2023 (7) TMI 346 - AT - Income Tax

Levy of penalty u/s 270A r.w.s. 274 - underreporting of income - addition on account of interest earned from banks - HELD THAT - Assessee explained that he was under impression that being retired person he is senior citizen and interest income is exempt under section 80TTB, thus find merit in the submissions of assessee.AO initiated penalty on interest income for under reporting of income, however, at the time of levying penalty it was levied for misreporting of income thus, no penalty for misreporting income is justified on this addition. Hence, I direct to delete penalty u/s 270A on such addition. Salary income - misreporting of income on the addition of leave encashment - Exemption u/s 10(10AA) - Assessee explained that initially he was employed Gujarat State Electricity Board, an organ of State Government, which was splitted in to seven state owned company and that he was under the bonafide belief that he is Government employee and that he has disclosed all the particulars of his income. Thus, he was under bonafide belief of State Government employee. It is settled position under law that levy of penalty is not automatic on mere making addition, if the assessee has explained his bonafide belief about deduction of exemption of any component of income , no penalty is leviable on such component of income. Hence, no penalty u/s 270A is leviable on the addition of leave encashment. In the result, the grounds of appeal raised by the assessee are allowed. Decided in favour of assessee.

Summary

Issues involved:
The main issue in this case is the confirmation of the penalty levied by the Assessing Officer under Section 270A of the Income Tax Act, 1961.

Detailed Judgment:

Issue 1: Addition of Interest Income
The Assessing Officer made an addition of interest income from two banks that was not disclosed by the assessee in the income tax return. The Assessing Officer initiated penalty proceedings for underreporting of income. However, during the appeal, it was argued that the assessee, being a retired individual, believed the interest income was exempt under Section 80TTB as a senior citizen. The Tribunal found merit in this explanation and directed to delete the penalty on this addition.

Issue 2: Addition of Leave Encashment
The Assessing Officer made an addition on account of leave encashment, as the assessee claimed the entire amount as exempt under Section 10(10AA) of the Act. The employer had treated only a portion as exempt and deducted TDS on the remaining amount. The assessee, a former employee of a State Government entity, believed he was entitled to full exemption. The Tribunal found that the assessee's belief was bonafide and that no penalty under Section 270A was justifiable on this addition.

Separate Judgment:
The Tribunal allowed the appeal of the assessee, concluding that no penalty under Section 270A was leviable on either the addition of interest income or the addition of leave encashment. The Tribunal emphasized that the levy of penalty is not automatic and should not apply if the assessee has a bonafide belief regarding the treatment of income components. The grounds of appeal raised by the assessee were therefore allowed.

This summary provides a detailed insight into the judgment, covering the issues of interest income addition and leave encashment, along with the Tribunal's decision to delete the penalty on both components of income.