THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 3(2), GANGTOK, GANGTOK SIKKIM V. SIKKIM STATE COOPERATIVE SUPPLY AND MARKETING FEDERATION LIMITED , GANGTOK SIKKIM

ITA 1711/KOL/2024

AI Insights

The case revolves around an appeal by the Revenue against the order of the CIT(A) which had deleted a penalty imposed on the Sikkim State Cooperative Supply and Marketing Federation Limited for alleged under-reporting of income. The primary contention was regarding the disallowance of deductions under section 80P(2)(d) of the Income Tax Act, 1961, which the Revenue argued was not applicable to the assessee as it was not a primary agricultural credit society or a primary cooperative agricultural and rural development bank. The Tribunal examined the submissions and the legal provisions, particularly focusing on whether the assessee had under-reported or misreported its income.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312747 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2020-2021
• Other Referred Cases: Chambal Fertilizers and Chemicals Ltd. Vs Pr. CIT, Alrameez Construction (P.) Ltd. Vs NFAC
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: REVISING ITS RETURN; HOWEVER REVENUE IMPOSED PENALTY UNDER
• Keywords: Transfer pricing; International transaction; Reasonable cause; TDS
• Section: 148; 143(3); 142(1); 43CA; 56(2); 115JB; 40(a)(ia); 80G; 270AA

Judgement Text

"आयकर अपीलीय अधिकरण कोलकाता 'ए' पीठ, कोलकाता में IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘A’ BENCH, KOLKATA श्री प्रदीप क ुमार चौबे, न्याधयक सदस्य एवं श्री राक ेश धमश्रा, लेखा सदस्य क े समक्ष Before SHRI PRADIP KUMAR CHOUBEY, JUDICIAL MEMBER & SHRI RAKESH MISHRA, ACCOUNTANT MEMBER I.T.A. No.: 1711/KOL/2024 Assessment Year: 2020-21 The Deputy Commissioner of Income Tax, Circle-3(2), Gangtok Vs. Sikkim State Cooperative Supply and Marketing Federation Limited (Appellant) (Respondent) PAN: AADAS4451M Appearances: Department represented by : Sailen Samadder, Add. CIT, Sr. DR. Assessee represented by : A.N. Chatterjee, FCA & A.K. Mitra, FCA. Date of concluding the hearing : April 16th, 2025 Date of pronouncing the order : April 29th, 2025 ORDER PER RAKESH MISHRA, ACCOUNTANT MEMBER: This appeal filed by the Revenue is against the order of the Commissioner of Income Tax (Appeals)-NFAC, Delhi [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2020-21 dated 02.07.2024, Page | 2 I.T.A. No.: 1711/KOL/2024 Assessment Year: 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. which has been passed against the penalty order u/s 270A of the Act, dated 29.03.2023. 2. The Revenue is in appeal before the Tribunal raising the following grounds of appeal: “1. Whether the Ld. CIT(A) is justified in deleting penalty u/s. 270A amounting to Rs. 1,00,18,578/- considering there is no under reporting/misreporting of income ignoring the facts that Sikkim State Cooperative Bank Limited and Citizens Urban Cooperative Bank Limited though registered under the Sikkim Cooperative Societies Act, 1978, they are not primary agriculture credit society or primary cooperative agriculture and regular development bank, according to section 80P(4) of the Act, this section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or primary cooperative agricultural and rural development bank. 2. The Department craves the right for alteration, additions, deletion and modification of these grounds of appeal.” 3. The brief facts of the case are that the assessee is a cooperative society registered under the Sikkim Co-operative Societies Act, engaged in the business of wholesale supply of consumer goods. The assessee was assessed to tax in the status of an AOP and had filed its return of income for the AY 2020-21 on 12.02.2021 declaring total income at Rs. ‘Nil’ after claiming deduction u/s 80P of the Act. The case of the assessee was selected for complete scrutiny under CASS for verification of various issues. In the course of assessment proceedings, statutory notices u/s 143(2) and 142(1) of the Act were issued on various dates which were partly complied with by the assessee. The assessment was completed u/s 143(3) read with section 144B of the Act on 08.09.2022, wherein total income was determined at Rs. 1,61,28,130/- after making additions/disallowance of (i) sum of Rs. 5,41,897/- disallowed under section 40(a)(ia) of the Act towards payments made without deducting Page | 3 I.T.A. No.: 1711/KOL/2024 Assessment Year: 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. TDS; (ii) disallowance of claim of deduction of Rs. 10,00,000/- u/s 80G of the Act towards donation, and (iii) disallowance of claim of deduction of Rs. 1,45,86,229/- u/s 80P(2)(d) of the Act in respect of interest income from investments made with Cooperative Banks. Thereafter, penalty proceedings u/s 270A of the Act for under reporting in consequence of misreporting of income was initiated in the course of the assessment proceedings. Notice u/s 274 read with section 270A of the Act was issued on 08.09.2022. Subsequently, notices/reminder letters were issued on various dates but there was no response from the assessee. Accordingly, the Ld. AO imposed a penalty u/s 270A of the Act amounting to (i) Rs. 1,00,18,578/- at the rate of 200% of tax payable on under-reported income in consequence of misreporting (in relation to the disallowance of deduction u/s 80P(2)(d) of the Act), and (ii) Rs. 1,43,036/- at the rate of 50% of tax payable on under-reported income (in relation to the other additions). Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who considered the detailed submission made by the assessee. In the assessment order there were, four additions made and after considering the facts and circumstances of the case and the submission made the Ld. CIT(A) has deleted the penalty and allowed the appeal of the assessee observing as under: “i) Disallowance u/s 40(a)(ia) of the Act towards certain payments made without deducting TDS: 6.1.3 Thus, on considering the totality of facts, I am inclined to concur with the view that this cannot be a case of deliberate under reporting of income on part of the appellant. Furthermore, I also note that the appellant has been consistent in offering explanation with regard to the said claim of expenditure in the course of assessment proceedings, penalty proceedings as also during the appellate proceedings. I find that the explanation offered Page | 4 I.T.A. No.: 1711/KOL/2024 Assessment Year: 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. by the appellant, having regard to the nature and quantum of the income alleged to be under reported, is bona fide within the meaning of sub-section (6) of section 270A, and the appellant has disclosed all the material facts to substantiate the said explanation. Therefore, the action of AO in imposing penalty under section 270A for under reporting of income, in respect of this disallowance, cannot be sustained. ii) Disallowance of claim of deduction u/s 80G of the Act: 6.2.2 On considering the totality of facts, I find that this cannot be a case of deliberate under reporting of income on part of the appellant. Furthermore, I also note that the appellant has been consistent in offering explanation with regard to the said claim of expenditure in the course of assessment proceedings, penalty proceedings as also during the appellate proceedings. I find that the explanation offered by the appellant, having regard to the nature and quantum of the income alleged to be under reported, is bona fide within the meaning of sub-section (6) of section 270A, and the appellant has disclosed all the material facts to substantiate the said explanation. Therefore, the action of AO in imposing penalty under section 270A for under reporting of income, in respect of this disallowance, cannot be sustained. iii) Disallowance of claim of deduction u/s 80P(2)(d) of the Act: 6.3.3 On these facts, it is evident that no penalty can be imposed for under reporting in consequence of misreporting of income, under section 270A, in relation to the disallowance of deduction under section 80P (2)(d) of the Act, as the disallowance itself has been deleted in appeal against the quantum, and the claim of deduction has been fully allowed. Therefore, the action of AO in imposing penalty under section 270A for under reporting in consequence of misreporting of income, in respect of this disallowance, cannot be sustained. 6.4 Hon'ble High Court of Rajasthan in the case of Chambal Fertilizers and Chemicals Ltd. Vs Pr. CIT (2024) (158 taxmann.com 184) (Rajasthan) has held that where during scrutiny assessee realized aspect of merging GST Input Credit with expenses and same was suo-moto surrendered by assessee by revising its return, however revenue imposed penalty under section 270A and thereafter, rejected application of assessee under section 270AA, since revenue wasn't sure whether it was a case of misrepresentation or suppression of facts or claim of expense and application under section 270AA was rejected in a wholly cursory manner indicating that case of assessee was within ambit of clause (a) and (c) of section 270A(9) and without giving any cogent reasons, same could not be sustained. Page | 5 I.T.A. No.: 1711/KOL/2024 Assessment Year: 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. 6.5 Hon'ble ITAT, Mumbai Bench in the case of Alrameez Construction (P.) Ltd. Vs NFAC (2023) (152 taxmann.com 382) (Mumbai Trib.) has held that where Assessing Officer made addition under section 43CA read with section 56(2) (x), case of assessee did not fall in category of under reporting of income and moreover since in penalty notice under section 270A revenue had failed to specify limb \"under-reporting\" or \"misreporting\" of income, under which penalty proceedings had been initiated, entire proceeding was not only erroneous but also arbitrary and bereft of any reason. ……………………………………… ……………………………………… 7. In view of the facts and circumstances of the case, and the prevailing position of law, I find that this is a not a case of under-reporting or misreporting of income, within the meaning of section 270A of the Act. The alleged under-reporting by way of making an incorrect claim in law, was purely a result of oversight, for which a bonafide explanation was offered by the appellant. This is not a case of misrepresentation or suppression of facts, as all the relevant and material facts were already on record. Therefore, the action of AO in levying penalty of Rs. 1,43,036/- under section 270A at the rate of 50 percent of tax payable on under-reported income is not sustained. Further, the action of AO in levying penalty of Rs. 1,00,18,578/- under section 270A at the rate of 200 percent of tax payable on under-reporting in consequence of misreported income is also not sustained, as the related disallowance of deduction under section 80P has itself been deleted in appeal. Accordingly, the Jurisdictional Assessing Officer (JAO) is directed to delete the aggregate penalty of Rs. 1,01,61,614/- levied under section 270A, on these accounts. These grounds of appeal are allowed. 8. In Ground No. (4), the appellant has sought leave to add, substitute, modify, delete or amend or to raise additional grounds of appeal. No such option has been exercised by the appellant during the appeal proceedings and hence, this ground does not require any adjudication. 9. In the result, the appeal is allowed.” 4. Aggrieved with the order of the Ld. CIT(A), the Revenue has filed the appeal before this Tribunal. Page | 6 I.T.A. No.: 1711/KOL/2024 Assessment Year: 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. 5. Rival submissions were heard and the record and the submissions made have been examined. We have considered the submissions made. As has been rightly held by the Ld. CIT(A) that the Ld. AO could neither make out a case of under-reporting nor could he make out a case of under-reporting on account of misreporting. The deduction u/s 80P(2)(d) of the Act is a debatable matter as the issue went up to the Hon'ble Supreme Court and the same has also been deleted in the quantum appeal, as mentioned by the Ld. CIT(A). Therefore, it cannot be said that the assessee had under-reported the income without there being a reasonable cause. 6. The provisions of section 270A of the Act are as under: “270A. (1) The Assessing Officer or 95[the Joint Commissioner (Appeals) or] the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the course of any proceedings under this Act, direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income. (2) A person shall be considered to have under-reported his income, if— (a) the income assessed is greater than the income determined in the return processed under clause (a) of sub-section (1) of section 143; (b) the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished or where return has been furnished for the first time under section 148; (c) the income reassessed is greater than the income assessed or reassessed immediately before such reassessment; (d) the amount of deemed total income assessed or reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income determined in the return processed under clause (a) of sub-section (1) of section 143; (e) the amount of deemed total income assessed as per the provisions of section 115JB or section 115JC is greater than the maximum amount not Page | 7 I.T.A. No.: 1711/KOL/2024 Assessment Year: 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. chargeable to tax, where no return of income has been furnished or where return has been furnished for the first time under section 148; (f) the amount of deemed total income reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income assessed or reassessed immediately before such reassessment; (g) the income assessed or reassessed has the effect of reducing the loss or converting such loss into income. (3) The amount of under-reported income shall be,— (i) in a case where income has been assessed for the first time,— (a) if return has been furnished, the difference between the amount of income assessed and the amount of income determined under clause (a) of sub-section (1) of section 143; (b) in a case where no return of income has been furnished or where return has been furnished for the first time under section 148,— (A) the amount of income assessed, in the case of a company, firm or local authority; and (B) the difference between the amount of income assessed and the maximum amount not chargeable to tax, in a case not covered in item (A); (ii) in any other case, the difference between the amount of income reassessed or recomputed and the amount of income assessed, reassessed or recomputed in a preceding order: Provided that where under-reported income arises out of determination of deemed total income in accordance with the provisions of section 115JB or section 115JC, the amount of total under-reported income shall be determined in accordance with the following formula— (A — B) + (C — D) where, A = the total income assessed as per the provisions other than the provisions contained in section 115JB or section 115JC (herein called general provisions); B = the total income that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of under-reported income; Page | 8 I.T.A. No.: 1711/KOL/2024 Assessment Year: 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. C = the total income assessed as per the provisions contained in section 115JB or section 115JC; D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC been reduced by the amount of under-reported income: Provided further that where the amount of under-reported income on any issue is considered both under the provisions contained in section 115JB or section 115JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D. Explanation.—For the purposes of this section,— (a) \"preceding order\" means an order immediately preceding the order during the course of which the penalty under sub-section (1) has been initiated; (b) in a case where an assessment or reassessment has the effect of reducing the loss declared in the return or converting that loss into income, the amount of under-reported income shall be the difference between the loss claimed and the income or loss, as the case may be, assessed or reassessed. (4) Subject to the provisions of sub-section (6), where the source of any receipt, deposit or investment in any assessment year is claimed to be an amount added to income or deducted while computing loss, as the case may be, in the assessment of such person in any year prior to the assessment year in which such receipt, deposit or investment appears (hereinafter referred to as \"preceding year\") and no penalty was levied for such preceding year, then, the under-reported income shall include such amount as is sufficient to cover such receipt, deposit or investment. (5) The amount referred to in sub-section (4) shall be deemed to be amount of income under-reported for the preceding year in the following order— (a) the preceding year immediately before the year in which the receipt, deposit or investment appears, being the first preceding year; and (b) where the amount added or deducted in the first preceding year is not sufficient to cover the receipt, deposit or investment, the year immediately preceding the first preceding year and so on. (6) The under-reported income, for the purposes of this section, shall not include the following, namely:— Page | 9 I.T.A. No.: 1711/KOL/2024 Assessment Year: 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. (a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or 96[the Joint Commissioner (Appeals) or] the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered; (b) the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer or 96[the Joint Commissioner (Appeals) or] the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom; (c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or disallowance; (d) the amount of under-reported income represented by any addition made in conformity with the arm's length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X, and, disclosed all the material facts relating to the transaction; and (e) the amount of undisclosed income referred to in section 271AAB. (7) The penalty referred to in sub-section (1) shall be a sum equal to fifty per cent of the amount of tax payable on under-reported income. (8) Notwithstanding anything contained in sub-section (6) or sub-section (7), where under-reported income is in consequence of any misreporting thereof by any person, the penalty referred to in sub-section (1) shall be equal to two hundred per cent of the amount of tax payable on under-reported income. (9) The cases of misreporting of income referred to in sub-section (8) shall be the following, namely:— (a) misrepresentation or suppression of facts; (b) failure to record investments in the books of account; (c) claim of expenditure not substantiated by any evidence; Page | 10 I.T.A. No.: 1711/KOL/2024 Assessment Year: 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. (d) recording of any false entry in the books of account; (e) failure to record any receipt in books of account having a bearing on total income; and (f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply. (10) The tax payable in respect of the under-reported income shall be— (a) where no return of income has been furnished or where return has been furnished for the first time under section 148 and the income has been assessed for the first time, the amount of tax calculated on the under- reported income as increased by the maximum amount not chargeable to tax as if it were the total income; (b) where the total income determined under clause (a) of sub-section (1) of section 143 or assessed, reassessed or recomputed in a preceding order is a loss, the amount of tax calculated on the under-reported income as if it were the total income; (c) in any other case, determined in accordance with the formula— (X-Y) where, X = the amount of tax calculated on the under-reported income as increased by the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order as if it were the total income; and Y = the amount of tax calculated on the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order. (11) No addition or disallowance of an amount shall form the basis for imposition of penalty, if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year. (12) The penalty referred to in sub-section (1) shall be imposed, by an order in writing, by the Assessing Officer, 97[the Joint Commissioner (Appeals) or] the Commissioner (Appeals), the Commissioner or the Principal Commissioner, as the case may be.” Page | 11 I.T.A. No.: 1711/KOL/2024 Assessment Year: 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. 7. Since the major quantum addition on account of claim under section 80P has been deleted, therefore, on the facts brought out by the Ld. CIT(A) in the appeal order, there is neither any under-reported income nor any under-reported income in consequence of any misreporting as the facts do not establish so and therefore, penalty u/s 270A of the Act is not liable to be imposed and accordingly the order of the Ld. CIT(A) deleting the penalty is hereby upheld and the appeal of the Revenue is dismissed and the order of the Ld. CIT(A) is upheld. 8. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open Court on 29th April, 2025. Sd/- Sd/- [Pradip Kumar Choubey] [Rakesh Mishra] Judicial Member Accountant Member Dated: 29.04.2025 Bidhan (P.S.) Page | 12 I.T.A. No.: 1711/KOL/2024 Assessment Year: 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Copy of the order forwarded to: 1. The Deputy Commissioner of Income Tax, Circle-3(2), Gangtok 2. Sikkim State Cooperative Supply and Marketing Federation Limited, 1 Simfed Building Development Area Gangtok, Gangtok Bazar SO, Gangtok, East Sikkim- 737101. 3. CIT(A)-NFAC, Delhi. 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. 6. Guard File. //True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata "