Income Tax Appellate Tribunal - Delhi
G.E. Money Financial Services Pvt. ... vs Acit, New Delhi on 7 May, 2018
INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "C": NEW DELHI
BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER
AND
SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
ITA No.1803/Del/2011
(Assessment Year: 2002-03)
GE Money Financial Services Vs. ACIT,
Pvt. Ltd, Circle-12(1),
401, 402, 4th Floor, Aggarwal CR Building,
Millenium Tower, E-1,2,3, Netaji New Delhi
Subhash Place, Pitampura,
New Delhi
PAN: AAACC0642F
(Appellant) (Respondent)
Assessee by : Shri Sachit Jolly, Adv
Revenue by: Shri Amit Jain, Sr. DR
Date of Hearing 28/02/2018
Date of pronouncement 07/05/2018
ORDER
PER PRASHANT MAHARISHI, A. M.
1. This is an appeal filed by the assessee against the order of the ld CIT(A)-
IX, New Delhi dated 10.12.2010 for the Assessment Year 2002-03 where in penalty u/s 271(1) (c) of Rs 12898663/- is confirmed.
2. The assessee has raised the following grounds of appeal:-
"1 On the facts and circumstances of the case and in law, the order passed by Hon'ble CIT(A) is erroneous and bad in law and the Hon'ble CIT(A) has erred in confirming penalty of Rs. 1,28,98,663/- levied under section 271 (1 )(c) of the Act. 2 On the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in upholding the levy of penalty under section 271(1)(c) of the Act of Rs. 1,28,98,663/- on Provision for Non- performing assets made as per Reserve Bank of India ('RBI') norms. The Hon'ble CIT(A) has further erred in not appreciating the fact that adequate disclosures in respect of the above claim were made by the Appellant in its return of income ('ROI') and also during the course of assessment proceedings for the subject year. 3 On the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in not appreciating that the claim of the Appellant in respect of allowability of the Provision for Non-performing assets Page | 1 of Rs.3,61,30,709/- made as per RBI norms was based on bonafide belief and favourable judicial precedents in this regard available at the time of furnishing of return of income. 4 On the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in holding that the claim of the Appellant in respect of allowability of Provision for Non-performing assets of Rs.3,61,30,709/- made as per RBI norms is contrary to the Apex Court ruling in the case of Southern Technologies Ltd. (320 ITR
577). The Hon'ble CIT(A) has erred in not appreciating that the above ruling was delivered in January 2010 ie. after filing of the ROI for the subject year.
5 On the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in holding that at the time of filing of the ROI and also during the course of assessment proceedings, the Appellant was aware of the fact that the provisions of RBI Act, 1934 shall not over rule the provisions of the Act.
6 On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has failed to appreciate that penalty proceedings are separate and distinct from the assessment proceedings, and any additions / enhancements made in the assessment order could not mechanically lead to a penalty, unless it is proved that the Appellant has deliberately furnished any inaccurate particulars of its income."
3. Brief facts of the case are that Assessee Company is engaged in the business of consumer and auto finance. It filed its return of income on 31/10/2002 at a book profit of Rs. 7, 17, 87, 254/- under the provisions of section 115 JB of the act. The assessment order under section 143 (3) of the act was passed on 25/2/2005 at rupees 22, 84, 27, 100/-. The Ld. assessing officer made a disallowance of depreciation on leased vehicle of Rs. 1 0, 37, 68, 711/- and disallowance on account of provisions of non- performing assets as per the reserve bank of India norms of Rs. 3, 61, 30, 709/-. The assessee preferred an appeal before the Ld. CIT (A) who confirmed the above disallowance and assessee preferred appeal before the coordinate bench, which is pending for disposal. Meanwhile the Ld. AO initiated penalty proceedings under section 271 (1) (C) of the act on both the above disallowance. Assessee submitted vide its letter dated 27/03/2009 that no penalty should be levied. However the Ld. assessing officer levied penalty of Rs. 4, 99, 44, 090/- under section 271 (1) (C) of the income tax act on both the disallowance is made by the Ld. assessing officer. The assessee preferred an appeal before the Ld. CIT (A).
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4. Pendency of the appeal before the Ld. CIT (A) assessee filed a rectification application before the Ld. assessing officer under section 154 of the income tax act on 13/4/2009 to rectify the mistake apparent from the record. The Ld. assessing officer for order dated 13/5/2009 passed an order under section 154 read with section 271 (1) (C) rectified the mistake in relation to depreciation on leasehold vehicles and levied penalty amounting to Rs. 12, 898, 660/- . Therefore the only issue remained with the Ld. CIT (A) on which penalty levied was with respect to the provision for non-performing assets. The Ld. CIT (A) confirmed the above penalty holding that Hon'ble Supreme Court in the case of Southern technologies Ltd 320 ITR 577 is held that deduction with respect to the provision of non-performing assets is not an allowable deduction. He held that appellant had made a claim contrary to the above ruling of the Supreme Court whereas at the time of filing of the return of income and also during the course of assessment proceedings the appellant was well aware of the fact that the provision of the reserve bank of India act shall not overrule the provisions of the income tax act 1961. Therefore, he confirmed the penalty on provision for non- performing assets. The assessee aggrieved with the order of the Ld. CIT (A) has preferred an appeal before us.
5. The Ld. authorized representative submitted that at the time of claim made by the assessee of the provision for non-performing assets the same were allowable as per the NBFC prudential norm issued by the reserve bank of India. He submitted that assessee has given a complete note in its computation of total income and has stated that in view of the decision of the Hon'ble Madras tribunal in the case of overseas Sanmar financial Ltd the above claim is deductible against the income of the company. He therefore submitted that when the claim of the assessee was made in the return of income at that particular time there was a favourable decision where the claim of the assessee is allowable. Even otherwise he submitted that the matter has reached up to the Supreme Court and Hon'ble Supreme Court in case of Southern technologies Ltd has held so that deduction is allowable according to the provisions of the Page | 3 income tax act and the RBI provisions do not governed the taxability of the income of the nonbanking financial company despite mandatory RBI guidelines. He therefore submitted that the assessee has completely disclosed the claim made by the assessee and it cannot be called as a false claim, unsustainable claim or furnishing of inaccurate particulars of the income or concealment of income. He submitted that at the time of filing of the returned there was an uncertain 80 and assessee has taken the view favourable to the assessee at the time of filing of the return of income which is based upon the decision of the bench of the tribunal hence it cannot be said that the claim of the assessee was not available at that particular time. Even otherwise, the matter reached up to the level of the Hon'ble Supreme Court itself speaks that the issue is debatable and penalty cannot be levied on such a debatable issue.
6. The Ld. departmental representative vehemently supported the orders of the lower authorities and submitted that the claim of the assessee was false at the beginning itself because the Hon'ble Supreme Court has stated that the direction of the reserve bank of India does not have to do anything so far as the computation of the total income of the assessee is concerned. It was therefore submitted that the penalty has been rightly levied and confirmed by the lower authorities.
7. We have carefully considered the rival contention and the orders of the lower authorities while making the disallowance on account of non- performing assets as well as at the time of levy of the penalty. At the time of filing of the return of income assessee has attached notes forming part of the return of income and wide notice No. 2 submitted as under:-
"2. Provision for doubtful assets amounting to Rs. 3, 61, 30, 709/-, including provision for securitized assets amounting to Rs. 85,53,005/-) made as per nonbanking financial companies prudential norms (RBI) directives, 1998 has been considered as allowable under section 28 and/or section 37 and or any other applicable provisions of the income tax act 1961 in view of the decision of the Hon'ble Page | 4 Madras tribunal in the case of overseas Sanmar financial Ltd ITA No. 280 and 1522/MDS/1 1999, wherein it has been held that provisions against bad and doubtful debts by in NBFC as per the norms of the RBI is deductible against the income of the company.
"Provision for doubtful advances made
following the directives of RBI which
according to RBI would given near true
picture of the assets and liabilities of NBFC is to be made by NBFC if it has continuously get the patronage of RBI and remain in business by avoiding unscrupulous methods .... RBIs directives to account for the income on cash basis is an appreciation of the fact that it does not make any sense to account the income on accrual basis giving no credit is to actual recovery and letter allowing deduction for irrecoverable debts including that's that cannot be recovered in full from the security provided because of erosion in the value of the security .... Notwithstanding the fact that section 36 of the act does not contain any specific subsection or sub clause covering the contingency as in the case of NBFC it could be allowed as a right of because there are authorities that state that the provision is a call to write off because the debit is given to profit and loss account"
8. In the present case with the assessee has filed his return of income on 31st of October 2008 was a decision of the coordinate bench wherein it has been held that provision on the non-performing asset is an allowable expenditure. The assessee has also put in a note in the computation of Page | 5 total income mentioning the decision as well as the claim of the assessee. Therefore, at the time of filing of the return of income it is apparent that assessee was under bona fide belief that the above claim is allowable to the assessee, which is also supported by the decision of the coordinate bench. Subsequently there is a change in the judicial precedent and the matter reached up to the Hon'ble Supreme Court where in case of Southern technologies versus ACIT 320 ITR 577 Hon'ble Supreme Court in the such deduction is not allowable if it is not in accordance with the provisions of the income tax act. However, there the dispute with respect to the allowance of the above claim rests.. However, it is apparent that the claim was bona fide and was not false as at the time when the return was filed there was difference of judicial opinion as to allowability of the provision for NPA on the basis of RBI Guidelines. The related to allowance of the was resolved only after the decision of the Special Bench of the Tribunal was rendered in the case of New India Industries Ltd. v. Asstt. CIT [2007] 112 TTJ (Delhi) 917. This decision was rendered on 26-10-2007. Prior to this there was a divergence of opinion expressed by the various orders of coordinate benches? The Chennai Bench of the Tribunal in the case of Overseas Sanmar Financial Ltd. v. Joint CIT [2003] 86 ITD 602 held that the provision for NPA made in consonance with prudential norms of RBI has to be allowed for deduction in computing the income. Similar views were also held by the Income-tax Appellate Tribunal, Delhi, in the cases of Hindustan Commercial Investment Trust Ltd. v. Dy. CIT [IT Appeal No. 1912 (Delhi) of 2002 and Tedco Investment & Financial Services (P.) Ltd. v. Dy. CIT [2003] 87 ITD 298 (Delhi). Therefore, it cannot be said that in all the cases the provision for NPA is not allowable at all. Since the return was filed based on the then prevailing view as approved by the Tribunal, it can be considered to be a bona fide view. Further, when the provision was made, the same was based on the prudential norms issued by RBI, which the assessee is mandatorily required to follow. The claim at thime of filing of return of Income is also found plausible in accordance with the view adopted by the Tribunal. Merely because assessee has not Page | 6 withdrawn its claim even after the decision of Honourable supreme court in assesseement / appeal proceedings after the decision of the Honourbale supreme court cannot be used against the assessee for levy of penalty. The decision rendered by honourable supreme court was final and therefore withdrawal of the claim or otherwise does not make any difference in so far as the issue of penalty is concerned. Therefore, if can be said that when the claim was made, the same was bona fide claim supported by judicial opinion of the Tribunal, penalty there on cannot be levied. The hon'ble Supreme Court in the case of CIT v. Suresh Chandra Mittal [2001] 251 ITR 9 held that penalty need not be levied when an explanation has been offered by the assessee and where the explanation is found not to be false and is bona fide. Based on facts of the present case and the order of the Tribunal extracted hereinabove, it is not a fit case for confirming levy of penalty under section 271(1) (c) of the Act for furnishing inaccurate particulars of the income. We are, therefore, unable to confirm the penalty levied under section 271(1) (c) of the Act. Hence, we reverse the finding of the CIT (A) and direct the ld AO to delete the penalty on the disallowance of claim of assessee of loss on non- performing assets based on RBI guidelines/ directions.
9. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 07/05/2018.
-Sd/- -Sd/-
(AMIT SHUKLA) (PRASHANT MAHARISHI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 07/05/2018
A K Keot
Copy forwarded to
1. Applicant
2. Respondent
3. CIT
4. CIT (A)
5. DR:ITAT
ASSISTANT REGISTRAR
ITAT, New Delhi
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