2015 (10) TMI 9 - AT - Income Tax

Penalty proceedings u/s 271(1)(c) - taxability of interest - Principle of Mutuality - CIT(A) deleted the penalty on the ground that, in the earlier years the issue of taxability of interest was decided in the favour of the assessee and it was only after the decision of Bombay High Court which was rendered on 17.06.2010, this issue was decided against the assessee - Held that - A mere making of a claim which may not be found sustainable in law later on, cannot be held against the assessee, that he is guilty of making a false claim. It is an admitted fact that, at the time of filing of return of income the issue of taxability of interest was in the favour of the assessee by virtue of series of decisions of the Tribunal in the earlier years in assessee s own case. Not only that, there were certain High Courts decisions also which were in the favour of the assessee as pointed out by the learned counsel. Thus the issue whether interest income will fall within the Principle of Mutuality or not itself was debatable as there were many conflicting decisions. In this background we hold that at the time of filing return of income the assessee s claim was not only bona fide but had a foundational fact in the form of Tribunal orders. Accordingly, we hold that the Ld.CIT(A) has rightly deleted the penalty as the claim of non taxability of interest income was based on bona fide belief. - Decided in favour of assessee.

Summary

Issues:
Penalty proceedings under section 271(1)(c) for A.Y. 2006-07 and 2007-08 - Taxability of interest income under the Principles of Mutuality.

Analysis:
1. The appeals were filed by the Revenue against the deletion of penalties for A.Y. 2006-07 and 2007-08 related to interest income taxability under the Principles of Mutuality.
2. The assessee, a non-profit organization, claimed exemption for interest income based on the Principle of Mutuality, where contributors and participators were identical.
3. Previous Tribunal decisions favored the assessee's claim for exemption of interest income until A.Y. 2005-06, but subsequent decisions went against the assessee.
4. The assessing officer issued penalties under section 271(1)(c) based on inaccurate particulars of income due to the changed interpretation of the law.
5. The CIT(A) deleted the penalties citing the bona fide belief of the assessee at the time of filing returns, considering the conflicting decisions and debatable nature of the issue.
6. The Revenue argued that subsequent judgments against the assessee established the law against them, justifying penalties under section 271(1)(c).
7. The assessee's counsel highlighted the series of favorable Tribunal decisions and High Court judgments supporting the claim of exemption for interest income under the Principle of Mutuality.
8. The Tribunal held that the assessee's claim was bona fide based on the prevailing legal interpretations at the time of filing returns, leading to the deletion of penalties.
9. The Tribunal dismissed the Revenue's appeals, affirming the deletion of penalties due to the genuine belief of the assessee regarding the taxability of interest income under the Principles of Mutuality.