COMMISSIONER OF INCOME TAX-II CHANDIGARH vs. M/S PUNJAB STATE COOP. FED. CHANDIGARH

Income Tax Appeal No.152 of 2013 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Income Tax Appeal No.152 of 2013 Date of Decision: 23.8.2013 The Commissioner of Income-tax-II, Chandigarh ..Appellant Versus M/s Punjab State Cooperative Federation of Housing Building Societies, Chandigarh ..Respondent CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE DR. BHARAT BHUSHAN PARSOON Present: Mrs. Urvashi Dhugga, Advocate, for the appellant. RAJIVE BHALLA, J. The revenue impugns orders dated 28.7.2012 and 18.12.2012 passed by the Commissioner of Income Tax (Appeals), and the Income Tax Appellate Tribunal, Chandigarh Benches `A' Chandigarh, respectively. Counsel for the revenue submits that disallowance of the assessee's claim for exemption under Section 80 (P) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) was affirmed up to the High Court. The Assessing Officer, therefore, rightly imposed penalty of Rs.12,03,242/- under Section 271(1)(c) of the Act. The appeal filed by the assessee before the CIT (Appeals) was wrongly allowed by holding that as disallowance was claimed on a debatable issue, penalty is not warranted. The appeal filed by the revenue was wrongly dismissed by relying upon a judgment of the Punjab and Haryana High Court in CIT versus Buddhewal Cooperative Sugar Mills – 312 ITR 92 (PH) Counsel for the revenue further submits that as there was no debatable issue as the assessee could not claim exemption of interest Varinder Kumar 2013.09.13 12:17 I attest to the accuracy and integrity of this document High Court Chandigarh

Income Tax Appeal No.152 of 2013 2 derived from deposits with Cooperative Banks. The claim for exemption was raised, is a mala fide attempt to evade tax. It is further submitted that as an attempt to conceal income by furnishing inaccurate particulars, stands proved, the order imposing penalty, should not have been set aside by the Income Tax Appellate Tribunal or by the Commissioner of Income Tax (Appeals). Counsel for the revenue places reliance upon a Delhi High Court judgment in Commissioner of Income Tax versus Zoom Communication Private Limited, 2010 327 ITR 510 (Delhi), We have heard counsel for the parties, perused the impugned orders. The questions of law framed by the revenue read as follows:- “(i) Whether on the facts and circumstances of the case, the Hon'ble ITAT is right in confirming the order of the ld. CIT(A) deleting the penalty on the ground that the addition made is debatable because it was first confirmed by the ld. CIT(A) then deleted by the Hon'ble Tribunal and finally restored by the Hon'ble High Court? (ii) Whether on the facts and circumstances of the case, the Hon'ble tribunal is right in confirming the order of the ld. CIT(A) deleting the penalty on the ground that the assessee has disclosed the particulars of the income on which deduction has been claimed while ignoring the fact that the claim itself is wrong and deliberate specifically in view of the fact that the same was not claimed by the assessee in the earlier years? The Assessing Officer levied penalty under Section 271(1)(c) of the Act, but this order was set aside by the CIT (Appeals) by holding as follows:- “ The appellant had treated the interest received from banks as business income and had given reasons for doing so in the Varinder Kumar 2013.09.13 12:17 I attest to the accuracy and integrity of this document High Court Chandigarh

Income Tax Appeal No.152 of 2013 3 computation sheet and so it cannot be said that the appellant had furnished inaccurate particulars of its income or had not disclosed complete facts regarding this issue, on which concealment penalty has been levied. In fact, allowability of deduction u/s 80P(2)(d) on the impugned interest is a debatable issue, as is evident from the fact that the disallowance made on this account was confirmed by CIT (A), deleted by Hon'ble ITAT, Chandigarh and has been confirmed by the Hon'ble Punjab and Haryana High Court. The disallowance being itself debatable, it was not appropriate to levy concealment penalty in this case, particularly when the appellant had mentioned very clearly in the computation sheet as to why it was treating impugned interest as business income. Hence, the concealment penalty levied in this case is cancelled. Ground of appeal No.3 is allowed.” Aggrieved by this order, the revenue filed an appeal which was dismissed by holding as follows:- “We have heard the rival submissions carefully and find that it is not disputed that originally the disallowance was deleted by the Tribunal and the deduction was allowed. This itself shows that the claim was of debatable nature. Further we find that in case of CIT V. Buddhewal Coop Sugar Mills (supra) the Hon'ble Punjab & Haryana High Court has deleted the penalty. In that case it was held as under: “ Held, dismissing the appeal, that the society had paid advance tax as well as self-assessment tax not taking into account the deduction claimed u/s 80P(2)(a)(iii) of the Act. It was evident from the facts that the assessee's claim was bona Varinder Kumar 2013.09.13 12:17 I attest to the accuracy and integrity of this document High Court Chandigarh

Income Tax Appeal No.152 of 2013 4 fide and that all the particulars relating to the computation of income had been disclosed. Thus, the Tribunal rightly cancelled the penalty levied.” A perusal of these orders reveal that the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal have held that as the assessee's claim for exemption was debatable and was raised in a bona fide exercise of an assessee's right to claim deduction, penalty is not warranted. Reliance by the revenue upon a judgment of the Delhi High Court in Commissioner of Income Tax versus Zoom Communication Private Limited, 2010 327 ITR 510 (Delhi), is entirely misplaced as observations in this judgment are in the context of its facts as the assessee had claimed deductions with the mala fide object of evading tax. The situation, in the present case, cannot, by any stretch of imagination, be said to be akin to the factual position in Zoom Communication Private Limited's case (supra). The assessee cannot be accused of concealment of income or an intentional attempt to evade tax. The bona fide claim for deduction was finally settled by the High Court in Buddhewal Cooperative Sugar Mills' case (supra), thereby establishing that claim raised by the assessee was debatable and, therefore, could not invite penalty, under Section 271(1)(c) of the Act. In view of what has been stated herein above, as no question of law, much less, the questions of law framed, arise for adjudication, the appeal is dismissed. ( RAJIVE BHALLA )

JUDGE 23.8.2013 ( DR. BHARAT BHUSHAN PARSOON) VK JUDGE Varinder Kumar 2013.09.13 12:17 I attest to the accuracy and integrity of this document High Court Chandigarh