Cane Deveopment Council Rohana Kalan Vs ITO (ITAT Delhi)
The appeals concern penalties imposed under Section 271(1)(c) of the Income Tax Act for Assessment Years 2010–11 and 2011–12. Four appeals filed by two assessees were heard together due to similarity in facts, with one matter treated as the lead case. The assessee challenged the penalty of ₹10,30,000 on grounds including invalid notice, lack of jurisdiction, absence of proper hearing, and incorrect appreciation of facts. It argued that mere disallowance of claims or expenses does not attract penalty for concealment or furnishing inaccurate particulars. The assessee also contended that the additions made by the Assessing Officer (AO) could not be treated as concealment since they were based only on a rejection of explanations without supporting material.
The assessee, a co-operative society established under the U.P. Sugar Cane Act provisions, provides credit facilities, agricultural implements, and marketing support to its members. It filed returns declaring nil income. The AO completed assessment on 28.02.2014 and made additions of ₹1,69,986 as santage and ₹29,42,866 as surplus. Penalty proceedings were initiated, and penalty was levied at 100% of the tax sought to be evaded. The Commissioner (Appeals) upheld the penalty.
Before the Tribunal, the assessee submitted that it operates on the principle of mutuality, with no profit motive, and spends all commissions or aid received for prescribed purposes. Returns were filed mainly to claim TDS refunds. All receipts were fully disclosed in the return of income. The assessee argued that the additions stemmed from a difference of opinion between the assessee and the AO regarding the treatment of receipts and that mere disallowance cannot lead to penal consequences. Reliance was placed on the Supreme Court decision in Reliance Petroproducts and on decisions indicating that similar receipts were accepted in other years following the Allahabad High Court ruling in ITA No. 759 of 2012. It was also noted that the quantum appeal remained pending.
The Department supported the lower authorities’ orders.
The Tribunal observed that the assessment was completed based on details furnished in the return of income and that no finding existed that the assessee concealed income or furnished inaccurate particulars. The additions were made solely on account of the AO treating the receipts differently. The Tribunal referred to the Allahabad High Court decision in the assessee’s own earlier year, where surplus funds advanced by the State Government for road construction were held to be grant-in-aid and not income under Section 2(24). The Tribunal reiterated the principle from the Supreme Court ruling in Reliance Petroproducts that making an unsustainable claim does not equate to furnishing inaccurate particulars.
Given the absence of any finding of concealment or falsity of particulars and considering that the disallowance arose from differing interpretations, the Tribunal held that the penalty was not justified. The penalty was deleted. Consequently, the appeal in the lead case was allowed. Following similar facts and observations, the remaining three appeals were also allowed. All appeals of both assessees were thus allowed. The order was pronounced on 28.11.2025.
FULL TEXT OF THE ORDER OF ITAT DELHI
