2011 (1) TMI 868 - HC - Income Tax

Penalty - The assessee was an employee of New India Assurance Company Limited - He voluntarily retired and received ex-gratia benefit as per the scheme - Even though only an amount of Rs. 5 lacs was exempted from tax under Section 10(10C) of the Act, the assessee claimed exemption on the entire amount of gratuity - The Assessing officer apart from making addition to the declared income, imposed penalty for taking wrong plea for exemption - Levy of penalty was set aside by the CIT(A) on the ground that claim of the assessee was under a bonafide mistake and the assessee has given all the relevant particulars in the return - This view has been upheld by the Tribunal. - Held that, if the assessee has furnished valid explanation that its claim was put forward under mistaken bonafide belief and not to evade tax, setting aside of penalty cannot be held to be illegal - No substantial question of law arises - Decided in favor of assessee.

Summary

Issues:
- Appeal under Section 260A of the Income Tax Act, 1961 against the deletion of penalty for furnishing inaccurate particulars of income by the assessee.
- Interpretation of legal provisions regarding exemption on gratuity amount.
- Validity of claim under mistaken bonafide belief to evade tax.

Analysis:
1. The appeal was filed by the revenue under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal deleting the penalty imposed on the assessee for furnishing inaccurate particulars of income. The substantial question of law raised was whether the ITAT was correct in law in deleting the penalty without appreciating that the assessee furnished inaccurate particulars of income based on hearsay and unreliable interpretation of legal provisions.

2. The assessee, an employee of a company, claimed exemption on the entire gratuity amount received upon voluntary retirement, although only a portion was exempted under Section 10(10C) of the Act. The Assessing Officer added the excess amount to the declared income and imposed a penalty for the wrong claim. However, the CIT(A) set aside the penalty, stating that the claim was made under a bonafide mistake, and all relevant particulars were provided. The Tribunal upheld this decision, citing relevant case laws supporting the assessee's position.

3. The appellant argued that seeking a deduction on the entire gratuity amount amounted to furnishing inaccurate particulars of income, referencing a Delhi High Court case. It was also highlighted that a Supreme Court judgment referred to by the Tribunal had been overruled in a subsequent case. However, the court rejected these arguments.

4. The court emphasized that the claim made by the assessee, though inadmissible, was done under a mistaken bonafide belief, as found by the CIT(A) and the Tribunal. It was noted that determining whether incorrect particulars were furnished is a factual question, and penalty imposition depends on the intent to evade tax. The court differentiated the present case from the case cited by the appellant, stating that each case must be assessed individually. The relevance of the overruled Supreme Court judgment was also discussed.

5. Ultimately, the court concluded that if the assessee can provide a valid explanation that the claim was made under a mistaken bonafide belief and not to evade tax, setting aside the penalty is not illegal. It was held that no substantial question of law arose in this case, and the appeal was dismissed.