2025 (7) TMI 1662 - AT - Income Tax

Penalty under Section 271(1)(c) set aside as co-operative society status confirmed, deduction under Section 80P(2) allowed

The ITAT set aside the penalty imposed under section 271(1)(c) for furnishing inaccurate particulars, as the appellant's status as a 'co-operative ... Penalty imposed u/s 271(1)(c) - deduction claimed u/s 80P - as argued claim for deduction u/s 80P(2) is highly debatable and the appellant was under bonafide belief while furnishing the particulars in the return of income filed by it. HELD THAT:- The claim of the appellant made in the return of income as ‘co-operative society’ in view of the Revenue constituted as ‘furnishing of inaccurate particulars of income’ which in turn sanctioned initiation & consequential imposition of impugned penalty equal to 100% of tax on the amount of claim for deduction denied. The findings of the AO that the appellant was a ‘primary co-operative bank’ hence ineligible to claim deduction in view of section 80P(4) r.w.s. r.w.s. 2(24)(via) of the Act, has been squarely overturned vide para 9 by the Ld. CIT(A) in it order dt. 30/06/2018. By the said order, CIT(A) per-se reinstated the appellant’s status as ‘co-operative society’ [on the basis of para 3 of assessment order] and thus held the appellant as eligible for deduction u/s 80P(2) of the Act. Thus in quantum appeal the CIT(A) already discarded the very basis upon which the penalty proceedings u/s 271(1)(c) were initiated by the Revenue. However, turning blind eye to the former quantum adjudication, NFeAC advanced & imposed the penalty which in first appeal confirmed by the Ld. NFAC. Since, the Revenue is not appeal against the order the CIT(A) dt. 30/06/2018 passed in quantum appeal whereby the appellant was held as ‘co-operative society’, therefore, at least for the year under consideration the issue relating to ‘such-status of the appellant’ has de-facto reached the finality. DR’s candid attempt to re-challenge the status on the basis of PAN not only lead to improving the case but falls much beyond the scope of present appeal, therefore impermissible in law. Revenue however may in law is free to untie the reversal assessment findings. The furnishing of information that, the appellant is a ‘co-operative society’ by virtue of first appellate quantum order dt. 30/06/2018 for the year under consideration has been accepted as correct by the Revenue and as such attained the finality as on this date, therefore the act of furnishing such information by the appellant has de-facto ceased to be ‘furnishing of inaccurate particulars’ thus giving no-power or sanction to invoke & impose penalty u/s 271(1)(c) of the Act. For said reasons, we set-aside impugned order of Ld. NFAC and delete the impugned penalty in its entirety. The solitary ground thus stands partly allowed. It is apt to note that, the possibility of presence of doubt in the mind of Ld. AO while deciding status of the appellant as to either ‘co-operative society’ or as ‘Trust’ [As per PAN data] cannot be completely ruled out. Taking a benefit of doubt the Ld. AO framed the assessment. This finds fortified by the Hon’ble Apex Court in ‘CCE Vs Calcutta Springs’ [2007 (11) TMI 265 - SUPREME COURT] which has been followed subsequently in landmark judgement ‘CoC Vs Dilip Kumar & Co’ [2018 (7) TMI 1826 - SUPREME COURT (LB)]. However, in respect of penalty in fiscal laws the principle followed is akin to principle adhered in criminal cases. That is to say the benefit of doubt is more easily given to the assessee, and this proposition found well expounded in ‘V V Iyer Vs CC’ [1972 (9) TMI 52 - SUPREME COURT] Appeal allowed. ISSUES: Whether furnishing of inaccurate particulars of income by claiming status as a 'co-operative society' instead of 'primary co-operative bank' or 'Trust' constitutes a valid ground for imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961.Whether a bonafide belief in the correctness of the return filed can absolve the assessee from penalty under section 271(1)(c) despite subsequent denial of deduction claimed under section 80P.Whether the finality of appellate orders on the status of the assessee affects the validity of penalty imposed under section 271(1)(c) for furnishing inaccurate particulars.Whether the principle of benefit of doubt applies in penalty proceedings under the Income-tax Act. RULINGS / HOLDINGS: The claim of the assessee as a 'co-operative society' in the return, contrary to the Revenue's classification as a 'primary co-operative bank' or 'Trust' based on PAN data, amounted to 'furnishing of inaccurate particulars of income' justifying initiation of penalty under section 271(1)(c).The contention of bonafide belief by the assessee was rejected as the 'apparent person-status is clearly visible from the PAN allotted,' and thus the claim was not held to be made under a bona fide belief.Since the appellate authority (CIT(A)) had already held the assessee to be a 'co-operative society' and eligible for deduction under section 80P(2), this order attained finality and 'the act of furnishing such information by the appellant has de-facto ceased to be 'furnishing of inaccurate particulars',' negating the basis for penalty under section 271(1)(c).The penalty imposed and confirmed by the appellate authorities was set aside and deleted in entirety as it was founded on a premise overturned by the final appellate order.In penalty proceedings under fiscal laws, the 'benefit of doubt is more easily given to the assessee,' aligning penalty principles with those in criminal jurisprudence. RATIONALE: The Court applied the statutory provisions of sections 2(19), 2(31), 80P(2), 80P(4), 271(1)(c), and 274 of the Income-tax Act, 1961, and considered the interplay between assessment and penalty proceedings.The Court relied on precedent from the Hon'ble Supreme Court in UOI Vs Dharamendra Textile Processors establishing that mis-intention need not be proved for penalty under section 271(1)(c) when inaccurate particulars are furnished.The finality of the appellate order holding the assessee's status as 'co-operative society' was decisive; the Revenue's failure to appeal that order precluded reopening the issue in penalty proceedings, reflecting the principle of issue estoppel in tax matters.The Court referred to the principle that penalty proceedings require a higher standard akin to criminal cases, citing CCE Vs Calcutta Springs, CoC Vs Dilip Kumar & Co, and V V Iyer Vs CC, emphasizing that doubts should be resolved in favour of the assessee in penalty cases.The decision reflects a doctrinal position that penalty under section 271(1)(c) cannot be sustained if the foundational assessment order basis has been overturned and attained finality, thereby preventing Revenue from imposing penalty on a reversed factual finding.