Payment to Pollution Control Board for Environmental Norms Violation does not amount to Penalty, No Disallowance under Income Tax Act: ITAT [Read Order]

The Kolkata bench of Income Tax Appellate Tribunal ( ITAT ) has held that payment made by the assessee to the Pollution Control Board for violation of environmental norms would not be penal and held that no disallowance can be made under the Income Tax Act,1961 against this.

Majhaulia Sugar Industries Pvt. Ltd, 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, which ought to have been allowed. The AO however disallowed this claim.

The Bench observed that whether the payment to Pollution Control Board is compensatory or penal, is a question, which is a question of fact. It was explained that it would be a different position, if the assessment of the assessee was taken for scrutiny and after confronting the assessee, the AO would have decided on this issue.

The Bench however cautioned that in a proceeding under Section 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.

It was found that earlier only prima-facie arithmetic adjustments could 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 claims apparent from any information in the return.

The tribunal also found that post amendment w.e.f. Apr 01, 2008, the scope of adjustment under Section143(1) has widened which provides that total income shall be computed after making adjustments inter-alia on account of an incorrect claim if such incorrect claim is apparent from any information in the return of income.

The two-member Bench of the ITAT comprising Rajpal Yadav (Vice-President) and Rajesh Kumar (Accountant Member) observed that the adjustment under Section143(1)(a) was made based on an incorrect claim which is apparent from information in the return as provided by the assessee.

While allowing the assessee’s appeal, the ITAT viewed that the Assessing Officer had failed to examine 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, therefore, disallowance is not sustainable.

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