Uttaranchal Cooperative Sugar Factories Federation Limited Vs ACIT (ITAT Dehradun)
Bona Fide Mutuality Belief Shields from Penalty: 271(1)(c) Deleted on Bank Interest & Tender Fee
Dehradun ITAT deleted penalties levied u/s 271(1)(c) holding that penalty cannot be imposed where income was not offered due to a bona fide belief based on the doctrine of mutuality and the issue was debatable at the relevant time.
The Assessee, a Government-controlled cooperative federation, did not initially file returns on the belief that its income was exempt on principle of mutuality, a view supported by then prevailing law including Chelmsford Club (SC). After the Supreme Court ruling in Bangalore Club (350 ITR 509), holding that interest on bank deposits falls outside mutuality, the Assessee voluntarily started filing returns from AY 2014-15 and offered the entire bank interest to tax. For earlier years, returns were filed pursuant to reopening u/s 148, and tax on interest income was duly paid.
AO nevertheless levied penalty u/s 271(1)(c) on bank interest and tender fee, alleging concealment. ITAT observed that all primary facts were disclosed, income was offered once legal position became clear, and there was neither concealment nor furnishing of inaccurate particulars. Reliance was placed on the coordinate bench decision in Dehradun Club Ltd., holding that penalty cannot be fastened merely because a later Supreme Court judgment changes the legal position.
Accordingly, ITAT held that the case involved at best a wrong claim based on a bona fide understanding of law, not concealment, and deleted penalties for all three assessment years, allowing the appeals in full.
FULL TEXT OF THE ORDER OF ITAT DEHRADUN
