2024 (3) TMI 880 - AT - Income Tax

Good faith deduction claim under section 80GGC based on auditor advice saves assessee from section 271(1)(c) penalty

The ITAT Mumbai held that penalty under section 271(1)(c) was not sustainable where the assessee claimed deduction under section 80GGC for payments made ... Deduction under section 80GGC - penalty under section 271(1)(c) - bonafide belief based on auditor's opinion - expenditure falling within political purpose and application of section 37(1)/section 37(2B) - requirement that donation be made to a political party registered under section 29A of The Representation of the People Act, 1951Penalty under section 271(1)(c) - bonafide belief based on auditor's opinion - Whether penalty under section 271(1)(c) can be sustained for furnishing of inaccurate particulars where the claim for deduction was made bona fide on the basis of the auditor's opinion - HELD THAT: - The Tribunal examined whether the assessee's claim of deduction (later disallowed by the Assessing Officer) amounted to furnishing inaccurate particulars of income attracting penalty. The record shows the deduction claim was supported by the auditor's note and quantified in Form 3CD, and the Commissioner (Appeals) in the first instance accepted the claim as bonafide. Although the Assessing Officer subsequently disallowed the deduction after verification, the determinative question for penalty is the state of mind and bona fides at the time of making the claim. Applying the principle that a claim made in bona fide reliance on a professional opinion does not constitute furnishing of inaccurate particulars, and relying on the legal position cited (including the principle in Reliance Petro Products Ltd.), the Tribunal held that the assessee had a plausible and documented basis for the claim at the time of filing the return and therefore the ingredients of section 271(1)(c) were not attracted. Consequently, the penalty imposed by the Assessing Officer and confirmed by the Commissioner (Appeals) was not sustainable. [Paras 8, 9]Penalty under section 271(1)(c) deleted as the claim was a bona fide one made on the basis of the auditor's opinion and did not amount to furnishing inaccurate particularsFinal Conclusion: Appeal allowed; the penalty levied under section 271(1)(c) in respect of the deduction claimed under section 80GGC for A.Y. 2011-12 is deleted. Issues:The appeal concerns the penalty proceedings under section 271(1)(c) for the Assessment Year 2011-12, specifically addressing the disallowance of deduction claimed under section 80GGC.Summary:The appellant claimed a deduction under section 80GGC for payments made towards publishing advertisements in the newsletter 'Rashtravadi.' The Assessing Officer disallowed the deduction, stating that the newsletter was not a political party as required by section 80GGC. However, the CIT (A) allowed the deduction, emphasizing that the newsletter was associated with a registered political party under the Representation of the People Act, 1951. The Tribunal set aside the issue for further verification by the AO.In the subsequent proceedings, the AO found that the payment was made to the newsletter, not the political party, leading to the disallowance of the claim under section 80GGC. The AO also held that the expenditure fell within the definition of section 37(2B) due to its association with a political party. Subsequently, a penalty was imposed for furnishing inaccurate particulars, which was confirmed by the CIT (A).Upon review, the Tribunal noted that the claim was based on the auditor's opinion, which was considered bonafide. Despite the final disallowance, the claim made in the return was not deemed to be inaccurate. Citing the principles from the case of Reliance Petro Products Ltd., the penalty was deleted, and the appeal of the assessee was allowed.The judgment highlights the importance of verifying deductions under relevant sections and the distinction between bonafide claims and inaccurate particulars in penalty proceedings.