Claim Based on Prevailing HC Ruling Not Inaccurate: ITAT Quashes Penalty Under Section 271(1)(c)

 

The assessee, Intervalve Poonawalla Pvt. Ltd., claimed ₹11,08,482/- as deduction for leave encashment based on actuarial valuation in its return for AY 2014–15. This claim was disallowed by the Assessing Officer under Section 43B(f), and penalty proceedings under Section 271(1)(c) were initiated.

The assessee had clearly disclosed this claim in the computation statement with a note explaining why Section 43B(f) was not applicable. At the time of filing the return, the Calcutta High Court in Exide Industries Ltd. had struck down Section 43B(f) as arbitrary and ultra vires.

The assessee relied on that ruling, and the Supreme Court reversed the decision only later in 2020. The Assessing Officer rejected the explanation and levied a penalty of ₹3,59,646, which was upheld by the CIT(A) / NFAC. On appeal, the ITAT observed that the issue was legally debatable and based on a valid High Court decision at the time of claim.

Relying on CIT v. Reliance Petro products Pvt. Ltd. (SC), the Tribunal held that a mere disallowance of a claim does not amount to furnishing inaccurate particulars. The Tribunal also noted that similar additions in earlier years did not result in penalty, further supporting the assessee’s bona fides. Concluding that there was full disclosure and no intent to conceal, the ITAT deleted the penalty and allowed the appeal.

The copy of the order is as under:

1749027089-v3YVwB-1-TO