High Court Upholds Deletion of Penalty for Denied Deduction under Income Tax Act

The appeal was against the deletion of penalty u/s 271(1)(c) for denial of deduction u/s 80P(2)(d) of the Income Tax Act. The High Court upheld the deletion of penalty amounting to Rs. 12,03,242 by the Ld. Commissioner of Income Tax(A) as the issue of denial of deduction was considered debatable. The Tribunal's initial allowance of the deduction, later confirmed by the High Court, indicated the debatable nature of the claim, leading to the dismissal of the revenue's appeal and confirmation of penalty deletion.

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Issues Involved: Appeal against deletion of penalty u/s 271(1)(c) for denial of deduction u/s 80P(2)(d) of the Income Tax Act.

Summary:
The appeal was directed against the order of the Ld. Commissioner of Income Tax(A), Chandigarh, challenging the deletion of penalty u/s 271(1)(c) amounting to Rs. 12,03,242/- by holding the denial of deduction u/s 80P(2)(d) as debatable. The assessee, a Cooperative Society, received interest from banks against which deduction u/s 80P(2)(d) was claimed. The Assessing Officer treated the income as from other sources, denying the deduction. The Tribunal deleted the addition, but the High Court confirmed it. The penalty was deleted by the Ld. CIT(A) as the issue was debatable.

The Ld. DR for the revenue supported the Assessing Officer's order, while the assessee's counsel argued that the Tribunal's deletion of the addition, later confirmed by the High Court, indicated the debatable nature of the issue. Citing a decision of the Punjab & Haryana High Court, the counsel argued against the leviability of the penalty.

After careful consideration, it was noted that the Tribunal had originally allowed the deduction, indicating the debatable nature of the claim. Referring to the decision in CIT v. Buddhewal Coop Sugar Mills, where the High Court cancelled the penalty due to the bona fide nature of the claim, the penalty deletion by the Ld. CIT(A) was upheld.

Consequently, the appeal of the revenue was dismissed, confirming the deletion of the penalty.

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