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Judgment
PER RAJ KUMAR CHAUHAN (J.M.):
The appeal preferred by the assessee /appellant against the order of Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), New Delhi [hereinafter referred to as the “CIT(A)”], passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] dated 31.10.2025 for the A.Y. 2018-19 wherein the penalty order dated 16.03.2022 was confirmed and appeal of the assessee was dismissed.
The assessee has raised following grounds of appeal extracted below:
“1.That the CIT(A) (NFAC Delhi) has committed manifest error of law by rejecting the first appeal of the appellant without appreciating facts and circumstances of the case of the appellant.
2.That the appeal filed by the assessee against the order of CIT (A) (NFAC DELHI) dated 31-10-2025 passed by the Ld CIT(A) u/s 270A of Income Tax Act 1961 leving penalty on alleged under reporting/misreporting of income. That the CII(A) has erred infact in law in confirming the penalty u/s 270A despite the appellant having maintained complete and correct books of account and all primary evidences.
3.That the appellant is a cooperative society registered under the U.P cooperative society registration act 1965 and engage in the business and marketing of sugarcane. The appellant derives from commission received from the sugarmill and interest income charged to provide credit facilities to its members for purchase of cane seeds, fertilizers and insecticides and its total income is deducted from the grass total income of the society under section 80P(2)(a)(iii) and 80P(2)(d) on interest income of the act.
4.That the CIT (A) failed to appreciate that the addition/disallowances made in assessment are purely debatable, based on estimates, and cannot attract penalty u/s 270A.
5.That the authorities below erred in relying on the decision hon'ble Supreme court in the case Totgars cooperative sale society ltd. VS ITO without appreciating that the decision of hon'able Supreme court is distinguishable in facts from the case of the appellant assessee.
6.That the Ld CIT (A) erred on facts and in law in not considering that the law has used the word "attributable" and not the word "derived" in section 80P so as to include income from sources other than the actual conduct of the business of the society and thus interest income on FDR'S and saving bank account is attributable to the business of providing credit facilities and marketing the agricultural/produce of the member.
7.That the appellant is cooperative society and 100% deduction available under section 80P(2)(a) (iii) of income tax act 1961. It's total income comes to nil and hence the return for the year total income at nil claiming TDS made under section 194H as commission on receiving has been filed.
8.That the authority below erred on facts and in law in not allowing deduction u/s 80P on interest received on investment in form of FDR'S.
9.That the authorities below wrongly categorized the matter as misreporting. there is no falsification of book, no mis representation and no suppression of facts. All details and records were fully disclosed during assessment proceeding.
10.That being a cooperative cane development society the appellant maintained statutory book, audit report and departmental inspection. There was no concealment of income or furnishing of inaccurate particulars.
11.That the CIT (A) erred in ignoring CBDT circulars and judicial precedents. The Hon'ble Supreme court and High court have held that penalty cannot be imposed merely because a claim is disallowed, especially for cooperative society performing statutory functions. Income if any is incidental, thus the motive of "tax evasion" is completely absent. Penalty provision are not meant for cooperative society performing welfare work for cane farmers.
12.That the CIT(A) passed the order without granting adequate opportunity, without considering detailed submission, evidences and explanations filed by the appellant.
12.That the order of the CIT(A)NFAC DELHI dated-31-10-2025 passed in appeal no- NFAC/2017-18/10154552 AY 2018-19 is liable to be quashed and further penalty demand of Rs-4037518 u/s 270A issued by assessing officer Assessment unit NFAC may also be quashed.
13.That the appellant craves leaves to aid or amend the grounds of appeal during the course of hearing before Hon'ble ITAT.”
The facts in brief as culled out from the order of the authorities below are that the respondent/assessee, a Co-operative Society, filed it’s return of income on 30.10.2018 for A.Y. 2018-19 showing business of Rs. 65,43,200/- and the same has been claimed as exempt u/s 80P of the Act and thus declaring income Nil. The case was selected for complete scrutiny and vide assessment order dated 16.03.2021, the Assessing Officer made an addition of Rs. 65,43,200/- and also initiated proceeding u/s 270A of the Act.
The assessee did not challenge the said assessment order but claimed that the assessment order has been rectified twice by the AO but addition was again made even in the rectification order. It is further claimed by the assessee that he has filed an appeal against rectification order which has been allowed but no such order has been brought to our notice during the argument as only an order dated 23.04.2025 which is an rectification order u/s 154 of the Act for A.Y. 2018-19 has been filed.
Aggrieved by the penalty order, the assessee filed appeal before the ld. CIT(A) who has dismissed the same while deciding only ground no. 1 to 4 out of 7 grounds raised in Form 35 which is reproduced in para 6 of the appellate order/ CIT(A) order.
We have heard ld. AR on behalf of the assessee and ld. DR for the Revenue and examined the record. The ld. AR at the very outset submitted that the impugned order has been passed without deciding the legality of the penalty imposed vide the assessment order. It is brought to our notice that Ground No. 5 and 7 before the ld. CIT(A) where the penalty order was questioned by the assessee has not been decided. It is therefore argued that the impugned order has resulted into miscarriage of justice. It is further argued that since the disallowance made was a debatable issue, therefore, the penalty imposed was not legally justified as there was no under reporting or misreporting of the income by the assessee and basic requirement of Section 270A of the Act was not fulfilled.
The Ld. DR on the other hand, while supporting the order of lower authorities has prayed for dismissal of the appeal stating that quantum assessment order has not been challenged, hence, the fact that there is under reporting or misreporting of the income by the assessee’s stands confirmed.
We have considered the rival submissions. To appreciate the arguments of the Ld. AR regarding non-deciding ground no. 5 and 7 which pertains to the legality of the penalty order passed, we deem it expedient to extract para 7 of the impugned order extracted below as under:
“7.0 Appellate decision:
The penalty order, grounds of appeal and the submissions have been carefully perused. The first two grounds are as follows:
"1 Because penalty order has been passed without giving proper opportunity of being heard.
2 The order has been passed without considering whole facts, circumstances and past assessments.
So far as the appellant's first two grounds are concerned I do not find any merit in them. It is evident from the penalty order that adequate opportunities have been accorded to the appellant during the penalty proceedings. The AO has mentioned as follows:
"In view of the foregoing facts and observations, it is evident that the assessee had under reported its income and consequently penalty proceedings u/s. 270A (1) of the act was initiated for under reporting of income. Penalty notice was issued to the assessee on by the National e-Assessment Centre, Delhi which was duly served on the email on 16.03.2021. The assessee has not filed any reply to the penalty notice. Subsequently, the case was allocated to this charge by NaFPC as per the Faceless Penalty Scheme which was launched on 12/01/2021. A letter was issued to the assessee on 29.07.2021 and the same was duly served. Another letter was issued to assessee on 26.11.2021. However, there was no response to the above letter. Further as per SOP the case was referred to verification unit on 31.12.2021 which is under verification process. The assessee made submission on 25.01.2022 along with CIT(A) order for AY 2015-16 which is not relevant to the concerned Asst. Year. Moreover the order copy is neither digitally signed nor physically signed raising question of authenticity. Further, no appeal has been filed by the assessee in the concerned Asst. Year and no form 35 is available in the system.
I also find that the AO has discussed the issues in detail in the penalty order evidencing proper application of mind.
The third ground of appeal is that "the appellant did not admitted the penalty imposed by the AO and seriously disputed the same" It is not clear what the appellant's argument is and it is difficult to fathom how this plea helps the assessee.
The fourth ground is related to the merits of the addition in the assessment order and the appellant has tried to elaborate this point in its submissions. Although the merits of addition cannot be adjudicated upon in this appeal (which is against the penalty order), suffice it to say that based on the decisions of the Hon'ble Supreme court in Totgar's Co-operative Society Ltd. vs. ITO 322 ITR 283 and Hon'ble Allahabad High Court in CIT vs Cane Development Union Bheera (ITA 520 of 2008), the additions in the assessment order are justified. Appellant has submitted some orders of CIT (A) in the case of other such cooperative societies that are involved int eh marketing of sugarcane. For example the appellant has submitted the order of CIT (A) dated 18.18.2018 in the case of Karyalay Ganna Vikas Parishad, Tulsipur and order dated 2.6.2022 in the case of Cooperative Cane Development Union, Masodha. These orders do not help appellant. In fact these orders have, following the order of Supreme Court in Totgars Cooperative, categorically held that no deduction is allowable on interest income received from banks and such receipts are to be characterised as income from other sources. Other cases cited by appellant like ITO Gonda vs Cooperative Cane Development Union are distinguishable on facts since the contention in those cases was regarding the commission income earned by cooperative societies performing agricultural marketing activites. Therefore this ground is also rejected.
Accordingly all grounds of appeal are rejected and the penalty is upheld. The appeal is dismissed.”
It is evident from the above extract that the Ld. CIT(A) has not decided ground Nos. 5 and 7 as raised in Form No. 35 before it and those grounds pertain to the legality of penalty order having been passed by the Assessing Officer.
Section 250 sub section (6) of "the Act" provides as under:
“The order of the Joint Commissioner (Appeals) or the Commissioner (Appeals) disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision.”
In view of the above discussion, we are of the considered opinion that the ld. CIT(A) passed the order in violation of Section 250(6) and the material grounds pertaining to the legality and justification of the penalty imposed in this case has been not decided. For these reasons the impugned order is set aside and the matter is restored to the file of the ld. CIT(A) for deciding the appeal of the assessee afresh by passing a reasoned order for all the grounds raised before it. The assessee shall present its case before the ld. CIT(A) within 60 days and would also submit the complete orders i.e. rectification order as well as the appeal order against the rectification order if any passed in favour of the assessee.
In the result, the appeal of the assessee is allowed for statistical purposes.