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Judgment
PER AMITABH SHUKLA, AM,
This appeal filed by the assessee is against order dated 15.10.2025 of the Learned Commissioner of Income Tax(Appeals)-27, New Delhi, [hereinafter referred to as ‘ld. CIT(A)] arising out of assessment order dated 13.02.2021 passed u/s 270A of the Income Tax Act, 1961 pertaining to Assessment Year 2017-18. The word ‘Act’ herein this order would mean Income Tax Act, 1961.
The assessee has raised following grounds of appeal:-
1.0.That on the facts and in the circumstances of the case, the penalty levied on the tax liability has been grossly unjustified erroneous and unsustainable and necessary direction be given to the Ld. A.O. to give appropriate relief in accordance with law.
2.0That on the facts and circumstances of the case the Ld. CIT-(A) has erred in passing an exparte order without providing a fair and adequate opportunity of being heard, thereby violating the principal of natural justice.
3.0That on the facts and circumstances of the case and in law, the Ld. CIT-(A) has erred in upholding the order of Ld. AO as the Ld. AO erred in levying penalty under Section 270A of the Income Tax Act, 1961, despite the fact that the claim of provision for leave encashment was made relying upon various judicial pronouncement.
3.1That the Ld. CIT-(A) has erred in upholding the order of the Ld. AO as the Ld. AO failed to appreciate that the claim made by the appellant was based on a reasonable interpretation of law and supported by judicial precedents, and thus, no penalty was leviable as per the decision of the Hon’ble Supreme Court in CIT v. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC).
The only issue contested by the appellant assessee through the above grounds of appeal is regarding the imposition of penalty u/s 270A amounting to Rs.1,18,074/- on account of under reported income. The ld. Counsel for the assessee briefly narrated the following brief factual matrix of the case. The assessee company had filed its original Return of Income on 31.10.2017 disclosing income of Rs.35,05,72,910/- and was engaged in the business of manufacturing and sale of Pet bottles to alcohol industries and distilled water companies. A search and seizure operation was conducted u/s 132 on 30.01.2023 leading recovery of various incriminating documents. Based upon the incriminating documents found and personal deposition of key employees, the ld. AO rejected the books of accounts of the assessee and proceeded to make addition of Rs.6,82,350/- on account of leave encashment claimed u/s 43B of the Act. Further, the ld. AO proceeded to impose penalty under section 270A of Rs.1,18,074/- on the said addition of Rs.6,82,380/-. The ld. CIT(A) confirmed the penalty after recording non-compliance of the assessee to the statutory notices.
The ld. Counsel for the assessee argued that no case of maintainability of any penalty for under reporting of income has been made out in its case. It was argued that it is trite law that whenever there is a case of debatable issue, no penalty can be imposed. Reliance was placed upon the decision of Hon’ble Apex Court in the case of Reliance Petro Products 189 taxmann 322, Dhanuka Agritech Ltd. as at ITA No.1794/Del/2023 and in the case of Jubiliant Securities Pvt. Ltd. as at ITA No.2545/Del/2022 of Delhi Tribunal. Thus, it was argued that no penalty is leviable in respect of claims of expenditure which are debatable in nature. The ld. Counsel argued that the debatable issue was whether the expenditure has to be claimed on the basis of provision of expenditure or payment of expenditure.
The ld. DR placed reliance upon the order of the lower authorities.
Heard rival parties perused the material available on records. We find force in the argument of the assessee that no penalty is leviable in case of debatable entries. As per facts of the case, the Form 3CD report showed that the auditor had disallowed the expenditure of leave encashment. However, while filing the ITR, the assessee did not follow auditor’s recommendation and incorrectly claimed the expenditure. It is settled principle of law that a mens rea has to be established while invoking penal provisions. We have noted that in the present case, the Revenue has failed to establish any mens rea which can attach the blame of penalty upon the assessee. Accordingly, in the interest of justice, we deem it appropriate to set-aside the order of the ld. CIT(A) and quash the penalty order dated 13.02.2025. All the grounds of appeal of the assessee are therefore allowed.
In the result, the appeal of the assessee is allowed.