2019 (6) TMI 851 - AT - Income Tax

Penalty u/s 271(1)(c) - furnishing inaccurate particulars of income by claiming deductions u/s 80P which was disallowed by the AO - claim accepted and allowed by CIT (A) but subsequently the Tribunal and Hon ble High Court reversed the same - SLP is pending before SC - HELD THAT - In the instant case, the assessee is on more sound footing because the order passed by the Hon ble High Court 2017 (5) TMI 538 - DELHI HIGH COURT qua disallowance of deduction u/s 80P(2)(a)(i) has been challenged by way of filing SLP in which leave has been granted vide order 2017 (9) TMI 1820 - SC ORDER under Article 136 of the Constitution of India As decided in GANESH LAND ORGANISATION VERSUS COMMISSIONER OF INCOME-TAX 1985 (6) TMI 2 - GUJARAT HIGH COURT special leave is granted by the Hon ble Apex Court in exceptional cases where substantial and grave injustice is shown to have been done.The grant of special leave depends on whether there is substantial question of law of public interest. So, we are of the considered view that when substantial question of law is involved in this case qua disallowance of deduction claimed by the assessee u/s 80P , penalty cannot be levied. When substantial question of law has been arisen in this particular case to be decided by the Hon ble Apex Court in the SLP filed by the assessee challenging the order passed by the Hon ble Delhi High Court, provisions contained u/s 271(1)(c) by applying Totgar s Cooperative Sale Society s case 2010 (2) TMI 3 - SUPREME COURT are not attracted because issue in question is still debatable. Special leave to appeal is granted by Hon ble Apex Court in rarest of rare case as in the ordinary circumstances assessee has no right to appeal. So, we are of the considered view that when issue as to the disallowance of deduction claimed by the assessee u/s 80P is pending adjudication before the Hon ble Apex Court, the assessee cannot be fastened with the liability for concealment of income or furnishing of inaccurate particulars of income u/s 27(1)(c) Thus when issue as to deduction claimed by the assessee u/s 80P has not yet attained finality being pending adjudication before the Hon ble Apex Court, penalty levied u/s 271(1)(c) on account of disallowance of deduction claimed by the assessee u/s 80P is not sustainable in the eyes of law - decided in favour of assessee.

Summary

Issues:
Penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 for assessment years 2004-05, 2005-06, 2006-07, 2007-08, and 2009-10 on grounds of inaccurate particulars of income and concealment; Debatable legal issue regarding deduction claimed under section 80P of the Act; Challenge of penalty orders before the Tribunal.

Issue 1: Penalty Imposed under Section 271(1)(c)
The appellant, a cooperative society, challenged penalty orders passed under section 271(1)(c) of the Act for furnishing inaccurate particulars of income by claiming deductions under section 80P. The Assessing Officer (AO) disallowed the deductions, leading to penalty imposition. The Commissioner of Income-tax (Appeals) affirmed the penalty orders. The Tribunal noted that the issue was debatable as the High Court reversed the CIT (A)'s decision, and the Supreme Court granted leave on a Special Leave Petition filed by the appellant. Citing case law, the Tribunal held that in cases of divergent views and pending substantial legal questions, penalty under section 271(1)(c) is not sustainable. Consequently, the penalty was deleted.

Issue 2: Debatable Legal Issue on Deduction Claimed under Section 80P
The controversy revolved around the deduction claimed by the appellant under section 80P of the Act, which was disallowed by the AO but later challenged and granted leave by the Supreme Court. The Tribunal emphasized that when a substantial legal question is pending before the Apex Court, penalties for concealment or inaccurate particulars cannot be upheld. Referring to relevant case law, the Tribunal concluded that until the issue attains finality, penalties under section 271(1)(c) cannot be sustained. Therefore, the penalties imposed by the AO and confirmed by the CIT (A) were ordered to be deleted, and the appellant's appeals were allowed.

This detailed analysis of the legal judgment highlights the issues surrounding the penalty imposition under section 271(1)(c) of the Income-tax Act and the debatable legal issue regarding the deduction claimed under section 80P. The Tribunal's decision to delete the penalties based on the pending substantial legal question before the Supreme Court demonstrates a nuanced understanding of the legal complexities involved in the case.