2016 (12) TMI 1649 - HC - Income Tax

Court rules in favor of assessee on tax deductions, dismissing department's appeal.

The High Court upheld the Tribunal's decision, ruling that no penalty under Section 271(1)(c) could be imposed as the assessee was entitled to claim ... Penalty under section 271 (1)(c) - entitled to claim deduction under Section 80P - Held that:- That it is pertinent to note that on the merit of the issue namely as to whether the assessee is entitled to claim deduction under Section 80P of the Income Tax Act, this Court has held in favour of the assessee [2016 (9) TMI 1385 - RAJASTHAN HIGH COURT]. Since, the issue on merit has been decided in favour of the assessee no penalty can be levied and as such the Tribunal has committed no error of law in setting aside the penalty under Section 271 (1)(c) of the Income Tax Act. - Decided in favour of assessee. Issues Involved:1. Sustainability of penalty under Section 271(1)(c) of the Income Tax Act.2. Entitlement of the assessee to claim deduction under Section 80P of the Income Tax Act.Detailed Analysis:1. Sustainability of Penalty under Section 271(1)(c) of the Income Tax Act:The primary issue addressed in the judgment was whether the penalty under Section 271(1)(c) of the Income Tax Act is sustainable. The Tribunal had previously granted the benefit to the respondent-assessee, and the appellant challenged this decision. The court noted that the issue on merit, regarding the entitlement to claim deduction under Section 80P, had already been decided in favor of the assessee in a previous case (D.B. Income Tax Appeal No.139/2002). Since the merit of the issue was resolved in favor of the assessee, the court concluded that no penalty could be levied. The Tribunal's decision to set aside the penalty was upheld, and the appeals filed by the department were dismissed summarily.2. Entitlement to Claim Deduction under Section 80P of the Income Tax Act:The court examined whether the assessee was entitled to claim deduction under Section 80P(2)(a)(iv) and 80P(2)(d) of the Income Tax Act. The assessing officer had initially rejected the claim based on the judgment in Assam Co-operative Apex Marketing Society Ltd. Vs. Additional CIT, which was confirmed by the CIT (Appeals). However, the Tribunal, considering the Supreme Court's decision in Kerala State Co-operative Marketing Federation Ltd. & Ors. vs. Commissioner of Income Tax, found that the judgment in Assam Co-operative Apex Marketing Society Ltd. had been impliedly overruled.The Supreme Court in Kerala State Co-operative Marketing Federation Ltd. held that societies engaged in marketing agricultural produce of their members include those dealing with produce raised by members who are individuals or societies that may have purchased such goods from agriculturists. The court directed the AO to consider the assessee's claim as per Section 80P(2)(a)(iv) and allow the deduction according to law.Regarding Section 80P(2)(d), the court noted that the assessee had received interest from other Co-operative Societies/Banks and claimed deduction after deducting the interest paid to the State Government. The AO disallowed this deduction, but the Tribunal found that the interest income from short-term deposits with Co-operative Banks and Societies is fully exempt under Section 80P(2)(d). The Tribunal's decision was supported by various judgments, including those from the Punjab & Haryana High Court and the Gujarat High Court.The court also considered the arguments from both sides. The department's counsel argued that the assessee was not entitled to the benefit under Section 80P(2)(a)(iv) due to the distinction between various types of cooperative societies. However, the respondent's counsel relied on the Supreme Court's decision in Kerala State Cooperative Marketing Federation Ltd., which favored the assessee.The court concluded that the Tribunal's view was correct and upheld its decision. The issues were answered in favor of the assessee, and the appeals were dismissed.Conclusion:The High Court upheld the Tribunal's decision, confirming that no penalty under Section 271(1)(c) could be levied since the assessee was entitled to claim deductions under Section 80P of the Income Tax Act. The appeals filed by the department were dismissed, and the Tribunal's decision was accepted.