2010 (3) TMI 1205 - AT - Income Tax

Summary

Issues Involved: Appeal against cancellation of penalty u/s 271(1)(c) for non-taxation of transfer funds received from members.

Issue 1: Taxability of transfer funds

The assessee received an amount on transfer of flats, credited to Building Heavy-Repair Fund, not offered to tax under principle of mutuality. AO brought the amount to tax, leading to penalty proceedings u/s 271(1)(c). Assessee believed funds exempt under mutuality principle, with necessary expenditure on Repair Funds deductible. CIT(A) deleted penalty, citing appellant's bona fide belief supported by legal opinions and accounting standards compliance. Tribunal confirmed addition to tax, but appellant's voluntary return filing and disclosure of contributions supported belief in mutuality principle. High Court's recent decision in favor of non-taxability further justified belief. Tribunal held no penalty warranted due to genuine belief, rejecting Revenue's appeal.

Outcome: Appeal of the Revenue dismissed by ITAT Mumbai, upholding CIT(A)'s deletion of penalty u/s 271(1)(c) based on appellant's genuine belief in non-taxability of transfer funds under mutuality principle.