ALL INDIA RUBBER INDUSTRIES ASSOCIATION,MUMBAI vs. DCIT (E)1(1), MUMBAI

The present appeal filed by the assessee is directed against the order passed by the CIT(A)-3, Mumbai, dated 25.05.2018, which in turn arises from the order passed by the A.O under Sec. 271(1)(c) of the Income Tax Act, 1961 (for short „Act‟), dated 30.03.2017 for A.Y. 2012-13. The assessee has assailed the impugned order on the following grounds of appeal before us: “1. On facts, in circumstances of the case and in law, the learned Commissioner of income Tax (Appeals) erred in confirming penalty of Rs.15,01,163/- levied by learned A.O under Sec. 271(1)(c) of the Income Tax Act, 1961.

Briefly stated, the assessee had filed its return of income for A.Y. 2012-13 on 29.09.2012 along with its Income and Expenditure account, balance sheet and audit report in Form No. 10B, declaring its total income at Rs. nil. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act.

During the course of the assessment proceedings it was observed by the A.O that a perusal of the „Memorandum of association‟ of the assessee revealed that its „main object‟ was to safeguard the interest of its members which were engaged in manufacturing of rubber products made out of natural rubber, synthetic rubber and latex in India. It was noticed by the A.O that the assessee trust had during the year earned income from advertisement, sale of books and periodicals, subscriptions, interest income on fixed deposits and cumulative deposits, and also other income. Observing, that the assessee trust was a mutual association and not a charitable institution, the A.O was of the view that as the assessee trust was not in receipt of amounts from its members, therefore, the income therein arising would fall beyond the purview of mutuality. As such, the A.O was of the view that the assessee was liable to be covered by the proviso to Sec. 2(15) of the Act. Being of the view that the receipts of the assessee would not be covered under mutuality, the A.O treated the same as the taxable income of the assessee. On the basis of his aforesaid deliberations the A.O invoked the proviso to Sec. 2(15) of the Act and disallowed the assesses claim of exemption under Sec. 11. Accordingly, the income of the assessee trust was subjected to tax as per the normal provisions of the Act. The A.O while assessing the income of the assessee trust at Rs.48,57,810/- also initiated penalty proceedings under Sec. 271(1)(c) of the Act for furnishing of inaccurate particulars of income.

After the culmination of the assessment proceedings, the A.O vide his order passed under Sec. 271(1)(c) of the Act, dated 30.03.2017 imposed penalty of Rs.15,01,063/- on the assessee under Sec.271(1)(c) of the Act. 5. Aggrieved, the assessee assailed the penalty imposed by the A.O under Sec.271(1)(c), vde his order dated 30.03.2017 before the CIT(A). It was observed by the CIT(A) that the assessee in the course of the assessment proceedings could not substantiate as to on what basis the income of Rs.48,58,810/- was to be treated as exempt. In other words, it was observed by the CIT(A) that the assessee could not substantiate its claim that it was a charitable organisation. Observing, that the provisions of „Explanation 1‟ to Sec. 271(1)(c) were attracted in the case of the assessee, the CIT(A) was of the view that no infirmity did emerge from the imposition of penalty under Sec. 271(1)(c) by the A.O. Accordingly, the CIT(A) dismissed the appeal of the assessee.

The assessee being aggrieved with the aforesaid order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee at the very outset of the hearing of the appeal submitted that the quantum assessment that was framed by the A.O, which was thereafter upheld by the CIT(A), on further appeal had been vacated by the Tribunal viz. ITAT, Mumbai bench “A”, Mumbai, vide a consolidated order passed in the case of the assessee viz. All India Rubber Industries Association Vs. ITO (E) – 1(1), Mumbai; dated 12.10.2018 [ITA No. 1368/Mum/2016] (copy placed on record). It was submitted by the ld. A.R that as the quantum additions has been deleted by the Tribunal, vide its order passed in dated 12.10.2018, therefore, the penalty imposed under Sec. 271(1)(c) cannot be sustained and is liable to be vacated.

Per contra, the ld. Departmental Representative (for short „D.R‟) could not controvert the aforesaid claim of the counsel for the assessee. 8. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. Admittedly, the Tribunal while disposing off the quantum appeal of the assessee viz. All India Rubber Industries Association Vs. ITO (E)-1(1), Mumbai [ITA No.1368/Mum/2016, dated 12.10.2018] had observed that there was no finding at all by the A.O or even by the CIT(A) that any of the activities of the assessee were carried out with a profit motive so as to attract proviso to Sec. 2(15) of the Act. In fact, it was observed by the Tribunal that the stream of incomes referred to by the A.O in the assessment order viz. advertisement receipts, subscription income, seminar income, income from sale of books and periodicals, etc, were shown to have been received from activities which were carried out without any profit motive and were in fact in the nature of activities that were incidental to its object of promoting and safeguarding the rubber industry. On the basis of the aforesaid deliberations, the Tribunal was of the view that the A.O was in error in invoking the proviso to Sec. 2(15) of the Act and therein treating the activities of the assessee as being non-charitable. 9. We have given a thoughtful consideration and find that as the quantum addition made by the A.O, which thereafter was sustained by the CIT(A), had been vacated by the Tribunal while disposing off the quantum appeal of the assessee, therefore, the penalty imposed on the 4 M/s All India Rubber Industries Association Vs. Dy. CIT (Exemption)-1(1)

The order passed by the CIT(A) is set aside in terms of our aforesaid observations.

The appeal of the assessee is allowed.