ITAT Cochin Relief for Retired Government Employee – ₹2.2 Lakh Penalty on Gratuity Claim Deleted

The Income Tax Appellate Tribunal (ITAT), Cochin Bench, has delivered major relief to a retired government employee who faced a penalty of ₹2.2 lakh for claiming full tax exemption on ₹20 lakh gratuity. The Tribunal ruled that the penalty was unjustified, as the claim was made under a bona fide belief based on the government’s revised exemption limit.

The taxpayer, a retired state government employee, had originally claimed ₹10 lakh gratuity exemption under Section 10(10) of the Income Tax Act, 1961. Later, she revised her return to claim ₹20 lakh exemption, citing the government notification that enhanced the ceiling effective from March 2018. However, the Income Tax Department rejected the claim and imposed a penalty of ₹2.2 lakh under Section 270A for furnishing inaccurate particulars.

Upon appeal, the ITAT Cochin observed that the employee had disclosed all relevant details in her return and had made the claim based on a reasonable interpretation of the law. The Tribunal noted there was no concealment, fraud, or deliberate misstatement — only a difference in legal interpretation.

The Bench held that a penalty cannot be levied merely because a claim is disallowed, unless there is evidence of misreporting or false disclosure. The Tribunal thus deleted the ₹2.2 lakh penalty, stating that the taxpayer’s action was bona fide and not intended to evade taxes.

The order reiterates that genuine and transparent claims, even if ultimately disallowed, should not attract harsh penalties under Section 270A of the Income Tax Act. It serves as an important reminder for tax authorities to differentiate between intentional evasion and bona fide interpretation.

This ruling provides relief and clarity for retired employees and taxpayers who make honest claims based on updated government notifications or evolving interpretations of tax laws.