2011 (12) TMI 334 - AT - Income Tax

Penalty Proceedings - Assesse Co-operative Society - sugar factory for benefit of tribal population - Deposits with bank with not to be withdrawn without prior approvals - Income not shown in return penalty levied - Held That - We find that the nationalised banks have made TDS on the amount of the interest accrued on the capital contribution of the government and the TDS certificates were filed by the assessee along with its return of income and therefore it could not be said that the material facts relevant for its assessment were not disclosed by the assessee before the AO at the stage of the assessment itself. In our considered view no prudent person can try to conceal the income or file inaccurate particulars thereof regarding which the complete details are filed with the AO at the assessment stage in the form of TDS certificates. This conduct of the assessee takes away the case of the assessee from the rigorous of penal provisions of section 271(1)(c) of the Act.

Summary

Issues Involved:
1. Validity of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961:

The assessee, a cooperative society, was engaged in establishing a sugar factory in the notified area of Dadra Nagar Haveli. The Central Government provided a financial package, contributing 32.5% of the project cost as share capital. The interest earned on the government's share capital contribution, which was deposited in nationalized banks, was treated by the assessee as part of the share capital and not included in its income for taxation.

The department argued that this interest income should have been offered for taxation, leading to the imposition of a penalty under Section 271(1)(c) for non-disclosure. The assessee contended that it had a bona fide belief that the interest income belonged to the central government and was not within its domain, supported by various directives from the Administrator of Dadra and Nagar Haveli.

The Tribunal noted that the issue of taxability of the interest income was debatable and that the assessee's claim was bona fide. The Hon'ble Bombay High Court had admitted the assessee's appeal in the quantum case, indicating the issue's substantial legal question. The Tribunal emphasized that the penalty proceedings and assessment proceedings are independent, and the fact that the High Court admitted the appeal showed the issue was not frivolous.

The Tribunal found that the assessee had disclosed all material facts, including TDS certificates, and had a bona fide belief that the interest income was not taxable in its hands. The conduct of the assessee, which included filing TDS certificates with the return of income, demonstrated transparency and good faith, negating the grounds for penalty under Section 271(1)(c).

Conclusion:

The Tribunal concluded that the issue of taxability of the interest income was highly debatable, and the assessee's conduct was bona fide. Therefore, it was not a fit case for imposing a penalty under Section 271(1)(c), and the penalty was cancelled for both assessment years. The appeals of the assessee were allowed.