2020 (12) TMI 549 - AT - Income Tax

Levying penalty u/s. 221(1) - entitled for deduction u/s 80P(2)(a)(i) denied - HELD THAT - AR demonstrated the copy of income tax return to substantiate the claim. Assessment order was passed u/s 143(3) of the Act disallowing the claim of deduction u/sec 80P - On appeal the CIT(A) has allowed the assessee s claim. Even otherwise, when the quantum addition has been deleted by the appellate authority, penalty on such addition is not sustainable. On perusal of the facts, we found that the assessee has filed the return of income disclosing total income as Rs. Nil and is also evident from page 1 of the assessment order. When the assessee has filed the return of income with Rs. Nil. Income, there is no question of payment self assessment tax. The assessee has bought these facts to the knowledge of the higher authorities but the CIT(A) has confirmed the order of levy of penalty. We considered the facts, submissions and provisions of law and set aside the order of the CIT(A) and direct the Assessing officer to delete the penalty and allow the grounds of appeal of the assessee.

Issues:
1. Levy of penalty under section 221(1) based on intimation under section 143(1)(a) and CIT(A) order.
2. Claim of deduction under section 80P of the Act for a cooperative credit society.
3. Consideration of quantum appeal effect on penalty appeal decision.
4. Disallowance of deduction under section 80P by Assessing Officer and subsequent penalty imposition.

Issue 1 - Levy of Penalty under Section 221(1):
The appeal challenged the penalty imposed under section 221(1) by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The appellant argued that the penalty was unjust as the case was under scrutiny assessment under section 143(3) of the Act, and the CIT(A) erred in sustaining the penalty. The Tribunal found that the AO categorized the assessee as a cooperative bank and denied the deduction under section 80P(2)(a)(i) of the Act. However, the CIT(A) allowed the deduction on appeal. The Tribunal held that when the quantum addition was deleted by the appellate authority, the penalty was not sustainable. It was noted that the assessee had filed a return of income with total income as nil, making the question of self-assessment tax payment irrelevant. Consequently, the Tribunal set aside the CIT(A) order and directed the AO to delete the penalty.

Issue 2 - Claim of Deduction under Section 80P:
The appellant, a cooperative credit society, claimed deduction under section 80P of the Act. The AO disallowed the deduction, categorizing the assessee as a cooperative bank. However, the CIT(A) allowed the deduction on appeal, recognizing the appellant's entitlement to the deduction under section 80P(2)(a)(i) of the Act. The Tribunal upheld the CIT(A)'s decision, emphasizing the appellant's right to claim the deduction as a cooperative society engaged in providing credit facilities and banking activities.

Issue 3 - Consideration of Quantum Appeal Effect on Penalty Appeal:
The Tribunal addressed the failure of the CIT(A) to consider the effect of the quantum appeal while disposing of the penalty appeal. It was highlighted that the income of the appellant society became nil after the claim of deduction under section 80P was allowed. The Tribunal emphasized that the penalty order by the AO became null and void in light of the quantum appeal outcome, where the taxable income was determined as nil.

Issue 4 - Disallowance of Deduction under Section 80P and Penalty Imposition:
The AO disallowed the deduction under section 80P for the appellant, leading to the imposition of a penalty under section 221(1) for non-payment of self-assessment tax. The Tribunal noted that the AO's decision to categorize the appellant as a cooperative bank was overturned by the CIT(A), allowing the deduction under section 80P. Consequently, the penalty imposed by the AO was deemed unsustainable, and the Tribunal directed the deletion of the penalty, considering the appellant's right to claim the deduction as a cooperative credit society.

In conclusion, the Tribunal allowed the appeal filed by the assessee, setting aside the penalty imposed under section 221(1) and directing the Assessing Officer to delete the penalty while recognizing the appellant's entitlement to the deduction under section 80P of the Act as a cooperative credit society.

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