definite charge under section 270A. It further held that the assessee had acted on a bona fide belief based on Form 16 issued by his employer and had disclosed all material facts, thereby qualifying for protection under section 270A(6)(a). On both counts, the penalty of ₹51,20,500 was deleted and the appeal of the assessee was allowed in full.
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