ITAT Quashes Penalty Under Section 270A on Leave Encashment Claim

An agritech company filed its return declaring income of Rs. 118.61 crore, which was processed under Section 143(1). Upon scrutiny, the Assessing Officer disallowed a sum of Rs. 4.87 crore on account of leave encashment under Section 43B, and levied a penalty under Section 270A, alleging misreporting of income.

The disallowance was upheld by the CIT(A), which also confirmed the 200% penalty on alleged misreporting.

Main Issue: Whether a penalty under Section 270A for misreporting of income can be levied on a provisional claim for leave encashment expenditure that is duly disclosed and based on a debatable legal issue.

ITAT’s Decision: Before the ITAT, the assessee submitted that the claim was made provisionally, based on consistent judicial precedents, including decisions of coordinate benches (e.g., Sicpa India Pvt. Ltd.) and that the Supreme Court had stayed the operation of the High Court decision in Exide Industries Ltd. v. UOI. The DR supported the lower authorities.

The Tribunal allowed the appeal and deleted the penalty. It held that the claim was made bona fide, involved a debatable issue, and was adequately disclosed. No specific clause of Section 270A(9) was invoked to justify the misreporting allegation.

Hence, the penalty was found to be unsustainable in law.

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