INTERVALVE POONAWALLA PVT. LTD. ,PUNE V. DCIT, CENTRAL CIRCLE 1(1), PUNE, PUNE

ITA 637/PUN/2025

AI Insights

The case revolves around the penalty imposed on Intervalve Poonawalla Pvt. Ltd. by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961, following a disallowance of Rs.11,08,482 claimed as leave encashment. The disallowance was initially made during the assessment proceedings and upheld by the CIT(A). The Tribunal examined whether the penalty was justified, considering the legal provisions and previous judicial decisions, including the Supreme Court's ruling in CIT vs. Reliance Petroproducts Pvt. Ltd., which clarified that making an incorrect claim does not necessarily amount to concealment of income.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 398342 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Other Referred Cases: CIT vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC), Exide Industries Ltd. vs. Union of India (2007) 292 ITR 470 (Cal)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMNATH P MURKUNDE
• Assessee Lawyers: NIKHIL S PATHAK; VISHNU BHUTADA
• Keywords: Set aside; Difference of opinion; Wrong claim
• Section: 143(3); 142(1); 271(1)(c); 14A; 43B

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI R. K. PANDA, VICE PRESIDENT AND MS. ASTHA CHANDRA, JUDICIAL MEMBER ITA No.637/PUN/2025 Assessment year : 2014-15 Intervalve Poonawalla Pvt. Ltd. Fin Div. 16/B-1, Sarosh Bhavan, 2nd Floor, Dr. Ambedkar Road, Opp. NIV, Pune – 411001 Vs. DCIT, Central Circle 1(1), Pune PAN: AAACI3917P (Appellant) (Respondent) Assessee by : Shri Nikhil S Pathak & Vishnu Bhutada Department by : Shri Ramnath P Murkunde Date of hearing : 14-05-2025 Date of pronouncement : 04-06-2025 O R D E R PER R.K. PANDA, VP: This appeal filed by the assessee is directed against the order dated 28.01.2025 of the Ld. CIT(A) / NFAC, relating to assessment year 2014-15. 2. Facts of the case, in brief, are that the assessee is engaged in the business of manufacturing of valves. It filed its return of income for the year under consideration on 29.11.2014 declaring total income of Rs.2,28,68,970/-. The case was selected for scrutiny and statutory notices u/s 143(2) and 142(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) were issued and served on the assessee in response to which the AR of the assessee appeared before the Assessing Officer from time to time and filed the requisite details. The Assessing 2 ITA No.637/PUN/2025 Officer completed the assessment u/s 143(3) of the Act on 25.10.2016 determining the total income of the assessee at Rs.2,61,81,111/- by making various additions. 3. In appeal, the Ld. CIT(A) / NFAC gave part relief to the assessee. The Assessing Officer thereafter initiated penalty proceedings u/s 271(1)(c) of the Act on the issue of addition of Rs.11,08,482/- u/s 43B(f) of the Act which was upheld by the CIT(A) and which is the subject matter for levy of penalty u/s 271(1)(c) of the Act. 4. So far as the issue relating to the levy of penalty on the addition of Rs.11,08,482/- is concerned, the facts in brief, are that the assessee claimed leave encashment of Rs.11,08,482/- as a deduction by debiting it to the Profit and Loss Account. The assessee submitted a note at the end of the computation that the provisions of section 43B(f) of the Act are not applicable in the case of provision for leave encashment based on actuarial valuation. As no provision is allowable to the assessee as per the provisions of the Act, the Assessing Officer asked the assessee to explain as to why the aforementioned amount should not be disallowed and added to the total income of the assessee. Rejecting the various explanations given by the assessee, the Assessing Officer disallowed an amount of Rs.11,08,482/- which was upheld by the Ld. CIT(A) / NFAC. Subsequently, during the course of penalty proceedings it was submitted that in case of leave encashment of section 43B(f) of the Act, the Tribunal in the past in assessee’s own case has given relief. This itself shows that the disallowance emerging in 3 ITA No.637/PUN/2025 assessment year was not because the claims were factually wrong / erroneous but because of the difference of opinion based on view formed by the Assessing Officer / CIT(A). The decision of the Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC) was brought to the notice of the Assessing Officer. However, the Assessing Officer was not satisfied with the same and levied penalty of Rs.3,59,646/- being 100% of the tax to be evaded. 5. In appeal, the Ld. CIT(A) / NFAC confirmed the penalty levied by the Assessing Officer. 6. Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds: 1] The assessee submits that the penalty order passed u/s 271(1)(c) is bad in law since the notice issued by the learned A.O. u/s 271(1)(c) dated 25.10.2016 was null and void. 2] The learned CIT(A) erred in confirming the levy of penalty in respect of the disallowance on account of leave encashment u/s 43B(f) on the ground that the assessee had concealed the particulars of income. 3] The assessee submits that the issue of disallowance u/s 43B was a legal issue and the two opinions were clearly possible and therefore, no penalty u/s 271(1)(c) was leviable and accordingly, the penalty levied may kindly be deleted. 4] The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal at the time of appeal hearing. 7. The Ld. Counsel for the assessee strongly challenged the order of the Ld. CIT(A) / NFAC in confirming the penalty levied by the Assessing Officer u/s 4 ITA No.637/PUN/2025 271(1)(c) of the Act. He submitted that as per the earlier provisions of section 43B of the Act, leave encashment was allowed on accrual basis. However, w.e.f. 01.04.2002 any sum payable by the assessee as an employer in lieu of any salary at the credit of its employee shall be allowed as a deduction only on actual payment basis. He submitted that the Hon’ble Calcutta High Court in the case of Exide Industries Ltd. vs. Union of India (2007) 292 ITR 470 (Cal) has struck down the provisions of section 43B(f) of the Act as being arbitrary and ultra vires. He submitted that in light of the above decision the assessee has made a claim. The Hon'ble Supreme Court only in the year 2020 has reversed the decision. Further, in assessment year 2010-11, although the Tribunal confirmed the addition made by the Assessing Officer, however, the penalty proceedings were dropped and no penalty was levied. He submitted that since the matter was sub judice before the Hon'ble Supreme Court, the assessee made the claim and all the disclosures in audited accounts etc were made. 8. Referring to the decision of the Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd. (supra), he submitted that the Hon'ble Supreme Court in the said decision has held that making an incorrect claim does not amount to concealment of income. He accordingly submitted that the penalty levied by the Assessing Officer and sustained by the Ld. CIT(A) / NFAC is not justified. 5 ITA No.637/PUN/2025 9. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC. He submitted that the assessee has made a wrong claim for which the provisions of section 271(1)(c) of the Act are clearly attracted. He accordingly submitted that the order of the Ld. CIT(A) should be upheld and the grounds raised by the assessee be dismissed. 10. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. The only issue in the instant appeal is regarding the levy of penalty u/s 271(1)(c) of the Act on account of disallowance of provision for leave encashment of Rs.11,08,482/- which was claimed by the assessee by debiting the same to the Profit and Loss Account. It is an admitted fact that the assessee in the note at the end of the computation has stated that the provisions of section 43B(f) of the Act are not applicable in the case of provision for leave encashment based on actuarial valuation. At the same time, it is also an admitted fact that the amendment to provisions of section 43B was held to be ultra vires by the Hon’ble Calcutta High Court in the case of Exide Industries Ltd. vs. Union of India (supra) and the decision of the Hon'ble Supreme Court reversing the decision of the Hon’ble Calcutta High Court was pronounced in the year 2020. Under these circumstances, we find merit in the submission of the Ld. Counsel for the assessee that since the matter was in favour of the assessee till the reversal of the decision by the Hon'ble Supreme Court, the assessee made a claim to keep the innings open. 6 ITA No.637/PUN/2025 11. We find the Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd. (supra) has held that a mere making of claim which is not sustainable in law, by itself, will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing of inaccurate particulars of income. The relevant observations of the Hon'ble Supreme Court read as under: “9. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word \"inaccurate\" has been defined as:- \"not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript\". We have already seen the meaning of the word \"particulars\" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars. 10. It was tried to be suggested that Section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the 7 ITA No.637/PUN/2025 concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature. 11. In this behalf the observations of this Court made in Sree Krishna Electricals v. State of Tamil Nadu & Anr. [(2009) 23VST 249 (SC)] as regards the penalty are apposite. In the aforementioned decision which pertained to the penalty proceedings in Tamil Nadu General Sales Tax Act, the Court had found that the authorities below had found that there were some incorrect statements made in the Return. However, the said transactions were reflected in the accounts of the assessee. This Court, therefore, observed: \"So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's account books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside.\" The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its Return. 12. The Tribunal, as well as, the Commissioner of Income Tax (Appeals) and the High Court have correctly reached this conclusion and, therefore, the appeal filed by the Revenue has no merits and is dismissed.” 12. Since the assessee in the instant case has filed all the relevant details in the notes to the computation statement and nothing was hidden from the department, there was a favourable decision in favour of the assessee at the relevant time and that the penalty proceedings u/s 271(1)(c) of the Act were dropped for assessment year 2010-11 despite the addition confirmed by the Tribunal, therefore, considering the totality of the facts of the case and following the decision of the Hon'ble Supreme Court cited (supra), we are of the considered opinion that the Ld. CIT(A) / NFAC is not justified in sustaining the penalty levied by the Assessing 8 ITA No.637/PUN/2025 Officer u/s 271(1)(c) of the Act on account of the claim of leave encashment. The grounds raised by the assessee are accordingly allowed. 13. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on 4th June, 2025. Sd/- Sd/- (ASTHA CHANDRA) (R. K. PANDA) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; दिन ांक Dated : 4th June, 2025 GCVSR आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: 1. अपीलार्थी / The Appellant; 2. प्रत्यर्थी / The Respondent 3. 4. The concerned Pr.CIT, Pune DR, ITAT, ‘A’ Bench, Pune 5. गार्ड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अधिकरण ,पुणे / ITAT, Pune S.No. Details Date Initials Designation 1 Draft dictated on 26.05.2025 Sr. PS/PS 2 Draft placed before author 29.05.2025 Sr. PS/PS 3 Draft proposed & placed before the Second Member JM/AM 4 Draft discussed/approved by Second Member AM/AM 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order "