DUDHSAGAR RESEARCH AND DEVELOPMENT ASSOCIATION,MEHSANA vs. THE DCIT(E) CIRCLE-1,, AHMEDABAD

The brief facts of the case are that in it’s return of income, the assessee claim to have received “corpus donation” both from members as well as non-members of the association. During the assessment proceedings, the Assessing Officer held that these donations are in fact “revenue receipts”, since these are received from sale of Bovine Semen to milk societies which use the same to breed better quality milch cattle. The Assessing Officer held that the assessee / association was not providing any charitable services and the receipts were compensation received by the assessee association for providing it’s services. In appeal, in quantum proceedings, both the Ld. CIT(A) and the ITAT decided the issue against the assessee and held that the contributions received by the associations are not “voluntary in nature”, as stated by the assessee and mere production of receipts which state that the amount has been paid towards “corpus fund of the assessee” cannot lead to the conclusion that the contribution qualifies as “corpus donation”, more so, when the receipts do not even state the specific purpose for which these donations have been given.

Accordingly, in light of these facts the Assessing Officer initiated proceedings under Section 271(1)(c) of the Act, which were confirmed by Ld. CIT(A) with the following observations:

The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A) confirming the levy of penalty under Section 271(1)(c) of the Act. Before us, the Counsel for the assessee submitted that admittedly in this case the ITAT had decided this issue against the assessee in quantum proceedings. However, this is by itself should not lead to automatic levy of penalty for furnishing inaccurate particulars of income when the full details with regards to these receipts as “corpus donation” have been submitted by the assessee during the course of assessment proceedings. The Counsel for the assessee submitted that so far as the assessee trust is concerned, for the past many years the income in the nature of fees collected from milk society has always been received by the assessee with a clear direction from the donors in writing that they are “voluntary” donations. The Counsel for the assessee submitted the practice of receiving and treating such donation as contributions to the “corpus fund” of the assessee trust has been prevalent for more than 15 years to 20 years. Further, it was submitted that the books of accounts have been audited by an independent Chartered Accountant, who has agreed to such accounting treatment by the assessee. Accordingly, the submission of the Counsel for the assessee was that just because a certain tax position with regards to these receipts which has been taken by the Dudhsagar Research and Development Association vs. DCIT(E) Asst.Year –2014-15 - 4– assessee, has not been accepted by the Tax Authorities, should not by itself lead to automatic levy of penalty for furnishing inaccurate particulars of income.

In response, Ld. D.R. placed reliance on the observations made by Ld. CIT(A) in the appellate order.

We have heard the rival contentions and perused the material on record.

We observe that the Income Tax Appellate Tribunal for the impugned assessment year in the assessee’s own case, while dealing with quantum additions has decided this issue against the assessee and has held that looking into the substance of transactions, the said amounts so received by the assessee do not qualify as “corpus donation”. However, so far as penalty proceedings is concerned, we observe that the assessee has been consistently following the practice of receiving and treating such funds as “corpus funds of the trust” for the past 15 to 20 years. The books of accounts have been audited by an independent Chartered Accountant and further complete disclosure with this regard has been made before the Revenue Authorities, during the course of assessment proceedings.

In the case of CIT vs. Gurdaspur Co-operative Sugar Mills Ltd. 35 taxmann.com 395 (Punjab & Haryana), the High Court has held that where issue whether amount of grant-in-aid was capital receipt or a revenue receipt was a debatable issue, penalty under section 271(1)(c) of Dudhsagar Research and Development Association vs. DCIT(E) Asst.Year –2014-15 - 5– the Act could not be imposed. Further, the Hon’ble Supreme Court also dismissed the SLP filed by the Department against the aforesaid order passed by Hon’ble High Court of Punjab & Haryana (reported in 159 taxmann.com 7 (SC)). In the case of CIT vs. Reliance Petroproducts Pvt. Ltd. 322 ITR 158 (SC), the Hon’ble Supreme Court has held that merely because assessee has claimed expenditure, which claim was not accepted by Revenue Authorities, that by itself could not attract penalty under Section 271(1)(c) of the Act. Further, in the case of CIT vs. Oshwal Education Trust 52 taxmann.com 332 (Gujarat)/369 ITR 91 (Gujarat), the Gujarat High Court held that where assessee trust under bona fide belief treated voluntary contributions as corpus donation, Assessing Officer could not pass a penalty order under section 271(1)(c) while taking a view that said amount was taxable as income under Section 12 of the Act. While passing the order, the Gujarat High Court made the following observations:

Accordingly, in light of the facts of the assessee’s case and our observations in the preceding paragraphs wherein we observed that the assessee has consistently been treating the aforesaid receipts as “corpus donations” for past 15 to 20 years and all facts were duly disclosed to the Revenue Authorities at the stage of assessment proceedings, we are of the considered view that this is not a fit case of levy of penalty under Section 271(1)(c) of the Act for furnishing inaccurate particulars of income.

In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 26/05/2025