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Facts
The Assessee, a cooperative bank, claimed deduction for interest income under Section 80P(2)(d). The Assessing Officer denied this deduction, treating it as income from other sources, and levied penalty under Section 271(1)(c) and later under Section 270A. The Assessee appealed against the penalty orders. A batch of 6 appeals were considered together.
Held
The Tribunal held that the interest income earned by the Assessee was eligible for deduction. The Assessee had acted in good faith and made full disclosures. The penalty levied under Section 271(1)(c) and Section 270A was not sustainable as the Assessee had a bonafide belief and reasonable cause, supported by judicial precedents.
Key Issues
Whether the penalty under Section 271(1)(c) and 270A was leviable for disallowance of deduction claimed under Section 80P(2)(d) when the Assessee acted in good faith and with a bonafide belief, supported by judicial pronouncements?
Sections Cited
271(1)(c), 270A, 80P(2)(d), 80P(2)(a)(i), 273B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Pannivizha Service Cooperative bank Ltd. No.891, Pannivizha Adoor, Pathanamthitta, Kerala-691523 [PAN:AABAP9936C] …………. Appellant Vs Assessing Officer, Aayakar Bhavan, Kollam, Kerala– 691001 …………. Respondent Appearance For the Appellant/Assessee : Shri K. Krishna Kumar, CA For the Respondent/Department : Ms. Neethu S, Sr. DR Date Conclusion of hearing : 18.08.2025 Pronouncement of order : 20.08.2025 O R D E R [ Per Rahul Chaudhary, Judicial Member:
1.
This is a batch of 6 appeals pertaining to the Assessment Years 2011-12 to 2014-15, 2018-19 & 2020-21 preferred by the Assessee against 6 separate orders, all dated 30/06/2025, passed by the National Faceless Appeal Centre, Delhi [hereinafter referred to as ‘the CIT(A)’] under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’]. Appeals pertaining to Assessment Years 2011-12 to 2014-15 challenge the levy of penalty under Section 271(1)(c) of the Act whereas the appeals pertaining to 2018-2019 & 2020-2021 challenge the levy of penalty under Section 270A of the Act. Since the identical facts and common issues involved in all these appeals and the appeals were heard together Assessment Year 2011-12 to 2014-15, 2018-19 & 2020-21 and are being disposed of by way of this common order.
2. We would first take up appeal for the Assessment Year 2011-12 preferred by the Assessee against Order, dated 30/06/2025, passed by the CIT(A) dismissing the appeal against the Penalty Order, dated 04/03/2025, whereby penalty of INR.48,515/- was levied under Section 271(1)(c) of the Act.
The grounds of appeal raised by the Assessee reads as under:
1. The appellant's accounts are subject to statutory audit under the Kerala Co-operative Societies Act, and any delay in finalization was due to reasons beyond its control. The appellant had no intention to furnish inaccurate particulars of income, as all disclosures were made in good faith based on a bona fide belief that the income was eligible for deduction under Section 80P(2)(d). The learned CIT(A) had partly allowed the appeal and revised the assessed income, reducing the disallowance substantially. In such a situation, levy of penalty is unjustified and unreasonable. The claim of the appellant was based on judicial precedents including the Supreme Court ruling in Mavilayi Service Co-op Bank Ltd. v. CIT and the recent Kerala High Court decision in PCIT v. Sahyadri Co-op Credit Society Ltd. (166 taxmann.com 445), which supports that interest from deposits of surplus funds in banks is eligible for deduction under section 80P(2)(a).
4. The relevant facts in brief are that the Assessee is a cooperative bank registered as a Primary Agricultural Credit Cooperative Society, under the Kerala Cooperative Societies Act, 1969, and engaged in the business of providing credit facilities to members and earning interest from investments. For the Assessment Year 2011-2012, the Assessee claimed deduction under Section 80P of the Act in respect of interest of INR 3,731/- received from Union Bank of India and interest of INR 1,53,275/- received from the Treasury. The Assessing Officer, inter alia, denied the aforesaid deduction claimed Assessment Year 2011-12 to 2014-15, 2018-19 & 2020-21 by the Assessee and made addition of INR 1,57,006/- which was confirmed the by the learned CIT(A). The Assessee, admittedly, did not prefer appeal against the aforesaid order passed by the Learned CIT(A). Meanwhile, penalty proceedings were initiated against the Assessee under Section 271(1)(c) of the Act for furnishing inaccurate particulars of income which culminated into passing of Penalty Order, dated 04/03/2025, whereby penalty of INR.48,515/- was levied on the Assessee. Appeal preferred by the Assessee challenging the aforesaid levy of penalty was dismissed by the Learned CIT(A) vide Order, dated 30/06/2025, which has been impugned by the Assessee by way of the present appeal on the ground reproduced in paragraph 3 above.
During the course of hearing it was submitted on behalf of the Assessee that the Assessee was of the bonafide belief that income of INR.1,57,006/- was eligible for deduction under Section 80P(2)(d) of the Act. Complete disclosure of all relevant facts was made during the assessment proceedings. Therefore, the question of furnishing inaccurate particulars by the Assessee did not arise. Mere rejection of claim made in the return cannot constitute furnishing inaccurate particulars of income. Placing reliance upon the judgment of Hon'ble Supreme Court in the case of Mavilayi Service Co-op. Bank Ltd. vs. CIT (431 ITR 01) and the judgment of Hon'ble Kerala High Court in the case of PCIT vs. Sahyadri Co-op. Credit Society Ltd. (166 taxmann.com 445), it was submitted by the Learned Authorised Representative for the Assessee that the interest income of INR.1,57,006/- was eligible for deduction under section 80P(2)(a)(i) of the Act. Therefore, no penalty could have been levied upon the Assessee. The fact that the Assessee did not challenge the order passed by the CIT(A) on merits in appeal before the Tribunal on account of low tax impact cannot come in the way of Assessee making the aforesaid submission. -532/Coch/2025 Assessment Year 2011-12 to 2014-15, 2018-19 & 2020-21
Per contra, the Learned Departmental Representative relied upon the orders passed by the authorities below and submitted that the claim for deduction made by the Assessee under Section 80P(2)(d) of the Act was in respect of ineligible income [i.e. interest from banks and entities other than co-operative societies] and the same amounted to furnishing of inaccurate particulars of income.
We have considered the rival submission and have perused the material on record including the orders passed by the Assessing Officer and the Ld. CIT(A).
8. Perusal of the record shows that the Assessee had claimed deduction in respect of interest income including interest income received from banks and treasury under section 80P(2)(d) of the Act. The Assessing Officer was of the view that the deduction under Section 80P(2)(d) of the Act was restricted to interest received from co- operative society. Therefore, deduction of INR.1,57,006/- claimed by the Assessee under Section 80P(2)(d) of the Act in respect of interest received from entities other than co-operative societies was denied and, subsequently, penalty under Section 271(1)(c) of the Act was levied for furnishing inaccurate particulars of income vide Penalty Order, dated 04/03/2025. It is settled legal position that a mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. [CIT Ahmedabad vs. Reliance Petroproducts (P.) Ltd. : 322 ITR 158 (SC.]. Perusal of record shows the Assessee had disclosed all the material facts and no fault has been found with the particulars submitted by the Assessee. The contention of the Assessee is that even if the claim of the Assessee is taken to be incorrect no penalty can be levied under Section 271(1)(c) of the Act since the Assessee had made compete disclosure of all relevant facts; the Assessee was under bonafide belief that the Assessee was Assessment Year 2011-12 to 2014-15, 2018-19 & 2020-21 entitled to claim deduction under Section 80P(2)(d) of the Act; and the Assessee was, in any case, entitled to deduction under Section 80P(2)(a)(i) of the Act as per the judgment of the jurisdictional High Court in the case of Sahyadri Co-op. Credit Society Ltd. (supra). We find merit in the aforesaid submissions advance on behalf of the Assessee. Further, even if it is assumed that the Assessee had furnished inaccurate particulars, we are of the view that the Assessee had discharged the burden cast under Section 273B of the Act to establish that the Assessee had reasonable cause for the same in view of the aforesaid explanation offered by the Assessee and therefore, penalty under Section 271(1)(c) of the Act could not have been levied in the facts and circumstances of the present case. In our view the legal position regarding claim of deduction in respect of interest income earned by a co-operative society under Section 80P(2)(d)/80P(2)(a)(i) of the Act was not free from doubt and the Assessee was under bonafide belief deduction for interest income of INR.1,57,006/- was allowable under Section 80P(2)(d) of the Act. The bonafides of the stand taken by the Assessee have not been doubted by the Assessing Officer. In any case, it has not been disputed by the Revenue that as per the judgment of the Hon’ble Kerala High Court in the case of Sahyadri Co-op. Credit Society Ltd. (supra) the Assessee was entitled to claim deduction under Section 80P(2)(a)(i) of the Act. The relevant extract of the said judgment reads as under: “7. On a consideration of the rival submissions, we are of the view that for the reasons stated hereinafter, the question of law that arises for consideration before us must be answered against the Revenue and in favour of the assessee. The permissible deduction that is envisaged under Section 80P(2) of the I.T. Act for a Co-operative Society that is assessed to tax under the head of 'Profits and Gains of Business or Profession' is of the whole of the amount of profits and gains of business attributable to any one or more of its activities. Thus, all amounts as can be attributable to the conduct of the specified businesses by a Co- operative Society will be eligible for the deduction envisaged under the statutory provision. The question that arises therefore is whether, merely because the assessee Assessment Year 2011-12 to 2014-15, 2018-19 & 2020-21 chooses to deposit its surplus profit in a permitted bank or financial institution, and earns interest on such deposits, such interest would cease to form part of its profits and gains attributable to its business of providing credit facilities to its members? In our view that question must be answered in the negative, since we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount [the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of interest or gain through such activity. The assessee had only deposited the profit earned by it in the manner mandated under Section 63 of the Multi-State Co-operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged under the regulatory Statute that regulated, and thereby legitimized, its business of providing credit facilities to its members. Under those circumstances, if the assessee managed to earn some additional income by way of interest on the deposits made, it could only be seen as an enhancement of the profits and gains that it made from its principal activity of providing credit facilities to its members. The nature and character of the principal income [profits earned by the assessee from its lending activity] does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee.
We also find force in the submission of the learned Senior counsel, distinguishing the decision of the Supreme Court in M/s. The Totgars' Cooperative Sale Society Limited (supra), on the ground that the Court in that case had found that the Society concerned had appropriated amounts forming part of surplus receipts which were due to its members, and invested the same to earn interest during the period when the surplus receipts were in its hands. It was therefore that the court found that the interest earned by the Society through deposit of such receipts with banks in fact ought to have accrued to the benefit of the individual members and not to the Society itself; that in relation to the Society, it was to be treated as income from other sources since the interest income had lost its nexus with the principal income earned by the Society. The facts in the instant cases are entirely different and the investment concerned was of amounts that had already attained the character of surplus profits in the hands of the assessee. On this issue, therefore, we find ourselves in agreement with the view taken by the Andhra Pradesh and Karnataka High Courts respectively in The Vavveru Assessment Year 2011-12 to 2014-15, 2018-19 & 2020-21 Co-operative Rural Bank Ltd. (supra) and Tumkur Merchants Souharda Credit Co-operative Ltd. (supra).
As for the argument of the learned Standing Counsel for the Revenue, with reference to the provisions of Section 80P(2)(d) of the I.T. Act, we might only observe that, while it may be a fact that interest income of the nature specified therein is specifically allowed as a deduction in the case of Co-operative Societies in general, in the light of our discussion above as regards the nature of the interest income earned by the assessee Society in the instant cases, it would follow that the interest income dealt with by us in the instant cases is not akin to the one contemplated under Section 80P(2)(d). We are of the view that the latter provision deals with interest income other than what can be attributable to the main business of the Society. In the result, we dismiss these I.T. Appeals preferred by the Revenue, in so far as they relate to the question as to "whether or not the income received by the respondent Society by way of interest on deposits of surplus profits earned by it, would qualify for the deduction contemplated under Section 80P(2)(a) of the I.T. Act, for profits and gains of business attributable to its activity of providing credit facilities to its members?" by answering the said question against the Revenue and in favour of the assessee. ” (Emphasis Supplied)
9. Given the above, we are of the view that penalty of INR 48,515/- levied under section 271(1)(c) of the Act cannot be sustained and is hereby deleted. In terms of the aforesaid Ground No.1 raised by the Assessee is allowed.
In result, preferred by the Assessee is allowed.
ITA No. 528/Coch/2025 [A.Ys. 2012-2013] [A.Ys. 2013-2014] [A.Ys. 2014-2015] 11. As regards ITA Nos. 528, 529 & 530/Coch/2025 pertaining to the Assessment Years 2012-13, 2013-2014 and 2014-2015 are concerned, the same have been preferred by the Assessee against three separate orders passed by the CIT(A), each dated 30/06/2025, whereby Assessee’s appeal against the Penalty Orders 25/02/2025, ITA Nos.527-532/Coch/2025 Assessment Year 2011-12 to 2014-15, 2018-19 & 2020-21 05/03/2025 & 28/02/2025 levying penalty under Section 271(1)(c) of the Act for the Assessment Years 2012-13 , 2013-2014 and 2014- 15, respectively, was dismissed.
During the course of hearing, both the sides agreed that in the facts and circumstances identical to those prevailing in the Assessment Year 2011-2012, following penalty under Section 271(1)(c) of the Act was levied upon the Assessee in respect of disallowance of deduction claimed by the Assessee under Section 80P(2)(d) of the Act in the return of income for the Assessment Years 2012-2013, 2013-2014 and 2014-2015 in respect of the interest income received from Banks and Treasury: Appeal No. Interest from Bank & Treasury Penalty u/s 271(1)(c) (INR) (INR) 3,73,478 3,73,478 (2012-2013) 5,76,636 5,76,636 (2013-2014) 2,34,054 2,34,054 (2014-2015) 13. Since there is no change in the facts and circumstances of the case and the grounds raised by the Assessee are identical, our finding and adjudication in relation to appeal for the Assessment Year 2011- 2012 shall apply mutatis mutandis to the appeals preferred by the Assessee challenging the levy of penalty under Section 271(1)(c) of the Act for the Assessment Years 2012-2013, 2013-2014 and 2014- 2015. Accordingly, adopting the reasoning given while deciding identical issue in favour of the Assessee in appeal for the Assessment Year 2011-2012, we delete the penalty levied in each of the aforesaid three assessment year under Section 271(1)(c) of the Act. Thus, Ground No. 1 raised in each of the three appeals is allowed.
In the result, the three appeals preferred by the Assessee Assessment Year 2011-12 to 2014-15, 2018-19 & 2020-21 Assessment Years 2012-2013, 2013-2014 & 2014-2015 are allowed.
ITA No. 531/Coch/2025 [A.Ys. 2018-2019] [A.Ys. 2020-2021]
We would now take up of appeal preferred by the Assessee for the Assessment Years 2018-2019 & 2020-2021 against two separate orders passed by the CIT(A), each dated 30/06/2025, whereby Assessee’s appeal against the Penalty Orders each dated 04/03/2025 levying penalty under Section 270A of the Act for the Assessment Years 2018-2019 and 2020-2021, respectively, was dismissed.
During the course of hearing, both the sides agreed that in the facts and circumstances identical to those prevailing in the Assessment Year 2011-2012, penalty under section 270A of the Act was levied on the Assessee for ‘under-reporting’ of income. Accordingly, both the sides adopted the submissions made in relation to appeal for the Assessment Year 2011-2012 and reiterated the stand taken before the authorities below. In addition, the Learned Departmental Representative placed reliance upon provisions contained in 270A of the Act providing for levy of penalty in case of under-reporting of income, the relevant extract of which reads as under: “270A. Penalty for under-reporting and misreporting of income. (1) The Assessing Officer or [the Joint Commissioner (Appeals) or] the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the course of any proceedings under this Act, direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income. xx xx (6) The under-reported income, for the purposes of this section, shall not include the following, namely: -532/Coch/2025 Assessment Year 2011-12 to 2014-15, 2018-19 & 2020-21 (a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or [the Joint Commissioner (Appeals) or] the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered”
We note that Section 270A(1) of the Act empowers the Assessing Officer to levy penalty for under-reporting of income. Section 270A(2) of the Act provides that a person shall be considered to have under-reported income in case of instances specified in sub- clause (a) to (g) of Section 270A(2) of the Act. Section 270A(3) to 270A(6) of the Act deal with the computation of amount of under- reported income. Section 270A(6)(a) of the Act, specifically excludes from the ambit of amount of under-reported income, the amount of income in respect of which the assessee offers explanation provided the concerned income tax authority is satisfied that the explanation so offered is bonafide and that the assessee has disclosed all the material facts to substantiate the explanation so offered. While adjudicating appeal for the Assessment Year 2011-2012, in identical factual matrix, we have accepted the explanation offered by the Assessee for making claim for deduction under Section 80P(2)(d) of the Act in respect of interest received from banks/treasuries as reasonable and bonafide. We have concluded that the Assessee had disclosed all material facts and had, thus, acted in a bonafide manner. Further, the Assessee was, in any case, entitled to claim deduction for the said interest income under Section 80P(2)(a)(i) of the Act as per the judgment of the Hon’ble Kerala High Court in the case of Sahyadri Co-op. Credit Society Ltd. (supra). Therefore, we hold that the Assessee should have been granted benefit of the provisions contained in Section 270A(6)(a) of the Act. Accordingly, we delete the penalty of INR.55,271 (Assessment Year 2018-2019) and INR.1,75,857 (Assessment Year 2020-2021) levied upon the Assessment Year 2011-12 to 2014-15, 2018-19 & 2020-21 Assessee under Section 270A of the Act. In result, Ground raised by the Assessee in appeal for the Assessment Year 2018-2019 and 2020-2021 is allowed.
In the result, (Assessment Year 2018-2019) and ITA No. 532/Coch/2025 (Assessment Year 2020-2021) preferred by the Assessee is allowed.
In conclusion, all the six appeals filed by the Assessee are allowed.