PASHUPALANA ELAKE NOUKARARA GRUHA NIRMANA SAHAKARA SANGA NIGAMA ,MYSURU vs. INCOME TAX OFFICER, WARD-1(1), MYSORE

ITA 2366/BANG/2025Status: DisposedITAT Bangalore29 September 2026AY 2018-198 pages
AI SummaryAllowed

What were the facts?

The assessee, Pashupalana Elake Noukarara Gruha Nirmana Sahakara Sanga Nigama, filed an appeal against the order of the National Faceless Appeal Centre, Delhi, for assessment year 2018-19. The CIT(A) had dismissed the assessee's appeal against a penalty order passed by the Faceless Assessment Unit under section 270A of the Income-tax Act, 1961, confirming a penalty of ₹2,330,900. This penalty was levied for denial of deduction under section 80P(2)(d) of the Act, claimed by the assessee despite a Karnataka High Court decision dated June 16, 2017, holding such deduction inadmissible. The assessee, a cooperative housing society, had claimed deductions on interest income earned from various banks. The Assessing Officer disallowed the deduction and initiated penalty proceedings, which were upheld by the CIT(A).

What did the Tribunal hold?

The Tribunal held that the penalty levied under section 270A of the Income-tax Act was not sustainable. The Tribunal noted that the issue of deduction under section 80P(2)(d) for interest earned from cooperative banks was highly debatable, especially given conflicting decisions of the Karnataka High Court and pronouncements from other High Courts. The Tribunal found that the Karnataka High Court's decision dated June 16, 2017, which was relied upon by the lower authorities, was not considered in an earlier favorable decision of the same High Court dated January 5, 2017. Furthermore, this decision was pending before the Supreme Court. The Tribunal also observed that the penalty notice alleged only under-reporting of income, but the penalty order imposed it for under-reporting arising from misreporting, making the charge imprecise. Crucially, the Tribunal found that the assessee's claim did not fall within any of the six categories of misreporting specified in section 270A(9). The Tribunal concluded that a debatable claim, even if later found to be legally untenable, does not constitute misreporting. Moreover, even if income was under-reported, the penalty could not be imposed as the bona fide claim fell within the exclusion in section 270A(6)(a). Accordingly, the Tribunal directed the deletion of the penalty.

What were the issues?

1. Whether the penalty levied under section 270A of the Income-tax Act, 1961, is justified when the claim for deduction under section 80P(2)(d) was made under a bona fide belief based on prevailing judicial decisions, and thus does not constitute "misreporting" or "under-reporting" of income. 2. Whether the penalty under section 270A is justified when the deduction was claimed based on several favourable judicial pronouncements available at the time of filing the return, and all facts were transparently disclosed. Assessee's Contentions: The assessee argued that the claim for deduction under section 80P(2)(d) was made in good faith, relying on judicial pronouncements. They contended that the mere disallowance of such a claim, especially when it was transparently disclosed, should not be equated with misreporting or under-reporting of income as defined under section 270A. The assessee also highlighted that the allowability of deduction under section 80P(2)(d) was a matter of judicial divergence, and adopting one interpretation that later proved untenable does not amount to furnishing inaccurate particulars or misreporting. They relied on the Supreme Court decision in Reliance Petroproducts Pvt. Ltd. and pointed out that a Special Leave Petition against the Karnataka High Court's decision was pending before the Supreme Court. Revenue's Contentions: The revenue supported the orders of the lower authorities, arguing that when the assessee made a claim not sustainable in view of the latest decision of the jurisdictional High Court, the penalty under section 270A was leviable.

Which sections of the Income-tax Act were involved?

Section 80P,Section 80P(2)(c)(ii),Section 80P(2)(d),Section 270A,Section 270A(6)(a),Section 270A(9),Section 274

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BANGALORE

Before: SHRI PRASHANT MAHARISHI & SHRI KESHAV DUBEY

PER SHRI PRASHANT MAHARISHI, VICE PRESIDENT

1.

The Assessee filed this appeal against the order dated 12 August 2025, passed by the National Faceless Appeal Centre, Delhi, for assessment year 2018–19. By that order, the learned CIT(A) dismissed the Assessee’s appeal against the penalty order dated 11 March 2025, passed by the Faceles

The order continues below.

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