SURYA MERCHANTS LTD.,NEW DELHI vs. DCIT, GHAZIABAD

Heard and considered the arguments advanced by the parties in view of orders of the authorities below, material available on record and the decisions relied upon.

The facts in brie are that the Assessing Officer levied penalty under sec. 271(1)(c) of the Income-tax Act, 1961 at Rs.1,50,800 on the 2 disallowance of the claimed deduction under sec. 80P(2) of the Act on the interest received by the assessee from its investment of surplus funds in banks amounting to Rs.4,98,122.06. The Learned CIT(Appeals) has upheld this penalty. The Assessing Officer had made the above said disallowance denying the claim of the assessee that the interest income was business receipts.

In support of the grounds, the Learned AR submitted that all the necessary information relating to the claimed deduction on the interest received by the assessee from its investment of surplus funds in banks were made available to the Assessing Officer on the basis of which the Assessing Officer made disallowance. The assessee did not question the disallowance to avoid litigation. The authorities below have, however, levied and upheld the penalty in question on the basis that there was deliberate action of the assessee in claiming deduction under sec. 80P on such income which was not its business income and thus the assessee has furnished inaccurate particulars of such income. The Learned AR submitted that even on merits of the disallowance made by the Assessing Officer the assessee has got good case as the issue is fully covered by the decision of Delhi Bench of ITAT in the case of ACIT vs. Jawala Co-operating Urban Thrift & Credit Society Ltd. – (A.Y. 2008-09) – order dated 19.12.2014 3 holding that the funds placed by the assessee in the form of fixed deposits can be said to be kept for the purpose of business of the assessee and thus was eligible for the deduction under sec. 80P(2) of the Act.

The Learned Senior DR opposed the submission of the assessee with this contention that the assessee by not preferring appeal against the disallowance made by the Assessing Officer had accepted the disallowance in question and there was deliberate action on the part of the assessee for claiming deduction under sec. 80P on such income about which the assessee was aware that it was not business income and hence not eligible for the claimed deduction. Thus, there was furnishing of inaccurate particulars of income on the part of the assessee to attract penal provisions under sec. 271(1)(c) of the Act.

Considering the above submissions and undisputed fact that the Assessing Officer had made disallowance of the claimed deduction under sec. 80P(2) of the Act only on the basis of information furnished by the assessee on record, it can be arrived at a conclusion that there was no concealment of particulars of income or furnishing inaccurate particulars thereof on the part of the assessee towards making the claimed deduction. Being penal in nature the provisions laid down under sec. 271(1)(c) of the Act can be invoked only in those cases where the Assessing Officer is in a 4 position to establish beyond doubt that there was concealment of particulars of income or furnishing inaccurate particulars thereof on the part of the assessee towards the disallowance/addition made by him. In absence of such clear finding in the present case, we do not agree with the authorities below that there was furnishing of inaccurate particulars of income on the part of the assessee while claiming deduction under section 80P(2) of the Act on the interest income received on surplus funds deposited in banks. It is an established proposition of law that assessment proceedings and penal proceedings under sec. 271(1)(c) of the Act are independent proceedings and unless the requirement of levy of penalty is fulfilled, it cannot be invoked automatically where disallowance/addition is made and sustained. We thus while setting aside orders of the authorities below direct the Assessing Officer to delete the penalty levied under sec. 271(1)(c) of the Act at Rs.1,50,800. The grounds involving the issue are thus allowed in favour of the assessee.