THE COMMISSIONER OF INCOME TAX - EXEMPTION vs. MEHTA CHARITABLE PRAJANALAYA TRUST

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ITA/154/2019HC DelhiDLHC01001539201812 February 2021Author: HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW,HON'BLE MR. JUSTICE SANJEEV NARULA6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeal, holding that penalty proceedings cannot survive if the underlying assessment issue is debatable. The Court reiterated its position, citing its decision in Pr. Commissioner of Income Tax (Central)-2 Vs. Harsh International Pvt. Ltd., which held that if the quantum order itself is challenged and substantial questions of law are framed, the alleged concealment is not final and the issue is disputable. The Court also referred to its prior decisions in CIT Vs. Liquid Investment Ltd. and CIT Vs. Thomson Press India Ltd., where penalty deletion was upheld on the ground that the issue was debatable. Furthermore, the Court noted that there was no finding that any details supplied by the assessee in its return were found to be incorrect, erroneous, or false, and that the CIT(A) had observed no evidence of wilful furnishing of inaccurate details to avoid tax. The Supreme Court's decision in Commissioner of Income Tax, Ahmedabad Vs. Reliance Petroproducts Pvt. Ltd. was also cited, emphasizing that a claim not being accepted by the Revenue does not automatically attract penalty. The Court concluded that no substantial question of law arose for consideration.

What were the facts?

The assessee, Mehta Charitable Prajanalaya Trust, a trust registered under Section 12A, claimed exemption for its income under Sections 11 and 12. During assessment for AY 2005-06, the Assessing Officer (AO) disallowed exemption for income from a Katha manufacturing factory leased to a sister concern, M/s. Shankar Trading Co. Pvt. Ltd., holding the business was not incidental to the trust's objects and invoking Section 11(4A). The CIT(A) and ITAT initially ruled in favour of the assessee. However, the Delhi High Court, in a prior appeal by the Revenue, set aside the ITAT's order and confirmed the AO's stand. Subsequently, the AO initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars. The CIT(A) and ITAT again deleted the penalty. The Revenue appealed this deletion to the High Court.

What were the issues?

1. Whether the penalty under Section 271(1)(c) of the Income Tax Act, 1961, is leviable when the underlying issue of exemption under Section 11 of the Act is debatable and has been subject to litigation. Assessee's Contentions: - The entire information was disclosed in the Return of Income. - A mere finding against the assessee on merits does not ipso facto signify furnishing of inaccurate particulars. - The issue is still at large as the High Court's judgment relied upon by the Revenue has been challenged before the Supreme Court, and notice has been issued. - A subsequent decision of the High Court has disturbed the earlier order relied upon by the Revenue, restoring the matter to the AO. - The issue is debatable, and incorrect particulars were not given by the assessee. Revenue's Contentions: - The High Court had previously decided against the assessee on the merits of the exemption claim, holding that the Katha business was not 'held under the Trust'. - Since the assessee furnished inaccurate particulars, the penalty imposed was justified.

Which sections of the Income-tax Act were involved?

Section 11,Section 11(4A),Section 12,Section 12A,Section 143(3),Section 260A,Section 271(1)(c)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
ITA 154/2019 Page 1 of 6 $~2 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 154/2019 THE COMMISSIONER OF INCOME TAX – EXEMPTION ..... Appellant Through: Mr. Abhishek Maratha, Senior Standing Counsel. versus MEHTA CHARITABLE PRAJANALAYA TRUST ..... Respondent Through: Mr. S. Krishnan, Adv. CORAM: HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW HON'BLE MR. JUSTICE SANJEEV NARULA

O R D E R %

12.02.

2021

[VIA VIDEO CONFERENCING]

CM. APPL. 7096/2019 (for Exemption)

1.

Exemption allowed, subject to just exceptions.

2.

The application stands disposed of.

ITA 154/2019 & CM APPL. 7097/2019 (for Condonation of Delay)

3.

The present appeal under Section 260A of the Income Tax Act, 1961 [hereinafter referred to as the “Act”] is directed against the order dated 26th December, 2017, passed by the Income Tax Appellate Tribunal, Bench "C", New Delhi in ITA No. 3285/Del/2016 in respect of Assessment Year 2005-06. This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 24/06/2026 at 13:08:28

ITA 154/2019 4. The Respondent-Assessee is a Trust registered u/S. 12A of the Act and is claiming its income to be exempt from taxation u/s. 11 and 12 of the Act. During scrutiny assessment u/s. 143(3) of the Act, the AO noticed that the Assessee had one Katha Manufacturing Factory in Oel region of Himachal Pradesh, which was given on lease to its sister concern[ M/s. Shankar Trading Co. Pvt. Ltd.] and total receipts from it, including lease rental income were claimed to be exempt under section 11 of the Act. The AO held that the business of manufacturing of katha was not incidental to the objects of the trust and invoked the provisions of section 11(4A) of the Act, and denied the benefit of exemption. The Assessee succeeded in Appeal before the CIT(A), and also in appeal filed by the revenue before ITAT, wherein the order of CIT(A) was affirmed. However, in further appeal preferred by the Revenue under section 260A of the Act, this court vide order dated 20th November, 2012, set aside the orders of the ITAT and confirmed the stand of the AO in the following words:- "We hold that the Assessee trust is not eligible for exemption because the Katha business was itself not held under trust, it would produce and anomalous or discriminatory result inasmuch as all that is required is for the settler on the trust to declare that the Katha business itself would be held in trust.”

5.

In view of the aforesaid, the AO initiated penalty proceedings and held that the Assessee furnished inaccurate particulars of income by claiming exemption under Section 11 of the Act, in respect of the business which was not incidental to the objects of the Assessee trust, and that the said mistake could not have been said to be a bona fide one. Accordingly penalty under section 271(1)(c) of the Act was levied. However, in further This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 24/06/2026 at 13:08:28

ITA 154/2019 appeal before CIT(A) and ITAT, the Assessee succeeded and the penalty was deleted.

6.

Mr. Maratha, Senior Counsel for Revenue refers to the decision of this court on the merits of the claim of exemption and argues that this Court had decided against the Assessee, and held that Katha business is not ‘held under the Trust’. He submits that since the Assessee had furnished inaccurate particulars, therefore, the penalty imposed was justified.

7.

Mr. Krishnan, on the other hand submits, that the entire information was disclosed by the Assessee in it’s Return of Income and merely because the finding has been given against the Assessee on merits of the claim, would not ipso facto signify that Assessee has furnished inaccurate particulars. He submits that even otherwise, the issue is still at large as the judgment of this Court, relied upon by the Revenue, has been challenged before the Supreme Court and notice has been issued on the said petition. He further submits that in subsequent decision of this Court, the earlier order relied upon by the Revenue has been disturbed as the matter has been restored to the file of AO to examine the aspect of allowability of expenditure and depreciation in accordance with law. He submits that the issue is debatable and further in view of the facts noted above it cannot be held that incorrect particulars have been given by the Assessee.

8.

We have considered the rival contentions of the parties. It is clear that the penalty proceedings are arising as an outcome of the assessment proceedings, which is still being debated upon. If the issue is debatable, This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 24/06/2026 at 13:08:28

ITA 154/2019 penalty proceedings cannot lie. Law on this subject is well settled and this court, as recently as on 22nd December 2020 in the case of Pr. Commissioner of Income Tax (Central)-2 Vs. Harsh International Pvt. Ltd., MANU/DE/2315/2020, reiterated the position in law in respect of levy of penalty when the issue is debatable and observed as under:

“9. Having heard the learned counsel for the appellant and having perused the impugned order, this Court is of the view that the ITAT was right in deleting the penalty levied under Section 271(1)(c) of the Act. It has to be noted that penalty proceedings are an outcome of assessment and if the assessment itself is debatable, the penalty proceedings cannot survive.

10.

This court is also of the opinion that levy of penalty cannot be a matter of course, as sought to be contended by the Revenue. It can only be levied in cases where the concealment of income has been proven. If the quantum order itself has been challenged and this Court has framed substantial questions of law in the appeal preferred by the respondent-Assessee, it shows that the alleged concealment is not final and the issue is disputable. Consequently, the penalty levied by the assessing officer cannot survive in such a case.

11.

It is pertinent to note that this Court in similar cases [CIT Vs. Liquid Investment Ltd, ITA 240/2009, CIT Vs. H B Leasing & Finance Co. Ltd. I.T.A. No. 1612/2010 and CIT Vs. Thomson Press India Ltd, ITA 426, 440/2013] has upheld the deletion of the Thomson Press India Ltd. (supra) is reproduced hereinbelow:-

A) Order dated 5th October, 2010 passed by this Court in CIT Vs. Liquid Investment Ltd. (supra):-

"Both the CIT(A) as well as the ITAT have set aside the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961 on the ground that the issue of deduction under Section 14A of the Act This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 24/06/2026 at 13:08:28

ITA 154/2019 was a debatable issue. We may also note that against the quantum assessment where under deduction under Section 14A of the Act was prescribed to the Assessee, the Assessee has preferred an appeal in this Court under Section 260A of the Act which has also been admitted and substantial question of law framed. This itself shows that the issue is debatable. For these reasons, we are of the opinion that no question of law arises in the present case."

B) Order dated 3rd March, 2014 passed by this Court in CIT Vs. Thomson Press India Ltd. (supra):-

"This Court is of the opinion that where the question of law as raised by the Assessee has been framed and admitted in the circumstances of this case, imposition of penalty cannot be justified. The appeals being bereft of substantial question of law are dismissed." SCC 762, held as under:

“20. (…) It was up to the authorities to accept its claim in the Return or not. Merely because the Assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the Assessee will invite penalty This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 24/06/2026 at 13:08:28

ITA 154/2019 under Section 271(1)(c). That is clearly not the intendment of the Legislature.”

9.

In view of above, no question of law, much less a substantial question of law, arises for our consideration. Accordingly, the present appeal, along with pending application, is dismissed.

RAJIV SAHAI ENDLAW, J

SANJEEV NARULA, J FEBRUARY 12, 2021 ms This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 24/06/2026 at 13:08:28

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