The Tribunal determined that if the underlying quantum appeal is successfully resolved in favor of the appellant, the consequential penalty under Section 271(1)(c) cannot be sustained.

ORDER

PER BRAJESH KUMAR SINGH, AM, This appeal by the assessee is directed against the order of the National Faceless Appeal Centre/Ld. Commissioner of Income Tax (Appeals) Delhi, dated 30.08.2024, arising out of penalty order u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’), dated 10.02.2022 for Assessment Year 2013-14 levying penalty of Rs.15,05,000/-.

2. Brief facts of the case:- In the assessment order, the AO noted that the assessee did not file its return of income for the year in question. Based on the information that the assessee had earned interest income of Rs.8,59,514/-, the case of the assessee was reopened by issue of a notice u/s 148 on 06.02.2020. In response to the same, the assessee filed its return of income on 12.03.2020 declaring total income of Rs.1,01,85,390/-. During the course of assessment proceedings, the Assessing Officer held that that the assessee society had claimed exemption u/s 80P(2)(a)(i) of the Act of Rs.50,18,472/- by placing its surplus fund at the disposal of co- operative banks and not co-operative societies, with the sole motive of earning interest, which brings in the commercial element. Placing reliance on the Hon'ble Supreme Court's decision in the case of Totgar's Cooperative Sale Society Ltd. v ITO 322 ITR 283, interest on deposits was held as not as business income but income from other sources and the assessment was completed u/s 144 r.w.s. 147 on 27.09.2021 assessing the total income of the assessee at Rs.1,52,03,860/- and also initiated penalty u/s 271(1)(c) for filing inaccurate particulars.

2.1. The AO initiated penalty us 271(1)(c) for filing inaccurate particulars and a show-cause notice u/s 274 r.w.s. 271(1)(c) dated 27.09.2021 was issued to the assessee requesting to explain as to why penalty u/s 271(1)(c) should not be levied. The assessee did not respond. As per the finding given in the assessment order regarding the wrong claim of deduction u/s 80P(2)(a)(i) of the I. T. Act, 1961 of Rs.50,18,472/-, the Assessing Officer levied penalty of Rs.15,05,000/-

u/s 271(1)(c) of the Act.

3. Aggrieved with the said order, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) dismissed the appeal of the assessee.

4. Aggrieve with the order of the Ld. CIT(A), the assessee is in appeal before us.

5. At the outset, the Ld. Authorized Representative submitted that the assessee’s quantum appeal regarding the disallowance of deduction of Rs.50,18,472/- has been allowed by the ITAT and therefore, the penalty does not survive. He placed on record copy of the order of the ITAT in the quantum appeal bearing No.4687/Del/2024 wherein vide order dated 07.05.2025, the Tribunal has allowed the claim of the assessee u/s 80P(2)(a)(i) of the Act. The relevant extract of the order of the Tribunal is reproduced hereunder:-

ITA No. 4687/Del/2024 for AY 2013-14 “7. The assessee has raised the following grounds of appeal:-

“That on the facts and in the circumstances of the case and in law the ld CIT(A) at NFAC erred in confirming the order having demand raised under Section 147 rws 144 of the Act, 1961 holdings the assessee guilty of concealment of income. The above action being arbitrary, fallacious, unwarranted and illegal must be quashed with directions of appropriate relief.

8. We have heard the rival submissions and perused the material available on record. The Society is registered under Cooperative Societies Act, as no profit no loss entity to financially help its members on the concept of mutuality. The society is earning income from interest on loan to its members and surplus funds are being kept in bank FDRs. Interest income is bound to accrue on surplus funds and it is used for the objects for which the society is established. The Ld. ITO has completed the assessment citing Hon’ble Supreme Court’s decisio