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www.taxpublishers.in 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') ORDER *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.

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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')

ORDER

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.