2024 (4) TMI 708 - AT - Income Tax

Former government employee's gratuity exemption claim deemed bonafide, section 270A penalty overturned for disclosed facts

ITAT Nagpur held that penalty under section 270A for misreporting income was not warranted. The appellant, a former State Government employee whose ... Levy of penalty - Penal proceedings for misreporting of income u/s 270A - Excess exemption claimed on Gratuity u/s 10(10)(i) and Leave Encashment receipts u/s 10(10AA)(ii) - HELD THAT:- 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, therefore pardonable (iii) and finally, the imposition of penalty is at the discretion of Ld. AO, since s/s (1) of section 270A of the Act, refers to the word 'may' and not as ‘shall’. 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% u/s 270A of the Act in unwarranted case like this. 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 VV. IYER VERSUS COLLECTOR OF CUSTOMS [1972 (9) TMI 52 - SUPREME COURT]. Issues Involved:The judgment involves issues related to penalty imposition u/s 270A of the Income-tax Act, 1961 for misreporting of income, specifically regarding incorrect reporting of interest income and disallowance of enhanced claim of gratuity exemption.Summary:Issue 1: Incorrect Reporting of Interest IncomeThe appellant correctly reported the interest income as per Form No. 26AS at the time of filing the return. The difference in interest income arose due to delayed reporting by the deductor/payer, which does not amount to under-reporting of income. Hence, the penalty u/s 270A of the Act was not justified in this case.Issue 2: Disallowance of Enhanced Claim of Gratuity ExemptionThe appellant, a former employee of a State Government-owned company, received gratuity from a PSU after restructuring. The appellant believed in claiming extended exemptions in the revised ITR based on a CBDT notification. The authorities restricted the exemption to &8377; 10 Lakhs, leading to the penalty imposition. However, the Tribunal found that the penalty was unwarranted as the appellant's belief was bonafide, and the authorities did not consider the holistic facts while dealing with the assessment.The Tribunal noted that the appellant's service tenure included both government and non-government employment, and the gratuity accrued during government service should have been fully exempt. The authorities applied the ceiling without analyzing the facts comprehensively. The penalty imposition was deemed unjustified as the appellant's belief was genuine, and there was no deliberate misreporting of income.The Tribunal set aside the penalty order, citing judicial precedents that favor giving the benefit of doubt to the assessee in fiscal laws. The decision was based on the principles followed in previous cases and the need to consider the facts holistically before imposing penalties.In conclusion, the Tribunal allowed the appeal of the assessee and quashed the penalty order, ruling it as unwarranted.