Section 271(1)(c) Penalty on Withdrawn Section 35 Donation Deduction Deleted: ITAT Ahmedabad

Mistry & Shah Vs ITO (ITAT Ahmedabad)

Summary: ITAT Ahmedabad deleted penalty of Rs.3,15,000 levied under Section 271(1)(c) in respect of the assessee’s withdrawal of a deduction of Rs.10,50,000 claimed under Section 35. The assessee had originally filed its return for AY 2014-15 declaring income of Rs.4,63,168 and claiming the deduction. Following issuance of a notice under Section 148, the assessee filed a return on 04.04.2017 declaring income of Rs.15,13,168 and withdrew the Section 35 deduction. The Assessing Officer nevertheless treated the withdrawal as furnishing of inaccurate particulars/concealment and levied penalty, which was confirmed by the CIT(A). Before the Tribunal, the assessee pointed out that although the return withdrawing the deduction was filed on 04.04.2017, the recorded reasons for reopening were supplied only on 19.04.2017.

The Tribunal therefore held that it could not be presumed that the assessee knew the reasons for reopening when the deduction was withdrawn. The Tribunal also found it material that when the donation to M/s. Herbicure Healthcare Bio-Herbal Research Foundation was made, the institution’s registration under Section 35(1)(ii) remained in force. The registration was cancelled only subsequently. ITAT Ahmedabad referred to its decisions in S. G. Vat Care Pvt. Ltd. and Bipin Prabhudas Shah-HUF concerning donations to the same institution, as well as decisions concerning surrender of income to buy peace and the requirements for concealment penalty. Considering these facts and judicial precedents, the Tribunal directed deletion of the penalty under Section 271(1)(c) and allowed the assessee’s appeal.