ITAT Mumbai: Penalty Deleted for Good Faith Withdrawal of Deduction Claim

The appeal before ITAT Mumbai involved the levy of a penalty under section 271(1)(c) of the Income Tax Act, 1961 due to the withdrawal of a deduction claim. The Tribunal ruled in favor of the assessee, directing the deletion of the penalty of Rs. 22,71,150. It was held that the assessee's withdrawal of the claim was done in good faith to avoid disputes, and the Explanation to section 35(1)(ii) supported the assessee's position. Citing a similar precedent, the Tribunal found no justification for upholding the penalty and ordered its deletion.

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Issues:
Levy of penalty u/s 271(1)(c) of the Income Tax Act, 1961 based on withdrawal of a claim of weighted deduction u/s 35(1)(ii) in the return of income for A.Y. 2015-16.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai concerned the imposition of a penalty u/s 271(1)(c) of the Income Tax Act, 1961. The key issue was whether the ld. CIT(A) was justified in confirming the penalty of Rs. 22,71,150 imposed on the assessee for the assessment year 2015-16. The assessee had initially claimed a deduction of Rs. 70 lacs u/s 35(1)(ii) of the Act but later withdrew this claim during the assessment proceedings due to certain findings related to the donee institution SHGPH. The withdrawal of the claim led to the addition of Rs. 70 lacs to the total income of the assessee, and subsequently, penalty proceedings were initiated by the ld AO u/s 271(1)(c) of the Act.

During the proceedings, the assessee contended that all relevant facts were disclosed, and no falsity was found in the documents provided. Despite withdrawing the claim to avoid litigation, the assessee maintained that there was no evidence of involvement in any organized tax evasion scheme. The Explanation to section 35(1)(ii) of the Act supported the assessee's case, stating that the donor's claim of deduction cannot be disturbed even if the recognition of the donee institution is withdrawn subsequently. The assessee's withdrawal of the claim and payment of tax on the addition demonstrated a bona fide intent to avoid disputes with the tax department.

The Tribunal noted a similar case where penalty u/s 271(1)(c) was deleted under comparable circumstances. Relying on this precedent, the Tribunal concluded that the penalty in the present case should be deleted. The Tribunal found no justification for upholding the penalty of Rs. 22,71,150 and directed the ld AO to delete the penalty, allowing the grounds raised by the assessee.

In conclusion, the appeal of the assessee was allowed by the Appellate Tribunal ITAT Mumbai, and the penalty u/s 271(1)(c) of the Income Tax Act, 1961 was directed to be deleted based on the assessee's bona fide intent and the precedent set by a similar case.

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