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2025 (2) TMI 286 - AT - Income TaxPenalty order u/s 270A - exemption on leave salary received on voluntary retirement u/s 10(10AA) - Whether claim of exemption is debatable? - whether word may be is discretionary and not mandatory? HELD THAT - Government of India Ministry of Communication and IT Department of Telecommunication vide their dated 19.01.2004 had permanently absorbed the assessee in MTNL (PSU) a the Government of India undertaking with effect from 01.10.2000 in accordance with the provisions of Rule 37A-A of CCs(Pension) Rules. In these scenario the return was revised by the assessee. Therefore the belief under which full exemption of retirement benefit claimed in the revised ITR which was bona fide and not synthetic one and the genuine explanation offered by the appellant in support of her mistaken but bona fide belief and disclosed all material facts of her service the circumstance which swayed to claim full exemption in her revised ITR. Imposition of penalty is at the discretion of Ld. AO since sub-section (1) of section 270A refers to the word may and not as shall . The word may used in sub-section (1) of section 270A shall have to be read as an enabling discretionary provision and not mandatory. The legislature has in its wisdom and foresight refrained from using the word shall . The interpretation of the word may as shall will lead to consequences which are never intended by the legislature. It will also lead to disastrous consequences. From another angle we observe that the word bona fide in clause (a) of sub-section (6) of section 270A itself shows that the word may be is discretionary and not mandatory. AO in the assessment order while refusing to partial claim on merits has relied upon the judgments of Officers Supervisors of I.D.P.L Vs Chairman M.D.I.D.P.L. 2003 (7) TMI 733 - SUPREME COURT and K. Bindal 2003 (4) TMI 406 - SUPREME COURT interpreting the legal rights of the employees of the government companies/PSUs and government employees. Hence the issue of claim of leave encashment was not free from shadow while filing the revised return by the assessee. We set-aside the impugned order of Ld. NFAC and quashed the order of penalty. Decided in favour of assessee.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment were:
ISSUE-WISE DETAILED ANALYSIS Penalty under Section 270A Relevant legal framework and precedents: Section 270A of the Income Tax Act, 1961, deals with the penalty for under-reporting and misreporting of income. The provision allows for a penalty to be levied when an assessee has under-reported their income. Section 10(10AA) provides for exemptions on leave salary, with specific conditions for employees of Central or State Governments. Court's interpretation and reasoning: The Tribunal examined whether the appellant's claim for a full exemption on her leave salary was made in good faith and whether it was a debatable issue. The Tribunal noted that the appellant was initially employed with the Indian Post and Telegraph Department, a Central Government entity, before transitioning to BSNL, a Public Sector Undertaking (PSU). The appellant's understanding of her entitlement to the exemption was based on her previous employment with a Central Government department. Key evidence and findings: The appellant had disclosed all relevant facts in her income tax return, and her claim was based on her employment history and the advice given to retirees of BSNL. The Tribunal found that the appellant's belief in the full exemption was bona fide and not an attempt to mislead the tax authorities. Application of law to facts: The Tribunal applied the provisions of Section 270A(6), which provides exceptions to the penalty for under-reported income if the explanation provided by the assessee is bona fide and all material facts have been disclosed. The Tribunal found that the appellant's explanation met these criteria. Treatment of competing arguments: The Tribunal considered the arguments presented by the respondent, who supported the penalty on the grounds of misreporting. However, the Tribunal distinguished the appellant's case from other judicial pronouncements cited by the respondent, noting that those cases involved different provisions of the Income Tax Act. Conclusions: The Tribunal concluded that the penalty under Section 270A was not warranted because the appellant's claim was made in good faith, and the issue was debatable. The Tribunal emphasized the discretionary nature of the penalty provision, noting that the word "may" in the statute implies discretion rather than obligation. SIGNIFICANT HOLDINGS Preserve verbatim quotes of crucial legal reasoning: "The word 'may' used in sub-section (1) of section 270A shall have to be read as an enabling discretionary provision and not mandatory." Core principles established: The Tribunal established that the discretionary nature of penalties under Section 270A allows for consideration of the bona fide nature of the taxpayer's actions and the presence of a debatable issue. The Tribunal also highlighted that full disclosure and a genuine belief in the correctness of a claim can preclude the imposition of penalties for under-reported income. Final determinations on each issue: The Tribunal determined that the appellant's case did not warrant a penalty under Section 270A because her claim for exemption was made in good faith and was based on a reasonable interpretation of her employment history and the applicable legal provisions. The Tribunal set aside the penalty order and allowed the appeal.
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