2014 (7) TMI 294 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - allegation of claim of deduction u/s 80P while claiming deduction u/s 57(iii) penalty on account of claim of double deduction - Held that - The assessee to have claimed interest on sinking fund as per its income and expenditure account which may lead to the inference of the interest income being actually less and an excess claim for deduction u/s 80P(2)(d) of the Act - the AO has himself allowed deduction u/s 80P(2)(d) - the interest on sinking fund stands in fact suo motu disallowed by the assessee, resulting in effect to a lower claim and allowance of deduction u/s 80P(2)(d) to that extent there was also non-claim of any standard deduction on the rental income so that the change of head of income in its respect by the AO also did not result in any change in income - The assessee has returned a taxable income, paying tax at ₹ 2,21,621 - The charge of claim of mutuality by the assessee, as made by the CIT(A), and which forms the basis of his confirming the penalty is untrue thus, the penalty is rightly set aside Decided in favour of Assessee.

Summary

Issues:
1. Appeal against the Order by the Commissioner of Income Tax (Appeals) dismissing the levy of penalty u/s.271(1)(c) for A.Y. 2003-04.
2. Claim of regular society expenses against bank interest under section 57(iii).
3. Double deduction claim under section 80P(2)(d).
4. Penalty proceedings initiated for alleged tax evasion.
5. Assessment of income and adjustments made by the Assessing Officer.
6. Confirmation of penalty by the first appellate authority.
7. Second appeal by the assessee challenging the penalty.

Analysis:

1. The appeal was filed against the Order by the Commissioner of Income Tax (Appeals) dismissing the penalty u/s.271(1)(c) for A.Y. 2003-04. The Assessing Officer observed a credit of Rs. 4,01,476/- as interest on bank fixed deposits in the co-operative housing society's income and expenditure account. The AO disallowed regular society expenses against this income citing section 57(iii) and initiated penalty proceedings for alleged tax evasion. The first appellate authority confirmed the penalty, leading to the second appeal by the assessee.

2. The Tribunal found the Revenue's case to be unsubstantiated. The income and expenditure account showed a net surplus even after excluding the bank interest and income-tax refund interest. The Tribunal questioned how it could be claimed that regular society expenses were set against bank interest in violation of section 57(iii). The deduction claimed under section 80P(2)(d) for interest on fixed deposits with co-operative banks was found valid as co-operative banks fall under the ambit of co-operative societies engaged in banking. The Tribunal also noted a potential excess claim for deduction due to interest on the sinking fund but observed that the AO had already allowed the deduction under section 80P(2)(d). The Tribunal concluded that the Revenue's case lacked merit, and the penalty was directed to be deleted.

3. The assessee's appeal was allowed, and the impugned penalty was set aside. The Tribunal emphasized that the charge of claim of mutuality by the assessee, which formed the basis of confirming the penalty, was unfounded. The Tribunal highlighted that the Revenue's case lacked merit from all perspectives, leading to the decision to delete the penalty.

4. The Tribunal pronounced the order on June 18, 2014, in favor of the assessee, allowing the appeal and directing the deletion of the penalty imposed by the first appellate authority.

This comprehensive analysis covers the issues raised in the legal judgment, providing a detailed breakdown of the Tribunal's decision and the reasoning behind setting aside the penalty imposed on the assessee.