DEPUTY COMMISSIONER OF INCOME TAX, MUMBAI vs. NATIONAL PAYMENT CORPORATION OF INDIA, MUMBAI

PDF · subscribers
ITA 5372/MUM/2026Status: DisposedITAT Mumbai14 August 2026AY 2010-117 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that penalty proceedings are distinct from assessment proceedings but saw no ground to uphold the penalty when the quantum appeal for the same year was decided in favor of the assessee. The ITAT's previous order directing exemption under Section 11 & 12 was considered decisive.

What were the facts?

The Revenue appealed against the deletion of penalty levied under Section 271(1)(c) for claiming exemption under Section 11. The assessee, National Payment Corporation of India, claimed exemption for its payment and settlement platform services, which the Assessing Officer deemed to be business activities hit by the proviso to Section 2(15).

What were the issues?

Whether penalty under Section 271(1)(c) is leviable when the underlying addition in quantum proceedings is deleted. Whether the assessee's activities constituted business or charitable purposes for exemption under Section 11.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 11,Section 12,Section 2(15)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “B” MUMBAI

Before: SMT BEENA PILLAI & SMT RATNA DASGUPTA

For Appellant: Shri Niraj Sheth
For Respondent: Shri Priyadarshi Mishra, CIT-DR
Hearing: 06/08/2026Pronounced: 14/08/2026

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B” MUMBAI BEFORE SMT BEENA PILLAI (JUDICIAL MEMBER) AND SMT RATNA DASGUPTA (ACCOUNTANT MEMBER) ITA No. 5372/MUM/2026 Assessment Year: 2010-11 Deputy Commissioner of National Payment Corporation Income Tax, of India, Vs. Room No. 608, 6th Floor, 1001A, B Wing, 10th Floor, the MTNL Building, Cumballa Capital, Plot No. C-70, Bandra Hill, Peddar Road, Mumbai Kurla Compex, Mumbai Maharashtra- 400026 Maharashtra- 400051 PAN NO. AACCN9852G Appellant Respondent Assessee by : Shri Niraj Sheth Revenue by : Shri Priyadarshi Mishra, CIT-DR

Date of Hearing : 06/08/2026 Date of pronouncement : 14/08/2026

ORDER PER RATNA DASGPUTA, AM The captioned appeal by the Revenue emanates from the order dated 18/02/2026 of National Faceless Appeal Centre, Delhi, [hereinafter referred to as “Ld. CIT(A)”] deleting penalty levied on the assessee under Section 271(1)(c) of the Income tax Act (in short ‘the Act’) amounting to Rs. 3,09,26,314/-. 2. The grounds of appeal raised by Revenue are as under:

National Payment Corporation of India 2 ITA No. 5372/MUM/2026

i. On the facts and in the circumstances of the case and in law, the Ld. CITIA) erred in deleting the penalty levied u/s. 271(1)(c) of the Act amounting to Rs. 3,09,26,314/- without appreciating that the assessee had furnished inaccurate particulars of income by claiming exemption u/s. 11 despite being engaged in systematic, large-scale, fee-based activities of providing payment and settlement platform services to banks, which are in the nature of trade, commerce or business and are hit by the proviso to section 2(15) read with section 13(8), and further erred in treating such claim as bona fide, whereas the same was contrary to the express provisions of the Act". ii. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in failing to appreciate that the assessee was carrying on systematic, continuous und large-scale activities of providing payment and settlement services to banks and other participants for consideration, and that the assessee, being fully aware of the nature of its activities and the applicable statutory provisions, had made claim of exemption u/s. 11 which was not sustainable in law and further erred in not appreciating that the assessee failed to discharge the onus cast upon it under Explanation 1 to section 271(1(c) of the Act to establish that such claim was bona fide and that all material facts necessary for computation of income were fully and truly disclosed, and therefore the same amounts to furnishing of inaccurate particulars of income within the meaning of section 271 (1)(c) of the Act." iii. On the facts and in the circumstances of the case and in law, the Ld. CITA) erred in holding that penalty u/s. 271(1)(c) is not leviable merely on the ground that the addition made in the quantum proceedings was deleted, without appreciating that penalty proceedings are independent and separate from assessment proceedings; and further erred in placing reliance on the order of the Hon'ble ITAT in the assessee's own case for A.Y. 2010-11

National Payment Corporation of India 3 ITA No. 5372/MUM/2026

arising from quantum proceedings, without appreciating that the said decision has not attained finality, as the Department has preferred an appeal before the Hon'ble Bombay High Court in ITXA No. 273 of 2022, which is pending adjudication. iv. The appellant craves leave to add, amend, alter vary and/or withdraw any of the grounds of appeal. 3. The brief facts of the case are that assessment for the relevant year was completed under section 143(3) of the Income-tax Act on 25/03/2013 on a total income of Rs. 10,00,85,160/- against returned income of Nil. The Ld. Assessing Officer (in short, “AO”) denied the assessee benefit of exemption under sections 11 and 12 of the Income-tax Act (in short “the Act”) by invoking the provisions of the first proviso to section 2(15) r.w.s 13(1)(c)(ii) of the Act. He also simultaneously initiated penalty proceedings u/s 271(1)(c) and, by a separate order, imposed penalty on the assessee for furnishing inaccurate particulars of income. 3.1 In penalty hearing before the Ld. CIT(A), the main contention of the assessee was that in quantum appeal filed appeal before the Hon’ble ITAT against the order of the Ld. CIT(A), the Hon’ble ITAT, vide order dated 06.07.2020, has decided the issue in assessee’s favour and directed that the assessee should be granted exemption u/s 11 & 12 of the Act. On this basis, the Ld. CIT(A) deleted the penalty u/s 271(1)(c). It is against this decision of the Ld. CIT(A) that Revenue is in appeal before this Tribunal.

National Payment Corporation of India 4 ITA No. 5372/MUM/2026

4.

The Ld. Authorised Representative (in short, “AR”) appearing on behalf of the assessee submitted that that the Trust was established under the Payment and Settlement Systems Act, 2007, as a non-profit entity with the dominant & prime objective of administering payment & settlement functions for benefit of the general public, i.e. for charitable purposes. Profits, if any, are not allowed to be distributed to the shareholders, and have to be ploughed back to support the activities of the Trust. The Trust is also prohibited by its object clause to carry out any activities on commercial basis, and it operates under a controlled and regulated environment. The Ld. AR further submitted that the claim that the assessee is not carrying on any commercial activity was based on bonafide belief, supported by the statement given by the then Finance Minister on the floor of the Parliament on 23/04/2007, assuring the Members that the assessee will not carry on any commercial activity. He also pointed out that no information given in the return of income had been found to be incorrect or inaccurate. He made mention of the fact that during the year under consideration, the assessee continued to have valid registration as Trust u/s 12AA of the Act which was granted post-insertion of proviso to Section 2(15). The registration, as provided out, had never been revoked by the revenue authorities and the assessee would, therefore, be entitled to claim the exemption.

National Payment Corporation of India 5 ITA No. 5372/MUM/2026

4.1 The Ld. AR also submitted that making any claim which, in the opinion of the Ld. AO is incorrect, cannot evoke penalty for furnishing of inaccurate particulars of income. Various judicial pronouncements were relied on by the Ld. AR in support of the aforesaid contention.

4.2 Without prejudice to the above, the Ld. AR pointed out that in quantum appeal for the same year, the Hon’ble ITAT, Mumbai vide order dated 06/07/2020, has ruled in the assessee’s favour and directed the Ld. AO to grant exemption to the assessee u/s 11 & 12 of the Act. In view of the same, there is no merit left in consequential penalty u/s 271(1)(c) of the Act.

5.

The Ld. CIT(DR), representing the Revenue, relied heavily on the orders of the Ld. AO and Ld. CIT(A). His contention was that the assessee's case was hit by the proviso to Section 2(15), since it was carrying on systematic commercial activities for the benefit of participating banks, which led to huge value addition for these banks. There was no element of charity in such activities. He further argued that penalty proceedings are separate from assessment proceedings, and that the decision of the ITAT in quantum appeal, had not attained finality, since the Department has preferred appeal against that order before the Hon'ble Bombay High Court, which was pending adjudication.

National Payment Corporation of India 6 ITA No. 5372/MUM/2026

6.

We have heard the submissions of both the parties. This is a penalty matter, and even though penalty proceedings are distinct from assessment proceedings, we see no ground for upholding penalty in a case where the quantum appeal for the same year has been decided in favour of the assessee by this Tribunal. Para 8.20 of the impugned order (I.T.A. No. 5431/Mum/2015 (A.Y. 2010-11) is reproduced hereunder:

“Therefore, considering the entirety of facts and circumstances and applying the theory of dominant purpose test, the inevitable conclusion that could be drawn is that the assessee was entitled to exemption u/s 11 & 12. The mere fact that certain fee was charged by the assessee while rendering certain services and surplus was generated, the said fact alone would not disentitle the assessee to claim the impugned exemption u/s 11 &n12 considering that the primary objects of the assessee were charitable in nature. No substance could be found in the allegation of violation of sec. 13(1)(c)(ii). Accordingly the lower authorities are directed to grant the exemption to the assessee u/s 11 & 12.”

7.

In view of the above, we direct the Ld. AO to delete penalty imposed u/s 271(1)(c) of the Act.

National Payment Corporation of India 7 ITA No. 5372/MUM/2026

8.

In the result, the appeal of the Revenue stands dismissed.

Order pronounced in the open Court on 14/08/2026.

Sd/- Sd/- (BEENA PILLAI) (RATNA DASGPUTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 14/08/2026 Z.U., P.S.

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER,

//True Copy// (Assistant Registrar) ITAT, Mumbai

More judgments on Section 271(1)(c)

All 25,141 judgments and leading authorities on Section 271(1)(c) →

Recent GST High Court judgments

Search GST case law →