Commissioner of Income Tax vs Oshwal Education Trust

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Mukesh R. Shah, J.—Feeling aggrieved and dissatisfied with the judgment and order passed by the learned Income-tax Appellate Tribunal (hereinafter, referred to as "the Tribunal"), Rajkot Bench, Rajkot, in I.T.A. No. 84/Rjt/2013 for the assessment year 2007-08, whereby the learned Tribunal allowed the appeal preferred by the assessee and cancelled the penalty of Rs. 12,81,560 imposed under section 271(1)(c) of the Act the appellant-Revenue has preferred the present appeal with the following proposed question of law:

"2. ... (A) Whether, in the circumstances and the facts of the case and in law, the Income-tax Appellate Tribunal is justified in cancelling the penalty imposed by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals) under the provisions of section 271(1)(c)?"

The assessee-trust filed its return for the assessment year 2007-08 on October 31, 2007, declaring total deficit of Rs. 2,46,59,903. The assessment was completed under section 143(2) of the Act on December 29, 2009, determining the total income of Rs. 55,29,360. It appears that during the course of scrutiny proceedings, it was observed that the assessee-trust had received voluntary donations amounting to Rs. 1,08,80,765 from different persons. The assessee, however, had claimed the same as exempt under section 11(1)(d) of the Act. In the details submitted by the assessee, it was seen that with regard to the donations amounting to Rs. 98,32,354 the assessee had failed to produce, direction letters from the donors to the effect that the donations were with, specific directions that the same shall form part of corpus of assessee-trust. The Assessing Officer, therefore, observed that the assessee has failed to substantiate its claim for the voluntary contributions amounting to Rs. 98,32,354 was donations to the corpus fund. Accordingly, the amount of Rs. 98,32,354 was treated by the Assessing Officer as income under section 12 of the Act. It is required to be noted that against the assessment order passed under section 143(3) of the Act, the assessee filed an appeal before the learned Commissioner of Income-tax (Appeals), Jamnagar, and the learned Commissioner of Income-tax (Appeals) confirmed the addition of Rs. 38,07,354 out of total Rs. 98,32,354 treating the remaining amount of Rs. 60,25,000 as voluntary contribution with specific direction to form part of the corpus donations. Therefore, the assessee was directed to show cause as to why penalty under section 271(1)(c) of the Act should not be levied with respect to the said additional amount, i.e., Rs. 38,07,354, and, thereafter, the Assessing Officer levied penalty of Rs. 12,81,560 being 100 per cent, of the tax on the concealed amount of income.

Feeling aggrieved and dissatisfied with the order passed by the Assessing Officer of levying the penalty under section 271(1)(c) of the Act at Rs. 12,81,560, the assessee preferred an appeal before the learned Commissioner of Income-tax (Appeals) and the learned Commissioner of Income-tax (Appeals) confirmed the order of penalty passed by the Assessing Officer. Feeling aggrieved and dissatisfied with the order passed by the learned Commissioner of Income-tax (Appeals), the assessee preferred the appeal before the learned Income-tax Appellate Tribunal and by the impugned order the learned Tribunal, by observing as under in paragraph 6 of its order, has allowed the appeal preferred by the assessee and has cancelled the penalty imposed by the Assessing Officer under section 271(1)(c) of the Act:

"6. Having heard both the sides, we have carefully gone through the orders of the authorities below. The hon''ble Karnataka High Court in the case of Director of IT and Others Vs. V. Ramakrishna Seva Ashrama, and the Income-tax Appellate Tribunal Jaipur Bench in the case of ITO v. Maliram Pooranmal Charitable Trust [1981] 12 TTJ 245 (Jaipur) held that it is not necessary that the voluntary contribution should be made with a specific direction to treat as corpus. Be that it may be, the assessee was of the bona fide belief that it can treat the donation of Rs. 1,08,80,765 received from different donors as corpus donation. The Assessing Officer treated Rs. 98,32,354 as income under section 12 of the Act. In appeal, the learned, Commissioner of Income-tax (Appeals), Jamnagar, accepted the donation of the assessee to the extent of Rs. 60,25,000 as voluntary contributions with a specific direction that they shall form part of the corpus fund and in respect of the balance amount of Rs. 38,07,354, he levied penalty under section 271(1)(c) of the Income-tax, Act, 1961. The conspicuous facts of the case, as narrated by the assessee, clearly indicate that the assessee was of the bona fide, belief that he, is legally and factually correct in treating the entire donations, of, Rs. 98,32,354 as, corpus donation. Therefore, we are of the view that on part of the donation, which is considered as income under section 12 of the Act, penalty under section 271(1)(c) is not leviable as the assessee, has truly and fully disclosed all the facts in its return of income. We, therefore, cancel the penalty of Rs. 12,82,560 levied under section 271(1)(c) of the Income-tax Act, 1961. The view taken by us is also supported, by the ratio of the judgment of the hon''ble Supreme Court in the case of Commissioner of Income Tax, Ahmedabad Vs. Reliance Petroproducts Pvt. Ltd., ."

Feeling aggrieved and dissatisfied with the impugned judgment and order of the learned Tribunal, the appellant-Revenue has preferred the present tax appeal with the aforesaid substantial question of law.

We have heard Shri Pranav G. Desai, learned advocate appearing on behalf of the Revenue, and considered the facts and circumstances of the case; i.e., the order passed by the Assessing officer; the order passed by the learned Commissioner of Income-tax (Appeals) as well as the impugned order passed by the learned Tribunal. At the outset, it is required to be noted that the assessee treated the donation of Rs. 1,08,80,765, received from different donors as corpus donation and claimed the benefit of exemption under section 11(1)(d) of the Act. However, the Assessing Officer did not accept the contention on behalf of the assessee that the aforesaid amount of Rs. 1,08,80,765 was corpus donation and was liable for exemption under section 11(1)(d) of the Act and instead treated the amount of Rs. 98,32,354 as income under section 12 of the Act. However, on appeal, the learned Commissioner of Income-tax (Appeals), Jamnagar, granted partial relief to the assessee and accepted the contention of the assessee to the extent of Rs. 60,25,000, as voluntary contributions with a specific direction that they shall form part of corpus fund and confirmed the disallowance of the balance amount of Rs. 38,07,354. Thus, the learned Tribunal has rightly observed that the assessee was under the bona fide belief that amount of Rs. 1,08,80,765 received by it from different donors could be treated as corpus donation. As stated hereinabove, even the learned Commissioner of Income-tax (Appeals) also granted partial relief and accepted the contention of the assessee to the extent of Rs. 60,25,000, with a specific direction that they shall form part of corpus fund.

Considering the aforesaid facts and circumstances and when it has been found that the assessee was under bona fide belief that he was legally entitled to treat Rs. 1,08,80,765 as corpus donation and when the learned Commissioner of Income-tax (Appeals) accepted the contention on behalf of the assessee to the extent of Rs. 60,25,000 as corpus donation and with respect to Rs. 38,07,354, out of the aforesaid amount, was considered as income under section 12 of the Act, the learned Tribunal has rightly cancelled the penalty imposed on the assessee under section 271(1)(c) of the Act. We are in complete agreement with the view taken by the learned Tribunal, while deleting/cancelling the penalty imposed under section 271(1)(c) of the Act and we see no reason to interfere with the judgment and order passed by the learned Tribunal. In view of the above and in the facts and circumstances of the case, the present appeal fails and deserves to be dismissed and is accordingly, dismissed.