2021 (5) TMI 894 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - weighted deduction u/s 35(1)(ii) claimed in the original return and later in the return filed in response to notice u/s 148 of the Act, he sought to withdrew the claim of weighted deduction - HELD THAT - Explanation to section 35(1)(ii) of the Act clearly supports the case of the assessee by categorically providing that the claim of deduction in the hands of the donor (i.e the assessee herein) cannot be disturbed under any circumstances even if the recognition of the donee institution has been withdrawn by the competent authority subsequently. The purpose of this Explanation is that the bonafide belief of the assessee (donor institution) at the time of making contributions should be respected and it cannot be faulted for the fraudulent acts, if any, committed by the donee institution. Despite this , the assessee had come forward to offer the said claim of weighted deduction by withdrawing the same during the course of assessment proceedings and had paid tax thereon. This proves the bonafide intent of the assessee, to purchase peace from the department and to avoid vexatious litigation in this regard. In our considered opinion, this intention of the assessee deserves to be accepted in toto. Hence this is not a fit case for levy of penalty u/s 271(1)( c) of the Act. We find that this issue on the levy of penalty on the very same addition was the subject matter of adjudication by this tribunal in the case of Sammy E Major 2020 (7) TMI 244 - ITAT MUMBAI for Asst Year 2013-14 wherein the penalty u/s 271(1)( c) of the Act was deleted. In the aforesaid case before this tribunal , the assessee therein made a similar claim of weighted deduction in the original return and later in the return filed in response to notice u/s 148 of the Act, he sought to withdrew the claim of weighted deduction. This tribunal had deleted the penalty u/s 271(1)( c) of the Act in such circumstances. - Decided in favour of assessee.

Summary

Issues:
Levy of penalty u/s 271(1)(c) of the Income Tax Act, 1961 based on withdrawal of a claim of weighted deduction u/s 35(1)(ii) in the return of income for A.Y. 2015-16.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai concerned the imposition of a penalty u/s 271(1)(c) of the Income Tax Act, 1961. The key issue was whether the ld. CIT(A) was justified in confirming the penalty of ?22,71,150 imposed on the assessee for the assessment year 2015-16. The assessee had initially claimed a deduction of ?70 lacs u/s 35(1)(ii) of the Act but later withdrew this claim during the assessment proceedings due to certain findings related to the donee institution SHGPH. The withdrawal of the claim led to the addition of ?70 lacs to the total income of the assessee, and subsequently, penalty proceedings were initiated by the ld AO u/s 271(1)(c) of the Act.

During the proceedings, the assessee contended that all relevant facts were disclosed, and no falsity was found in the documents provided. Despite withdrawing the claim to avoid litigation, the assessee maintained that there was no evidence of involvement in any organized tax evasion scheme. The Explanation to section 35(1)(ii) of the Act supported the assessee's case, stating that the donor's claim of deduction cannot be disturbed even if the recognition of the donee institution is withdrawn subsequently. The assessee's withdrawal of the claim and payment of tax on the addition demonstrated a bona fide intent to avoid disputes with the tax department.

The Tribunal noted a similar case where penalty u/s 271(1)(c) was deleted under comparable circumstances. Relying on this precedent, the Tribunal concluded that the penalty in the present case should be deleted. The Tribunal found no justification for upholding the penalty of ?22,71,150 and directed the ld AO to delete the penalty, allowing the grounds raised by the assessee.

In conclusion, the appeal of the assessee was allowed by the Appellate Tribunal ITAT Mumbai, and the penalty u/s 271(1)(c) of the Income Tax Act, 1961 was directed to be deleted based on the assessee's bona fide intent and the precedent set by a similar case.