Mere disallowance of claim does not amount to concealment; Penalty u/s 271(1)(c) deleted

Issue

Whether the levy of penalty under Section 271(1)(c) of the Income Tax Act is justified when additions are made solely due to a difference of opinion regarding the treatment of receipts (surplus and santage charges), without any finding of concealment or furnishing of inaccurate particulars.

Facts

Assessee Profile: The assessee is a Co-operative Society (Cane Development Council) established by the Cane Commissioner of Uttar Pradesh. It provides credit facilities and agricultural implements to farmers and markets agricultural produce. It operates on mutuality without a profit motive.
Additions: During the assessment for AY 2011-12 (lead case), the Assessing Officer (AO) made two additions:
1. Rs. 1,69,986/- on account of Santage charges.
2. Rs. 29,42,866/- on account of Surplus.
Penalty Imposed: The AO initiated penalty proceedings under Section 271(1)(c) and levied a penalty of Rs. 10,30,000/- (@100% of tax sought to be evaded), alleging concealment of income.
CIT(A) Ruling: The CIT(A) upheld the penalty.
Assessee’s Defense: The assessee argued that full disclosure was made in the return. The additions arose from a difference of opinion on whether the receipts (government grants/commissions) were taxable income. They relied on the Reliance Petroproducts judgment, stating that a mere disallowed claim does not equal concealment.

Decision

No Concealment Found: The Tribunal noted that the AO completed the assessment based on details available in the return of income. There was no specific finding that the assessee concealed particulars or furnished false information.
Nature of Receipts: The Tribunal referred to the Allahabad High Court’s decision in the assessee’s own case (ITA No. 759 of 2012), which held that surplus money advanced by the State Government for road construction acts as “grant-in-aid” and is not taxable income under Section 2(24).
Application of Precedent: Relying on the Supreme Court’s decision in CIT vs. Reliance Petroproducts Pvt. Ltd. (322 ITR 158), the Tribunal held that merely making a legal claim that is subsequently not accepted by the AO does not amount to furnishing inaccurate particulars.
Penalty Deleted: Since the additions were based on a difference in treatment of receipts rather than hidden income, the penalty was unjustified. The Tribunal deleted the penalty for all four appeals.

Key Takeaways

Disallowance vs. Concealment: A penalty under Section 271(1)(c) cannot be levied automatically just because a claim made by the assessee is disallowed during assessment. There must be distinct evidence of concealment or furnishing inaccurate particulars.

Grant-in-Aid: Surplus funds received by a Cane Development Council from the State Government for specific purposes (like road construction) are in the nature of “grant-in-aid” and not necessarily taxable income, reinforcing the bona fide nature of the assessee’s claim.
THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH “F”NEW DELHI
CANE DEVEOPMENT COUNCIL
ROHANA KALAN,
C/o Dinesh Mohan, Advocate
Vs.
INCOME TAX OFFICER,
I.T.A No.2612/Del/2018
Pronouncement on 28.11.2025

Source :- 1764329023-bUbzkV-1-TO