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Facts
The assessee, a cooperative society, earned interest income on FDRs, which it claimed as exempt. The AO treated this as income from other sources and made an addition. The penalty under Section 271(1)(c) was levied on this addition. The assessee's appeal against the penalty was dismissed by the CIT(A).
Held
The Tribunal held that since similar additions for other assessment years were deleted by the Co-ordinate Bench, and the interest income from FDRs with cooperative banks is generally allowable as a deduction, the addition could not be considered as concealed income. Consequently, the penalty levied was deleted.
Key Issues
Whether penalty under Section 271(1)(c) is leviable on income from FDRs with cooperative banks when similar income was held to be exempt in other years and the assessee is eligible for deduction.
Sections Cited
143(3), 250, 271(1)(c), 80P
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI “G” BENCH: NEW DELHI
Before: SHRI ANUBHAV SHARMA & SHRI MANISH AGARWAL
The present appeal is filed by the assessee against the order dt. 20.08.2024 passed by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“ld. CIT(A)”] in DIN & Order No. ITBA/NFAC/S/250/2024- 25/1067770216(1) passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the order dated 28.12.2018 passed u/s 143(3) of the Act pertaining to Assessment Year 2016-17.
Brief facts of the case are that the assessee society is registered under Co- operative Societies Act, as no profit or loss entity to financially help its member 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. The assessee society filed its return of income, declaring total income of NIL on 05.11.2016. The case was selected for scrutiny under CASS and thereafter, notice was issued and served upon the assessee. In response thereto, Ld.AR for the assessee attended the proceedings and furnished the requisite details as and when called for. The assessment was completed u/s 143(3) of the Act at a total income of Rs. 52,90,600/- by making addition of the interest on FDR with cooperative bank by treating the same as Income from Other sources. The appeal filed against such order was dismissed by ld. CIT(A) however, no further appeal was preferred against such order. The AO proceeded with the pending penalty proceedings u/s 271(1)(c) of the Act and levied the penalty at Rs. 18,30,970/- being 100% of the tax sought to be evaded on the concealed income of Rs. 52,90,600/-. Against such order appeal filed before ld. CIT(A) was dismissed; therefore, the present appeal is filed by the assessee before the Tribunal.
The assessee has raised the following grounds of appeal:- “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 AC IT Hyderabad. As far as penalty u/s 271(1)(c) of the IT Act 1961 is concerned merely making of claim in view of interpretation of law supported by judgment of Hon’ble Supreme Court cant lead to levy of penalty u/s 271 (1) (c) of the IT Act. During covid period the office of the society was closed as it was in the congested old area of the city and shifted to 43, Lekh Ram Road, Daryaganj, New Delhi to provide smooth functioning and social distancing to the members and staff. The notices were not served on the assessee society as such could not be responded.”
During the course of hearing, Ld.AR for the assessee submits that the income of the assessee on FDRs with Co-operative Bank was exempted u/s 80P of the Act and though the appeal filed by the was dismissed by ld. CIT(A) however, facts remains that the income of the assessee is exempted u/s 80P of the Act and could not be assessed under the head, “Income from other sources” as has been done in the instant case. Ld.AR further submits that identical issue has been decided by the Co-ordinate Bench of the Tribunal in assessee’s own case in & 4429/Del/2024 [AYs 2012-13 & 2017-18] order dated 27.02.2025wherein vide para 7 of the order levying penalty u/s 271(1)(c) of the Act was deleted by the Bench. The relevant observations are reproduced as under:- 7. “In the present case, the assessee has earned interest on FDRS maintained with Delhi State Cooperative Bank, Netaji Subash Marg, Darya Ganj, Delhi, as is evident from the assessment order for assessment year 2017-18. In case the deposits are kept with FDRS with Delhi State Cooperative Bank, Darya Ganj branch and it means that the assessee has kept FDRs with a cooperative bank, the assessee is eligible for deduction. However, the addition is not challenged by the assessee. Hence, the addition cannot be questioned at this stage, but, once deduction is allowable to the assessee in case the assessee kept FDRs and earned interest on FDRs maintained with cooperative bank, penalty under Section 271(1)(c) or under Section 271A cannot be levied. We delete the penalty and reverser the orders of learned CIT(A) and that of the Assessing Officer on this issue.”
Further, the addition on account of interest income was deleted by the Co- ordinate Bench of Tribunal in assessee’s own case in & 4687/Del/2024 [AYs 2012-13 & 2013-14] dated 07.05.2025. It is thus, submitted by the ld. AR that the income from FDR with Co-operative Bank is not a concealed income and thus, he prayed that penalty levied u/s 271(1)(c) deserves to be deleted.
Ld. Sr. DR for the Revenue supports the orders of the authorities below and submitted that once the addition is sustained and accepted by the assessee by not filing further appeal, the same is admitted by the assessee as concealed income on which penalty u/s 271(1)(c) of the Act has rightly been levied by the AO. He further placed reliance on the judgement of Hon’ble Supreme Court in the case of Mak Data Pvt.Ltd. vs CIT-2 (2013) 358 ITR 593 (SC) and other judgements as relied by Ld.CIT(A) and prayed for confirmation of penalty so levied.
We have heard the rival contentions and perused the material available on records. From the facts of the case, it is seen that though in the year under appeal, assessee has not challenged the order of Ld. CIT(A) confirming the additions on account of interest on FDRs however, in preceding years and subsequent assessment years, additions so made were deleted by the Co-ordinate Bench of Tribunal in assessee’s own case. A copy of such orders are placed at the paper book filed by the assessee. Thus, it cannot be said that income of the assessee as uphold by the Ld. CIT(A) is the concealed income. With respect to the judgements relied upon by Ld.CIT(A) of Mak Data Pvt.Ltd. vs CIT-2 (supra), we find that in that case, additional income was offered by the assessee during the survey which was retracted later on and finally such income was accepted and assessed in the hands of the assessee. Under these circumstances, the Hon’ble Supreme Court held the penalty u/s 271(1)(c) is leviable. The facts of the present case are totally distinguishable where the income added is finally held as exempt in other years and merely because no further appeal was filed, the AO observed that assessee has accepted the addition which was not the case of the assessee.
As observed above in assessee’s case, the Co-ordinate Bench of the Tribunal has already deleted the penalty levied by observing that the addition cannot be sustained at this stage but once deduction is allowable to the assessee where the FDR were maintained in Co-operative Bank, penalty u/s 271(1)(c) cannot be levied. Thus, following the said order, we hold that in this year, there is no change in the facts and circumstances of the case where the income on which penalty is levied is with respect to the interest on FDRs with Co-operative Bank and the thus by, following the ratio laid down by the Co-ordinate Bench as stated above, penalty levied u/s 271(1)(c) of the Act in the year under appeal is hereby deleted. Accordingly, all the grounds taken by the assessee are allowed.
In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 09.07.2025.