Case Law Details
Posun Credit Co. Vs ACIT (ITAT Ahmedabad)
ITAT Ahmedabad held that penalty under section 271(1)(c) of the Income Tax Act not leviable as assessee claimed the deduction u/s. 80P(2)(a)(i) of the Act, with respect to the interest income under a bonafide belief.
Facts- The assessee is a Co. Operative Society providing credit facility to its members. For A.Y. 2013-14, the assessee filed its Return of Income claiming deduction u/s. 80P(2)(a)(i) of Rs. 16,43,080/-. AO found that the assessee was in receipt of aggregate interest income from deposits with nationalized banks of Rs.20,85,266/- and interest on Income Tax Refund of Rs. 22,863/-. The assessee called upon to explain why the aggregate interest income should not be taxed under the head “Income from Other Sources” and disallowing the claim of deduction u/s. 80P(2)(a)(i) of the Act. CIT(A) also dismissed the appeal.
Thereafter, AO initiated penalty proceedings why penalty u/s. 271(1)(c) should not be levied, since the assessee has furnished “inaccurate particulars of income”. After considering the reply filed by the assessee, AO levied a penalty of Rs.5,04,622/- u/s. 271(1)(c) of the Act.
Aggrieved against the Penalty order, the assessee filed an appeal before Ld. CIT(A) who partly allowed the appeal. Being aggrieved, the present appeal is filed.
Conclusion- The assessee under the bonafide believe has claimed the deduction under section 80P(2)(a)(i) of the Act, with respect to the interest income. Thus, in our considered view, the claim of the assessee at the most can be regarded as “inaccurate claim” which cannot be equated with the furnishing “inaccurate particulars of income”. It is for the reason that nothing has been brought on record by the authorities below suggesting that the assessee has furnished the particulars of income with dishonest intent.
As regards the Explanation 1 to section 271(1)(c) of the Act, there was no iota of evidence suggesting that the explanation offered by the assessee was false. Thus the claim of the assessee cannot be said amounting to “concealment of particulars of income”. Likewise, there was no finding of the authorities below qua the fact that the assessee fails to substantiate the explanation offered by him and fails to prove that such explanation is bonafide with respect to material facts relating to the computation of total income. Thus in our considered view the provisions of Explanation 1 to section 271(1) (c) of the Act cannot be attracted in the given facts and circumstances.
In view of the above and after considering the facts in totality, we set aside the finding of the learned CIT (A) and direct the AO to delete the penalty levied by him under section 271(1) (c) of the Act. Thus the ground of appeal of the assessee is allowed.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Assessee as against the Appellate order dated 11.03.2022 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “NFAC”), arising out of the Penalty order passed under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 20 13-14.
2. The brief facts of the case is that the assessee is a Co. Operative Society providing credit facility to its members. For the Assessment Year 2013-14, the assessee filed its Return of Income claiming deduction u/s. 80P(2)(a)(i) of Rs. 16,43,080/-.
2.1 During the assessment proceedings, the Assessing Officer found that the assessee was in receipt of aggregate interest income from deposits with nationalized banks of Rs.20,85,266/- and interest on Income Tax Refund of Rs. 22,863/-. The assessee called upon to explain why the aggregate interest income should not be taxed under the head “Income from Other Sources” and disallowing the claim of deduction u/s. 80P(2)(a)(i) of the Act.
3. Aggrieved against the addition, the assessee filed an appeal before Ld. CIT(A) who dismissed the assessee appeal following Hon’ble Gujarat High Court judgment in the case of State Bank of India Co.Op. Society vs. CIT (2016) 72 com 64. It is thereafter the Assessing Officer initiated penalty proceedings why penalty u/s. 271(1)(c) should not be levied, since the assessee has furnished “inaccurate particulars of income”. After considering the reply filed by the assessee, the Assessing Officer levied a penalty of Rs.5,04,622/- u/s. 271(1)(c) of the Act.
4. Aggrieved against the Penalty order, the assessee filed an appeal before Ld. CIT(A) who partly allowed the appeal observing as follows:
“….. Therefore, considering the facts of the case, penalty is leviable in the case of the appellant since the claim is clearly incorrect as per law, wholly without any basis and also considering that no explanation has been furnished as to why the omission should be treated as bonafide. Therefore, in principle no infirmity is found in the action of the AO in levying penalty u/s 271(1)(c) for furnishing inaccurate particulars of income. However, the AO is directed to levy this concealment penalty on the quantum amount determined after giving effect to the Hon’ble ITAT’s order dated 11.07.2018 in the case of the appellant for the relevant year, which has been passed subsequent to this concealment penalty order under appeal dated 27.03.2018 passed by the AO. Accordingly, Ground No. 1 of the appeal is partly allowed.”
5. Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal:
1.1 The order passed u/s.250 on 11/03/2022 for A.Y.2013-14 by NFAC Delhi, upholding the penalty of Rs.5,04,622/- imposed u/s.271(1)(c) by AO in respect of disallowance of deduction of Rs. 16,43,080/-u/s.80P(2)(a)(i) towards interest income from Nationalized Bank is wholly illegal, unlawful and against the principles of natural justice.
1.2 The Ld. NFAC has grievously erred in law and or on facts in not considering fully and properly the submissions made and evidence produced by the appellant with regard to the impugned disallowance.
2.1 The Ld. NFAC has grievously erred in law and on facts in upholding the penalty of Rs.5,04,622/- imposed u/s.271(1)(c) by AO in respect of disallowance of deduction of Rs. 16,43,080/-u/s. 80P(2)(a)(i).
2.2 That in the facts and circumstances of the case as well as in law, the Ld.NFAC ought not to have upheld the penalty of Rs.5,04,622/-imposed u/s.271(1)(c) by AO in respect of disallowance of deduction of Rs. 16,43,080/-u/s. 80P(2)(a)(i).
It is, therefore, prayed that the penalty of Rs.5,04,622/- upheld by the NFAC may kindly be deleted.
5.1 The Ld. Counsel Mr. S.N. Divatia appearing for the assessee submitted before us though in the quantum appeal it was held by the Co-ordinate Bench of the Tribunal that the assessee is not entitled to the interest income generated from the deposits with nationalized banks, following Jurisdictional High Court judgment in the case of State Bank of India Co.Op. Society. Still the assessee appeal was partly allowed with a direction to the Assessing Officer to determine the net interest income, as well as Misc. Income earned by the assessee and only thereafter the income has to be excluded from admissibility of deduction u/s. 80P(2)(a)(i) of the Act.
5.2 The Ld. A.R. further relied upon Co-ordinate Bench decision in the case of The Karamsad Nagrik Co-op. Credit Society Ltd. vs. DCIT in ITA No. 1 195/Ahd/2019 wherein the levy of penalty on claim of deduction u/s. 80P(2) (a) (i) was deleted by the Co-ordinate Bench on the ground that Jurisdictional High Court judgment was not available at the time of filing of the Return of Income, thus there is no inaccurate particulars of income by the assessee. Thus the Ld. A.R. pleaded to delete the entire penalty.
6. Per contra, the Ld. Sr. D.R. Shri Atul Pandey appearing for the Revenue supported the orders passed by the Lower Authorities and requested to confirm the levy of penalty u/s. 271(1)(c) of the Act, as the assessee intentionally filed inaccurate particulars of income and thereby dismiss the assessee’s appeal.
7. We have given our thoughtful consideration and perused the materials available on record. The issue in the present case revolves around whether the assessee has furnished “inaccurate particulars of income” with respect to the interest income from the nationalized bank by claiming the deduction under section 80P(2)(a)(i) of the Act. The word ‘inaccurate particulars’ has not been defined under the provisions of the Act. Thus we refer the dictionary meaning of “inaccurate” which denotes ‘not accurate’, something incorrect or wrong, not exact, in error. Admittedly, the claim of the assessee for the deduction under section 80P(2)(a)(i) of the Act with respect to interest income from the nationalized bank was not accepted by the ITAT in the quantum proceedings. Thus, it can be concluded that the claim of the assessee was inaccurate. Accordingly, it appears that the penalty provisions under section 271(1) (c) have to be invoked.
7.1 Thus, if we apply this logic, then any addition made by the AO in the assessment would lead either to “concealment of the particulars of income” or “furnishing inaccurate particulars of income”. In other words the assessee furnishes the particulars of income in his income tax return which is subsequently verified by the revenue. If in the process of verification of the income of the assessee, the AO calculates different total income than the income declared by the assessee, the difference between incomes declared by assesses and assessed by the AO would amount to “furnishing of inaccurate particulars of income” or “concealment of income”. However, we note that the Hon’ble Supreme Court in the case of Dilip N Shroff vs. JCIT reproetd in 161 taxman 218 has discussed the term “inaccurate” by observing that the word “inaccurate” signifies a deliberate act or omission on the part of the assessee. Thus, to arrive at the conclusion that, the assessee has furnished “inaccurate particulars of income”, it has to be tested whether it has been done so with the dishonest intent, which cannot be regarded as an innocent act. In other words the element of consciousness in furnishing “inaccurate particulars of income” coupled with circumstantial evidences should be present in the particular case. Unless, the characters of “inaccurate particulars of income” as discussed above are present in any particular case, the penalty provisions under section 271(1)(c) of the Act cannot be attracted.
7.2 In our considered view, there is an explanation 1 to section 271(1)(c) of the Act, which provides deemed “concealment of income”. Under the Explanation 1 to section 271(1)(c) of the Act, there are two situations. In situation (A), if the assessee fails to offer an explanation or offers an explanation which is found to be false with respect to any fact material to the computation of income, then the amount added or disallowed shall be deemed as “concealment of income”. In situation (B), if the assessee fails to substantiate the explanation offered by him and fails to prove that such explanation is bona fides and that all the facts relating to such explanation and materials to the computation of income have been disclosed by him, then the amount added or disallowed to the total income of the assessee shall be deemed as concealment of income.
7.3. Coming to the present case, we have to test whether the case of the assessee falls under the main provisions of section 271(1)(c) of the Act or Explanation 1 attached with it. As regards the main provisions of section 271(1)(c) of the Act, we find that the interest income from the nationalized bank was duly incorporated in the financial statements. But the same was treated as “income from other sources” by the AO which was subsequently confirmed by the learned CIT (A) and ITAT directed to determine the net interest income earned by the assessee. If we see gross total income in either of the case remained the same. It was the deduction which has been denied by the AO with respect to the interest income from the nationalized bank after making reliance on the judgment of Hon’ble Gujarat High Court in case of State Bank of India which was passed on 25th April 2016 reported in 72 Taxman.com 64. However, Income Tax Return for A.Y. 2013-14 filed by the assessee on 14-10-2013, much prior to the date of Jurisdictional High Court, which implies that the rulings/principles laid down by the Hon’ble Gujarat High Court was not available at that relevant time. Thus the assessee under the bonafide believe has claimed the deduction under section 80P(2) (a) (i) of the Act, with respect to the interest income as discussed above.
7.4 Thus, in our considered view, the claim of the assessee at the most can be regarded as “inaccurate claim” which cannot be equated with the furnishing “inaccurate particulars of income”. It is for the reason that nothing has been brought on record by the authorities below suggesting that the assessee has furnished the particulars of income with dishonest intent.
7.5 As regards the Explanation 1 to section 271(1)(c) of the Act, there was no iota of evidence suggesting that the explanation offered by the assessee was false. Thus the claim of the assessee cannot be said amounting to “concealment of particulars of income”. Likewise, there was no finding of the authorities below qua the fact that the assessee fails to substantiate the explanation offered by him and fails to prove that such explanation is bonafide with respect to material facts relating to the computation of total income. Thus in our considered view the provisions of Explanation 1 to section 271(1) (c) of the Act cannot be attracted in the given facts and circumstances.
8. In view of the above and after considering the facts in totality, we set aside the finding of the learned CIT (A) and direct the AO to delete the penalty levied by him under section 271(1) (c) of the Act. Thus the ground of appeal of the assessee is allowed.
9. In the result, the appeal filed by the assessee is hereby allowed.
Order pronounced in the open court on 24 -03-2023.
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