2018 (2) TMI 1466 - HC - Income Tax

Penalty u/s 271(1)(c) - Reopening of assessment - reason recorded for reopening of the assessment was the claim for donation under Section 35(1) - Held that - Held that - It is undisputed that when filing of return of income on 12 February 2008, consequent to reopening notice, the Respondent had not made a claim deduction of ₹ 1.00 Crore for donation, inspite of donation made to M/s. Indian Medical Scientific Research Foundation, Agra. The said Research Foundation was not known to be a bogus institution both at the time the donation and claim was made in the return of income filed in regular assessment proceedings under Section 143(3) of the Act. The foundation carried out its activities under a notification issued by the Central Government which entitled donations made to it, the benefit of Section 35(1) of the Act. We further find that during the course of regular proceedings itself the Respondent-Assessee brought it to the notice of Assessing Officer that there is a C.B.I. enquiry proceedings against the M/s. Indian Medical Scientific Research Foundation, Agra and offered to withdraw the claim for donation. Thus, there was a complete disclosure on the part of the Respondent-Assessee. In fact, on appreciation of facts, both the CIT(A) and the Tribunal have held that the Respondent was misled into believing that M/s. Indian Medical Scientific Research Foundation, Agra was a genuine institution - view taken by both the CIT(A) and the Tribunal is a possible view - No substantial question of law.

Summary

Issues:
1. Challenge to order of Income Tax Appellate Tribunal under Section 260A of the Income Tax Act, 1961 for Assessment Year 2004-05.
2. Justification of deletion of penalty under Section 271(1)(c) of the Act by the Tribunal.

Analysis:
1. The case involved a challenge to the order of the Income Tax Appellate Tribunal for the Assessment Year 2004-05 under Section 260A of the Income Tax Act, 1961. The dispute arose when the Respondent's assessment was reopened under Section 148 due to a deduction claimed under Section 35(1) of the Act being found bogus by the C.B.I. The Respondent had initially claimed the deduction, but upon realizing the institution was bogus, withdrew the claim. The Assessing Officer imposed a penalty under Section 271(1)(c) of the Act, which was later set aside by the CIT(A) and upheld by the Tribunal. The Tribunal found that the Respondent had acted in good faith and had withdrawn the claim upon discovering the institution's fraudulent nature.

2. The main issue in question was whether the Tribunal was justified in deleting the penalty under Section 271(1)(c) of the Act. The Respondent had made a full disclosure during the assessment proceedings about the investigation by the C.B.I. and had offered to withdraw the claim for deduction. The Tribunal noted that the institution to which the donation was made was approved by the Central Government for the deduction under Section 35(1) of the Act. The Respondent had acted in good faith based on the information available at the time of making the donation and claiming the deduction. Both the CIT(A) and the Tribunal found that the Respondent was misled into believing the institution was genuine, and therefore, the penalty was unjustified.

3. The Court found that the Respondent had not claimed the deduction for donation in the return of income filed after the assessment was reopened, despite having made the donation. The Respondent had disclosed the ongoing C.B.I. investigation to the Assessing Officer during the regular assessment proceedings. The Court agreed with the findings of the CIT(A) and the Tribunal that the Respondent was misled into believing the institution was legitimate. The Court held that the view taken by both authorities was reasonable, and thus, no substantial question of law arose. Consequently, the appeal was dismissed, and no costs were imposed.