2025 (2) TMI 1441 - AT - Income Tax

Penalty for late EPF and ESIC deposits treated as a debatable tax issue, appeal allowed and penalty not sustained

Penalty for concealment or inaccurate particulars was contested where additions arose from late deposit of employee provident fund and social security ... Penalty u/s 271(1)(c) - whether the Appellant has 'Concealed his Income' or 'Furnished inaccurate particulars of such income' -Addition made on account of late deposit of employee’s contribution towards EPF and ESIC - Scope of Debatable issue HELD THAT:- We are of the considered view that at the relevant time, when the assessee did not make suo-moto disallowance on account of late deposit of PF and ESIC i.e. financial year ending 31 March 2012, there were contrary decisions on the issue with various Courts/Tribunals taking contrary views in the matter. Accordingly, since various Courts have taken a position in favour of the assessee on this issue and at the relevant time, there was no jurisdictional High Court decision which was against the assessee, in our considered view, no penalty is liable to be sustained u/s 271(1)(c) of the Act, since the matter was clearly a debatable issue. Appeal of the assessee is allowed. Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 is sustainable for disallowance made on account of late deposit of employees' contribution to PF and ESIC where, at the relevant time, courts and tribunals had taken contrary views on the question of deductibility under section 43B and no binding jurisdictional High Court decision adverse to the assessee existed.Analysis: The question raised involved whether the assessee could be penalised under section 271(1)(c) for furnishing inaccurate particulars when the deductibility of employee contributions paid late was a debatable legal issue at the time of the assessment year in question. Relevant statutory context includes the operation of section 43B and the characterisation of employees' contributions as held in trust under section 2(24)(x). The record shows that various tribunals and some High Courts had taken positions favourable to the assessee on deductibility prior to the impugned assessment year, while adverse decisions from the jurisdictional High Court became available only later. Where a legal question is genuinely arguable and conflicting decisions exist, the imposition of a penalty for furnishing inaccurate particulars is not warranted. The subsequent Supreme Court decision clarifying the position does not alter the fact that, for the year under consideration, the issue was debatable and lacked a binding adverse precedent in the relevant jurisdiction.Conclusion: Penalty under section 271(1)(c) is not sustainable; the appeal is allowed in favour of the assessee with respect to the levy of penalty.