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Facts
The assessee, a co-operative society, declared 'Nil' income in its return but claimed a deduction of Rs. 97,60,590/- on interest income earned from nationalized banks. The AO disallowed this deduction and levied a penalty.
Held
The Tribunal held that the issue of eligibility for deduction on interest income from nationalized banks was debatable at the time of filing the return, and the assessee may have acted under a bonafide belief. Additionally, the AO did not conclusively specify the charge for the penalty. Therefore, the appeal was allowed.
Key Issues
Whether the assessee is eligible for deduction under Section 80P(2) on interest income from nationalized banks, and whether the penalty under Section 271(1)(c) was rightly levied.
Sections Cited
271(1)(c), 80P(2)
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Income Tax Appellate Tribunal, CHANDIGRH BENCH, ‘SMC’ CHANDIGARH
Before: SHRI RAJPAL YADAV
VIRTUAL HEARING O R D E R The assessee is in appeal before the Tribunal against the order of Ld. CIT(Appeals) dated 29.01.2016 passed for assessment year 2017-18. It is pertinent to note that this appeal was earlier decided by this Tribunal. However, a Miscellaneous Application bearing No. 83/CHD/2016 was filed by the assessee and the appeal was restored to its original number. A.Y.2009-10 2
A perusal of the record would indicate that assessee has taken six grounds of appeal but in brief, its grievance is that ld. CIT(A) has erred in confirming a penalty of Rs.38,97,270/- which was levied by the AO under Section 271(1)(c) of the Income Tax Act.
3. The brief facts of the case are that assessee is a Co- operative Society. It had filed its return of income on 09.09.2009 vide which income was declared as ‘Nil’. The assessee has shown total income of Rs.97,60,590/- but claimed deduction under Section 80((2) and shown ‘Nil’ income. On perusal of the record, it revealed to the AO that assessee had made deposits with UCO Bank and Centurion Bank of Punjab/HDFC, Pakhowal. Its deposits have given an interest income of Rs.1,51,73,115/-. The AO was of the view that interest earned on Fixed Deposits made with Nationalized Bank will not qualify for claiming deduction under Section 80P(2). He was of the view that these nationalized banks did not fall within the ambit of ‘Co- operative Society’ as contemplated in Section 80P(2) sub- A.Y.2009-10 3 clause (d). Hence, he disallowed the claim of the assessee and determined the taxable income at Rs.97,60,590/-.
The ld. AO has visited the assessee with penalty under Section 271(1)(c) of the Act and ultimately levied a penalty of Rs.38,97,270/-.
Appeal to the CIT(A) did not bring any relief to the assessee.
With the assistance of ld. Representative, we have gone through the record carefully. The issue whether interest income earned from Nationalized Bank is eligible for claiming deduction under Section 80P(2) or not was a debatable issue at the point of time when assessee has filed the return. Hon'ble Gujrat High Court has silenced this controversy in the case of Employees of State Bank of India Co-operative Society Vs CIT reported in 389 ITR 578. This decision has been rendered in the assessment year 2016. Prior to that, it was not clear whether such interest income will qualify for grant of deduction under Section 80P(2). It has been demonstrated before us that there are decisions of the ITAT wherein deduction on such an amount was allowed A.Y.2009-10 4 to an assessee. Therefore, we are of the view that when assessee made this claim in the year 2009, at that point of time, there was no decision available from the Hon'ble jurisdictional High Court on this point, nor of any other High Court. It was not clear specifically whether deduction will be admissible or not. The assessee might be under a bonafide belief that this income will also qualify for deduction. A similar penalty was levied for assessment year 2010-11 and ITAT in ITA 880/CHD/2016 has deleted such penalty vide its order dated 26.11.2020.
Apart from the above, we find that ld. AO has not conclusively specified the charge in the penalty order. He has not levied the penalty on the ground that assessee has concealed the particulars or on the ground that assessee has furnished inaccurate particulars of income. He simply observed that he is satisfied that this is a fit case for imposition of penalty as per the provision of Section 271(1)(c) of the Act. We are of the view that he has to record a finding whether it is levied for furnishing of inaccurate particulars or for concealment of income. Therefore, on due A.Y.2009-10 5 consideration of both the limbs, we allow this appeal of the assessee and delete the penalty.
In result, the appeal of the assessee is allowed.