By C. N. Vaze
Shailesh Kamdar
Jagdish T. Punjabi
Bhadresh Doshi
Chartered Accountants
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50 (2010) 124 ITD 332 (Cochin)
ACIT v. State Bank of Travancore
A.Y. : 2002-03. Dated : 8-8-2007
S. 40A(9) — Where the contribution made to any fund is a bona
fide one, the same should not be hit by the disallowance of S. 40A(9).
Facts :
The assessee had contributed Rs.50 lakhs to Retired Employees
Medical Benefit Scheme. This was pursuant to the Associate Bank Officers’
Association’s (‘union’) demands from the management of the State Bank of India
and its subsidiaries. After negotiations between the management and the union,
it was agreed to formulate a medical scheme for retired officers. As per terms
of agreement between the management and the union, the assessee paid Rs.50 lakhs
as its contribution towards formulation of the scheme.
On perusal of the tax audit report, the AO disallowed the
said contribution on the ground that the said contribution is subject to the
provisions of S. 40A(9). The CIT(A) held in favour of the assessee.
Held :
The Tribunal held in favour of the assessee on the following
grounds :
(1) The basic intention for inserting Ss.(9) to S. 40A was
to discourage the practice of creating camouflage trust funds, etc. ostensibly
for the welfare of employees and transferring huge funds to such trust as
contribution.
(2) In the given case, there was an agreement signed by the
management and the union and contribution made by the assessee was in
pursuance to this agreement. Hence, it was a contractual obligation of the
assessee and the contribution was a bona fide one. Further, in the case of
assessee the fund is not in the control of the assessee.
The assessee would not be hit by the provisions of S. 40A(9).
51 (2010) 124 ITD 353 (Delhi)
Model Footwear (P.) Ltd. v. ITO
A.Y. : 1998-99. Dated : 22-5-2009
S. 271(1)(c) — Deduction u/s.80HHC — Assessee included
miscellaneous income without reducing 90% — Penalty cannot be levied simply
because assessee had not reduced 90% of other incomes
S. 271(1)(c) — Last year for claiming deduction u/s.80I was
A.Y. 1996-97 — Inspite of this, assessee claimed deduction u/s.80I — No
explanation offered by assessee in this regard — Explanation I to S. 271(1)(c)
applicable — Penalty to be levied.
Facts :
The assessee claimed deduction u/s.80HHC of Rs. 1,52,63,904.
While doing so, the assessee included interest income, miscellaneous income and
excess provision written back in the profit without reducing 90% thereof. The
AO, by applying the Explanation (baa) to S. 80HHC, excluded 90% of aforesaid
amounts and worked out deduction u/s.80HHC. He also initiated penalty
proceedings u/s.271(1)(c).
The Assessing Officer further noticed that the assessee had
also claimed deduction u/s.80I. The AO noted that the assessee was entitled to
deduction only up to A.Y. 1996-97. The AO thereafter asked the assessee to give
reasons as to why the claim of deduction u/s.80I should not be disallowed. No
reply in this regard was furnished by the assessee. The AO, therefore, held that
the claim of deduction u/s.80I was incorrect. He also initiated penalty
proceedings u/s.271(1)(c).
The CIT(A) confirmed the above additions. Thereafter, the AO
proceeded with penalty proceedings.
The CIT(A) confirmed that penalty u/s.271(1)(c) is leviable
in the assessee’s case.
Held :
(1) The question of excluding interest income and
miscellaneous income is dependent upon the nature of incomes — Whether they
are directly connected to operations of the assessee’s business. Simply
because the assessee had claimed deduction without reducing 90% of aforesaid
incomes, it cannot be said that the assessee has concealed income or has made
incorrect claim. The assessee’s claim was a bona fide one and assessee has
disclosed all material facts. Hence, no penalty u/s.271(1)(c) is to be levied.
(2) As far as deduction u/s.80I is concerned, penalty
u/s.271(1)(c) has been correctly levied. No reason or explanation was given by
the assessee as to why it made a claim for deduction u/s.80I when it was known
to the assessee that the deduction is available only up to the A.Y. 1996-97.
The Assessing Officer started making enquiry and on enquiry,
the assessee informed the AO that the first year of deduction was A.Y. 1989-90.
Even, thereafter the assessee did not withdraw the claim made u/s.80I.
Hence the Explanation I to S. 271(1)(c) is squarely applicable to assessee’s
case inasmuch as the assessee failed to offer any explanation.
