2014 (8) TMI 115 - HC - Income Tax

Penalty u/s 271(1)(c) Voluntary donations received from different persons Failure to substantiate claim - Tribunal was of the view that it is not necessary that the voluntary contribution should be made with a specific direction to treat as corpus - on part of the donation, which is considered as income u/s 12 of the Act, penalty u/s 271(1)(c) is not leviable as the assessee has truly and fully disclosed all the facts in its Return of Income Relying upon CIT Vs. Reliance Petro Products Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT - Assessee was under bona fide belief that he was legally entitled to treat ₹ 1,08,80,765 as corpus donation and when the CIT(A) accepted the contention on behalf of the assessee to the extent of ₹ 60,25,000 as corpus donation and with respect to ₹ 38,07,354, out of the amount, was considered as income u/s 12 of the Act, Tribunal has rightly cancelled the penalty imposed on the assessee u/s 271(1)(c) of the Act the order of the Tribunal is upheld for deleting / canceling the penalty imposed u/s 271(1)(c) of the Act Decided against Revenue.

Summary

Issues:
- Appeal against cancellation of penalty under Section 271(1)(C) of the Income Tax Act
- Justification for treating donation as corpus fund
- Bona fide belief of the assessee in treating donation as corpus fund

Analysis:
1. The appellant-Revenue challenged the cancellation of penalty under Section 271(1)(C) by the ITAT for the assessment year 2007-08. The assessee-Trust declared a deficit in its return but received voluntary donations, claiming them as exempt under Section 11(1)(d) of the Act. However, the AO treated a portion of the donations as income under Section 12. The CIT(A) confirmed the addition of a specific amount, leading to a penalty imposition of Rs. 12,81,560 by the AO.

2. The assessee appealed the penalty before the CIT(A), who upheld it. Subsequently, the ITAT, citing precedents, observed that the assessee genuinely believed the entire donation to be corpus donation. The ITAT noted that the CIT(A) accepted part of the donation as voluntary contribution forming part of the corpus fund. The ITAT concluded that the penalty was not justified as the assessee had disclosed all facts in its return, aligning with the Supreme Court's judgment in a similar case.

3. The appellant-Revenue contested the ITAT's decision, arguing that the donation was not correctly treated as corpus fund. However, the High Court upheld the ITAT's decision, emphasizing the bona fide belief of the assessee and the partial acceptance of the donation as corpus fund by the CIT(A). The High Court agreed that the penalty under Section 271(1)(C) was rightly cancelled by the ITAT, finding no reason to interfere with the decision.

4. Ultimately, the High Court dismissed the appeal, affirming the cancellation of the penalty under Section 271(1)(C) by the ITAT. The judgment highlighted the importance of the assessee's belief and the partial acceptance of the donation as corpus fund in determining the penalty imposition under the Income Tax Act.