2017 (11) TMI 571 - HC - Income Tax

Penalty levied u/s 271(1)(c) - eligible for deduction u/s 80P(2)(a)(i) denied - interest paid to the cooperative society exceeds the interest received from the bank on investments - Held that - Sec.80P(2)(d) of the Act allows whole deduction of an income by way of interest or dividends derived by the cooperative society from its investment with any other cooperative society. This provisions does not make any distinction in regard to source of the investment because this Section envisages deduction in respect of any income derived by the cooperative society from any investment with a cooperative society. It is immaterial whether any interest paid to the cooperative society exceeds the interest received from the bank on investments. The Revenue is not required to look to the nature of the investment whether it was from its surplus funds or otherwise. The Act does not speak of any adjustment as sought to be made out by learned counsel for the Revenue. The provision does not indicate any such adjustment in regard to interest derived from the cooperative society from its investment in any other cooperative society. Therefore, we do not agree with the argument advanced by the learned counsel for the Revenue. In our opinion, the learned Tribunal was right in allowing deduction under Sec.80P(2)(d) of the Income Tax Act, 1961. ince, the issue on merit has been decided in favour of the assessee no penalty can be levied and as such the Tribunal has committed no error of law in setting aside the penalty under Section 271 (1)(c) of the Income Tax Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the Tribunal was legally justified in cancelling the penalty levied under section 271(1)(c) without deciding the appeal on merits.
2. Whether the Tribunal was justified in dismissing the appeal of the revenue and cancelling the penalty levied under section 271(1)(c), without considering the merits of the case, particularly when the assessee was not eligible for deduction under section 80P(2)(a)(i).

Detailed Analysis:

Issue 1: Justification in Cancelling Penalty under Section 271(1)(c)
The appellant challenged the Tribunal's decision to cancel the penalty levied under section 271(1)(c) of the Income Tax Act. The Tribunal had allowed the appeal of the assessee and dismissed the appeal of the department. The appellant's counsel argued that the Tribunal did not decide the appeal on its merits, especially given that the assessee was not eligible for the deduction under section 80P(2)(a)(i).

The court noted that the issue was already covered by its decision in the assessee's own case in Tax Appeal Nos. 80/2016 and 81/2016, decided on 20th December 2016. The court reiterated that the quantum issue was also decided in favor of the assessee, referencing the case of Commissioner of Income Tax, Bikaner vs. M/s Rajasthan Rajya Sahakari, decided on 01.09.2016. The court had previously held that the assessee was entitled to claim the deduction under Section 80P of the Income Tax Act.

Issue 2: Tribunal's Justification in Dismissing Revenue's Appeal
The court examined whether the Tribunal was justified in dismissing the revenue's appeal and canceling the penalty without considering the merits of the case. The revenue argued that the assessee had deliberately claimed a deduction under section 80P(2)(a)(i) despite being ineligible, which amounted to furnishing inaccurate particulars of income and concealing income.

The court referred to the Supreme Court's decisions in Kerala State Co-operative Marketing Federation Ltd. & Ors. vs. Commissioner of Income Tax and other relevant cases. The Supreme Court had clarified that societies engaged in marketing agricultural produce of their members were entitled to such deductions. The Tribunal had followed these precedents, and the court found no error in its approach.

The court also considered the interest income issue, where the assessee received interest from other co-operative societies/banks and claimed deductions under section 80P(2)(d). The Tribunal had allowed this deduction, supported by precedents from the Punjab & Haryana High Court and other judgments, which upheld similar claims.

Conclusion:
The court upheld the Tribunal's decision, noting that since the issue on merit had been decided in favor of the assessee, no penalty could be levied under section 271(1)(c). The Tribunal committed no error in setting aside the penalty. Consequently, no substantial question of law arose, and the appeal was dismissed.