ITAT Bangalore Quashes Rs. 51.2 Lakh Penalty Under Section 270A: Erroneous Form 16 Exemption Claim Does Not Amount to Misreporting

Introduction

In a significant judicial pronouncement, the Income Tax Appellate Tribunal (ITAT) Bangalore has delivered a major relief to a salaried assessee by deleting a massive penalty of Rs. 51,20,500/- levied under Section 270A of the Income Tax Act 1961. The ruling in the case of Renil E K Kumar C/o Fiscal Law Partners Vs DCIT serves as a crucial precedent distinguishing between a bona fide mistake and deliberate misreporting of income.

The Tribunal emphatically clarified that an incorrect claim of exemption made by an assessee, relying strictly on the Form 16 issued by their employer, constitutes an honest belief rather than an intentional suppression of facts. Furthermore, the ITAT severely criticized the revenue authorities for their procedural lapses, specifically the failure to clearly specify the exact charges of under-reporting versus misreporting in the show-cause notices.

Factual Matrix of the Case

The dispute pertains to the Assessment Year (AY) 2022-23. The assessee, an employee holding a senior position at Wipro Limited, filed his return of income on 30.12.2022. In this return, the assessee declared a total income of Rs. 84,27,981/-.

During the financial year, the assessee had received Employee Stock Ownership Plans (ESOPs) as non-monetary perquisites from his employer, amounting to Rs. 95,11,595/-. While filing the return, the assessee claimed an exemption of Rs. 82,05,931/- under Section 10(10CC) of the Income Tax Act 1961 against these ESOP-related perquisites. This claim was entirely based on the Form 16 issued by Wipro Limited, which explicitly reflected the amount of Rs. 82,05,931/- as exempt under Section 10 and indicated that no Tax Deducted at Source (TDS) had been deducted on this component.

Consequently, based on the return filed, the assessee claimed a refund of Rs. 28,69,290/- and was subsequently granted a refund of Rs. 29,98,410/- upon the processing of the intimation under Section 143(1) of the Income Tax Act 1961.

Assessment Proceedings and Penalty Initiation

The assessee's case was selected for scrutiny. During the assessment proceedings, the Assessing Officer (AO) scrutinized the exemption claimed under Section 10(10CC). The AO concluded that the exemption was wrongfully claimed and proceeded to deny it. The disallowed amount of Rs. 82,05,931/- was added back to the assessee's total income.

An assessment order under Section 143(3) read with Section 144B of the Income Tax Act 1961 was passed on 19.03.2024, determining the total assessed income at Rs. 1,66,33,912/-. Accepting the assessment order, the assessee did not file any appeal and immediately remitted the previously received refund of Rs. 29,98,410/- back to the Income Tax Department via a challan dated 10.05.2024.