The Income Tax Appellate Tribunal (ITAT), Chandigarh bench has held that penalty under section 271(1)(a) cannot be levied on a charitable society on cancellation of its registration under Section 12AA of the Income Tax Act, 1961.
Facts of the case:
For the relevant assessment year, the assessee had filed the income tax return declaring NIL income after claiming exemption under section 11 and 12 of the Income Tax Act. Subsequently, the registration granted to the assessee under section 12AA of the Income Tax Act was cancelled.
The assessing officer re-opened the assessment and completed the assessment by holding that in the light of the cancellation of the registration, the corpus contribution and the excess of receipt over expenditure should be treated as income of the assessee’s society. Parallelly, a penalty order under section 274 read with Section 271(1)(c) of the Act was issued against the assessee.
The assessee failed to secure relief from the first appellate authority and approached the Tribunal by filing a second appeal.
Interpretation of law and conclusion:
The assessee claimed that the mere rejection of its claim of exemption U/s 11 of the Act would not tantamount to furnishing inaccurate particulars of income before the tribunal.
Concurring with the arguments of the assessee, the Tribunal held that “We see no reason to uphold the levy of penalty in the present case U/s 271(1)(c) of the Act, since the basis for levy of penalty, being cancellation of registration granted to the assessee U/s 12A of the Act and as a consequence treating it is surplus and corpus donation as not exempt but taxable under the Act, has been quashed by the ITAT. In effect, the registration granted to the assessee u/s 12A stands restored by the order of the ITAT. The additions made to the income of the assessee as a consequence of cancellation of registration, no longer survive and there remains no basis for the levy of penalty in the present case. The penalty so levied U/s 271(1)(c) of the Act amounting to Rs. 19,35,258/- is, therefore, directed to be deleted.”