Every Payment Made By Taxpayer For Violation Of Environmental Norms Is Not Penal In Nature: Kolkata ITAT Deletes Addition
Finding that the AO has nowhere examined the order of the Pollution Control Board asking the assessee to make the payment, the Kolkata ITAT held that every payment made by the assessee to the Board for violation of environmental norms would not be penal, and hence, deleted the addition made by AO. The Bench of the ITAT comprising of Rajpal Yadav (Vice-President) and...
Finding that the AO has nowhere examined the order of the Pollution Control Board asking the assessee to make the payment, the Kolkata ITAT held that every payment made by the assessee to the Board for violation of environmental norms would not be penal, and hence, deleted the addition made by AO.
The Bench of the ITAT comprising of Rajpal Yadav (Vice-President) and Rajesh Kumar (Accountant Member) observed that “The Assessing Officer has nowhere examined the order of the Pollution Control Board asking the assessee to make the payment. Every payment made by the assessee would not be in penal in nature, therefore, disallowance is not sustainable”. (Para 6)
Facts of the case:
The assessee has filed its return by debiting an expenditure of Rs.64,70,000/-, which was paid on the directions of the Central Pollution Control Board for violating environmental norms. The assessee has claimed this payment as compensatory in nature, which ought to have been allowed. The AO however disallowed this claim.
Observations of Tribunal:
The Bench observed that whether the payment to Pollution Control Board is compensatory or penal in nature, is a question, which is a question of fact.
Such question is quite debatable and such amount cannot fall within the ambit of section 143(1), where arithmetical mistakes and adjustment of incorrect claim are to be looked into by a software while processing the return, added the Bench.
The Bench explained that it would be different position, if assessment of assessee was taken for scrutiny and after confronting the assessee, the AO would have decided this issue.
The Bench however cautioned that in a proceeding u/s 143(1), such disallowance cannot be made, as the AO has nowhere examined the order of the Pollution Control Board asking the assessee to make the payment.
The Bench observed that in Memorandum to Finance Bill 2016, Legislative framework was done to expand the scope of electronic processing of information in order to expeditiously remove the mismatch between the return and the information available with the Department, so that such adjustments can be made based on the data available with the Department in the form of audit report filed by the assessee, returns of earlier years of the assessee, 26AS statement, Form 16, and Form 16A.
The Bench further observed that earlier only prima-facie arithmetic adjustments can be made but in view of the amendment provisions by the Finance Act, 2008 w.e.f. Apr 01, 2008, the amended provisions empower adjustments to be made inter alia based on remarks indicated in the return or incorrect claim apparent from any information in the return.
The Bench also found that post amendment w.e.f. Apr 01, 2008, the scope of adjustment u/s.143(1) has widened which provides that total income shall be computed after making adjustments inter-alia on account of incorrect claim, if such incorrect claim is apparent from any information in the return of income.
Therefore, on finding that the adjustment u/s 143(1)(a) was made based on an incorrect claim which is apparent from information in the return as provided by the assessee, the ITAT allowed the assessee's appeal.
Counsel for Appellant/Taxpayer: B.K. Chaturvedi
Counsel for Respondent/Department: B.K. Singh
Case Title: Majhaulia Sugar Industries Pvt. Ltd verses ITO
Case Number: I.T.A. No. 1375/KOL/2023