ITAT upholds Deletion of Penalty on Mother Theressa Educational Society for Misreported Depreciation, Highlighting Spending Compliance [Read Order]

The Visakhapatnam Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the Commissioner of Income Tax(Appeals)[CIT(A)]'s deletion of a penalty imposed on the Mother Theressa Educational Society,the assessee, for misreported depreciation, emphasizing that the assessee had complied with the requirement of spending 85% of its revenue for charitable purposes.

The Revenue-appellant had filed an appeal against the order passed by the CIT(A).In this case the Mother Theressa Educational Society, the respondent-assessee,was registered under Section 12A and Section 80G of the Act, with its registrations confirmed by the CIT, Rajahmundry, on specified dates.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The society filed its return declaring NIL income after claiming applications of income under Section 11. The case was selected for scrutiny, and the assessment was completed under Section 143(3) r.w.s. 144B on April 15, 2021, which confirmed the total income as NIL.

During the scrutiny, the Assessing Officer (AO) identified that the society had misreported its claim of depreciation amounting to Rs. 7,95,54,942. The AO noticed that the assessee claimed both capital application while acquiring assets (totaling Rs. 8,36,91,167) and depreciation, which resulted in a double deduction. As a result, the AO initiated penalty proceedings under Section 270A due to this misreporting.

A show-cause notice was issued to the assessee, and it submitted a response. However, the AO imposed a penalty of Rs. 4,91,64,956, which amounted to 200% of the tax on the under-reported income. Aggrieved by this penalty, the assessee appealed to the CIT(A), arguing that it had fulfilled the requirement of spending 85% of total revenue even after excluding the depreciation claim. The CIT(A) considered the arguments and ultimately upheld the society's appeal, leading to the deletion of the penalty.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The revenue then filed an appeal against the CIT(A)’s decision, raising key grounds that included reliance on the submissions of the assessee without adequate examination, misrepresentation of facts due to double deduction not permitted under Section 11(6), and additional grounds with permission from the Tribunal.

Upon reviewing the case, the Tribunal noted that the assessee had indeed met the requirement of spending 85% of its revenue. While the depreciation claim was disallowed under Section 11(6), the AO had accepted the assessee’s NIL income during assessment.

The appellate tribunal observed that no tax was payable by the assessee, as it had complied with spending requirements. It found the penalty imposed by the AO to be contradictory, as it was based on a misreporting that did not result in tax liability.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The Division Bench of Duvvuru RL Reddy(Judicial member)  and S.Balakrishnan(Accountant Member) upheld the CIT(A)’s decision to delete the penalty, concluding that there were no infirmities in the lower authority's ruling.

Consequently, the appeal filed by the revenue was dismissed, affirming the CIT(A)’s decision in favor of the assessee.

To Read the full text of the Order CLICK HERE

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