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Facts
The assessee, a co-operative society, did not file its return of income for AY 2013-14. Upon reopening, it filed a return and claimed deduction u/s 80P(2)(a)(i). The AO disallowed this deduction and initiated penalty proceedings.
Held
The Tribunal noted that the quantum appeal regarding the disallowance of deduction u/s 80P(2)(a)(i) had already been allowed in favour of the assessee by a co-ordinate bench. Therefore, the consequential penalty does not survive.
Key Issues
Whether the penalty levied u/s 271(1)(c) survives when the underlying assessment order's disallowance, on which the penalty was based, has been set aside by the Tribunal.
Sections Cited
80P(2)(a)(i), 147, 148, 144, 271(1)(c), 274
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH, ‘G’: NEW DELHI
Before: SHRI SUNIL KUMAR SINGH & SHRI BRAJESH KUMAR SINGH
Date of Hearing 14.05.2025 Date of Pronouncement 08.08.2025 ORDER PER BRAJESH KUMAR SINGH, AM,
This appeal by the assessee is directed against the order of the National Faceless Appeal Centre/Ld. Commissioner of Income Tax (Appeals) Delhi, dated 30.08.2024, arising out of penalty order u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’), dated 10.02.2022 for Assessment Year 2013-14 levying penalty of Rs.15,05,000/-.
Brief facts of the case:- In the assessment order, the AO noted that the assessee did not file its return of income for the year in question. Based on the information that the assessee had earned interest income of Rs.8,59,514/-, the case of the assessee was reopened by issue of a notice u/s 148 on 06.02.2020. In response to the same, the assessee filed its return of income on 12.03.2020 declaring total income of Rs.1,01,85,390/-. During the course of assessment proceedings, the Assessing Officer held that that the assessee society had claimed exemption u/s 80P(2)(a)(i) of the Act of Rs.50,18,472/- by placing its surplus fund at the disposal of co- operative banks and not co-operative societies, with the sole motive of earning interest, which brings in the commercial element. Placing reliance on the Hon'ble Supreme Court's decision in the case of Totgar's Cooperative Sale Society Ltd. v ITO 322 ITR 283, interest on deposits was held as not as business income but income from other sources and the assessment was completed u/s 144 r.w.s. 147 on 27.09.2021 assessing the total income of the assessee at Rs.1,52,03,860/- and also initiated penalty u/s 271(1)(c) for filing inaccurate particulars.
2.1. The AO initiated penalty us 271(1)(c) for filing inaccurate particulars and a show-cause notice u/s 274 r.w.s. 271(1)(c) dated 27.09.2021 was issued to the assessee requesting to explain as to why penalty u/s 271(1)(c) should not be levied. The assessee did not respond. As per the finding given in the assessment order regarding the wrong claim of deduction u/s 80P(2)(a)(i) of the I. T. Act, 1961 of Rs.50,18,472/-, the Assessing Officer levied penalty of Rs.15,05,000/- u/s 271(1)(c) of the Act.
Aggrieved with the said order, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) dismissed the appeal of the assessee.
Aggrieve with the order of the Ld. CIT(A), the assessee is in appeal before us.
At the outset, the Ld. Authorized Representative submitted that the assessee’s quantum appeal regarding the disallowance of deduction of Rs.50,18,472/- has been allowed by the ITAT and therefore, the penalty does not survive. He placed on record copy of the order of the ITAT in the quantum appeal bearing No.4687/Del/2024 wherein vide order dated 07.05.2025, the Tribunal has allowed the claim of the assessee u/s 80P(2)(a)(i) of the Act. The relevant extract of the order of the Tribunal is reproduced hereunder:- for AY 2013-14 “7. The assessee has raised the following grounds of appeal:- “That on the facts and in the circumstances of the case and in law the ld CIT(A) at NFAC erred in confirming the order having demand raised under Section 147 rws 144 of the Act, 1961 holdings the assessee guilty of concealment of income. The above action being arbitrary, fallacious, unwarranted and illegal must be quashed with directions of appropriate relief.
8. We have heard the rival submissions and perused the material available on record. The Society is registered under Cooperative Societies Act, as no profit no loss entity to financially help its members on the concept of mutuality. The society is earning income from interest on loan to its members and surplus funds are being kept in bank FDRs. Interest income is bound to accrue on surplus funds and it is used for the objects for which the society is established. The Ld. ITO has completed the assessment citing Hon’ble Supreme Court’s decision dated 08-08- 2017 in the matter of the Citizen Coop society v/s ACIT Hyderabad.
It was submitted that the assessee had filed its return of income in response to notice u/s 148 of the Act on 12.03.2020 declaring total income of Rs. 1,01,85,390/- being the interest earned by the assessee society from banks on its fixed deposits. The ld AO had affirmed this fact in his order dated 27.09.2021. The assessee has claimed deduction u/s 80P(2)(a)(i) of the Act only for Rs. 50,18,472/- . No deduction or exemption whatsoever was claimed by the assessee in respect of interest earned by it on fixed deposits from banks. The deduction claimed u/s 80P(2)(a)(i) of the Act is with regard to the business of providing loans to its members out of deposit accepted from the members. The surplus derived from this activity would be eligible for deduction u/s 80P of the Act as well as exemption from tax on the principles of mutuality as the transactions are only with the members. Hence, there is absolutely no question of denying the deduction claimed by the assessee u/s 80P(2)(a)(i) of the Act in the sum of Rs. 50,18,472/- in the instant case.”
The Ld Sr. Departmental Representative fairly accepted that since the quantum appeal had been decided by the Tribunal in favour of the assessee, the consequential penalty imposed u/s 271(1)(C) of the Act would not survive.
Having heard both the parties and after having gone through the order of the Co-ordinate Bench in assessee’s own case in the quantum we agree with the contention of the Ld. Authorized Representative that since the quantum appeal has been decided in favour of the assessee, the resultant consequential penalty order does not survive. Accordingly, we set aside the order of the Ld. CIT(A) and direct the Assessing Officer to delete the penalty of Rs.15,05,000/- levied u/s 271(1)(c) of the Act.
In the result, the appeal of the assessee stands allowed.
Order pronounced in the open court on 08th August, 2025.