Income Tax Appellate Tribunal - Mumbai
Apex Urban Co Op Bank Of Mharashtra & Goa ... vs Assessee
आयकर अपीऱीय अधिकरण "A" न्यायपीठ मुंबई में ।
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, MUMBAI
श्री डी.भनभोहन, उऩाध्मऺ एवुं श्री डी. करूणाकय यावु, ऱेखा सदस्य के समक्ष ।
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND
SHRI D. KARUNAKARA RAO, AM
आयकर अपीऱ सुं./I.T.A. No.3003/M/2013
(नििाारण वर्ा / Assessment Year: 2005-2006)
Apex Urban Co-op. Bank of फनाभ/ ITO-1(1)(3),
Maharashtra & Goa Ltd., Vs. Mumbai.
11, Sharda Sadan, S.A. Brelvi
Rd,
Fort, Mumbai-400 001.
स्थामी रेखा सं ./ PAN : AADHG 3444 H
(अऩीराथी /Appellant) .. (प्रत्मथी / Respondent)
अऩीराथी की ओय से / Appellant by : Shri Arun Sathe & Aarti Sathe
प्रत्मथी की ओय से/ Respondent by : Shri Pritam Singh (CIT-DR)
सुनवाई की तायीख / Date of Hearing : 24.7.2 013
घोषणा की तायीख /Date of Pronouncem ent : 18.9.2013
आदे श / O R D E R
PER D. KARUNAKARA RAO, AM:
This appeal filed by the assessee on 18.4.2013 is against the order of CIT (A)- 1, Mumbai dated 31.1.2013 for the assessment year 2005-2006.
2. In this appeal, assessee raised the following gourds which read as under:
"Ground No.1 In the facts and in the circumstances of the case and in law the CIT (A) erred in confirming the penalty levied u/s 271(1)(c). The assessee submits that,-
i) All the primary facts in regard to the income earned were placed on record.
ii) Throughout the assessment and appeal proceedings no addition was made so as to infer much less to conclude that particulars of income were not correctly filed.
iii) Explanations were given in penalty proceedings and AO did not find that any of the explanations was false or not bona fide.2
The appellant therefore contends that the provision of section 271(1)(c) were not at all attracted.
Ground no.II The CIT (A) misdirected himself in the fact and circumstances of the case and in holding that the assessee has failed to prove that its explanation is bona fide.
The CIT (A) failed to appreciate that,-
i) The assessee was entitled to deduction u/s 80P(2)(a)(i) in respect of income from providing credit facilities to members.
ii) In respect of his other income from investments etc he was entitled to such deduction by virtue of the deeming provision of section 176 (3A).
The assessee, therefore contends that its claims for deduction were bona fide, within the frame work of law and therefore the CIT (A)‟s observation to the contrary was perverse and does not flow from the fact of the case.
Ground No.III The Ld CIT (A) has erred in fact and in law, in not accepting the assessee‟s submissions that,-
a) The assessee has not concealed any income.
b) The assessee has not submitted any inaccurate particulars of income.
c) AO has filed to establish that the assessee has furnished inaccurate particulars of income.
d) AO has not found that all the facts relating to the income and material to the computation of its total income were duly disclosed by the assessee.
e) That the assessee has fully cooperated in all proceedings before the AO and CIT (A) and all material facts were duly disclosed before these authorities.
Ground No.IV Both authorities below have failed to appreciate that mere fact that a legal claim is not accepted, does not attract penal provisions under section 271(1)(c).
Ground No.V The Ld CIT (A) ought to have held that issues involved were purely contested legal issues to be decided on interpretation of the provisions of the Act & merely because claims were not accepted cannot attract penal provisions."
3. Briefly stated, assessee was registered under Multi State Cooperative Societies Act, 1984 and was subsequently notified by Government of Maharashtra as a State Cooperative Bank. The Reserve Bank of India also gave the assessee license under the Banking Regulations Act, 1949. The said notification of the State Government of Maharashtra and the said license issued by the Reserve Bank of India were challenged by the Maharashtra State Cooperative Bank Ltd in a writ petition before the Hon‟ble Bombay High Court. The Bombay High Court quashed 3 the notification of the Government and directed the RBI to review its decision granting license to assessee. The assessee challenged this decision before the Hon‟ble Supreme Court. The Supreme Court upheld the order of the Bombay High Court. The RBI cancelled the license w.e.f. 30.10.2003. Thus, the assessee is neither a State Cooperative Society nor it is a Bank under the Banking Regulation Act, 1949. We shall now discuss various developments during the assessment and appellate proceedings relating to quantum additions in the assessment and the other events leading to the levy of penalty u/s 271(1)(c) of the Act.
Assessment Proceedings- Denial of Deduction u/s 80P(2)(a)(i) of the Act:
4. Assessee filed the return of income declaring the total income "NIL" after making claim of deduction u/s 80P(2)(a)(i) of the Act. During the assessment proceedings u/s 143(2) of the Act, AO noticed that the RBI cancelled the assessee‟s license w.e.f. 30.10.2003 and the assessee was not permitted to carry on banking business under Banking Regulation Act (B.R Act), 1949, and he proposed to the assessee to disallow the claim of deduction under section 80P(2)(a)(i) of the Act. The assessee explained before the Assessing Officer that banking business was carried on special circumstances i.e. in the process of winding up the Bank. The Bank which carried banking business till 29.10.2003 cannot be suddenly said to be not carrying banking business on 30.10.2003. The business is to be carried on for some time for the sake of closure of the said banking activity. The nature of business i.e. banking, cannot change by mere cancellation of license by the RBI. The process of closing down or liquidating of business is natural to any de-licensed organization. The bank cannot stop making income which will continue to come by way of interest on investment already made or interest on loan/advances already given and outstanding as on the date of cancellation of the license. The assessee further submitted that the RBI cancelled the license and only denied the assessee from transacting business as mentioned under section 5(b) of the B.R. Act. The assessee was not barred from doing any form of business activities as mentioned in section.6 of the B.R. Act. AO rejected the said submissions of the assessee. Since the assessee has been barred from transacting banking business, benefit under 4 section 5(b) is not available and as such benefit under section 6 will also not be available too.
5. AO further observed that Section 22 of the B.R. Act states that no company shall carry on a banking business in India unless it holds a license issued on that behalf by the RBI. The right to carry on activities mentioned in Section 6(a) to 6(o) of the B.R. Act, 1949 flows from the issue of license to any company. Section 80P of the I.T. Act states that the income earned from the banking business by cooperative society will qualify for deduction. Since the assessee is not a banking company during the year under consideration, income earned from such activity will not qualify for exemption under section 80P(2)(a)(i) of the Act. The Assessing Officer further observed that the assessee‟s existence as a State Co-Operative Bank has ended as the relevant notification has been already struck down by the Bombay High Court. Since the assessee is not a banking company and also not a cooperative bank, the income earned from certain activities do not qualify for deduction under section 80(P)(2)(a)(i). Accordingly, he held the following income of the assessee as taxable.
S.No Nature of income Amount (Rs)
1 Income on investments 10,07,82,579
2 Interest on balances with RBI and 27,19,052
other bank funds
3 Commission, exchange & brokerage 3,11,942
4 Profit on sale of investments 86,69,70,200
5 Miscellaneous income 1,97,09,871
6. However, AO accepted assessee‟s plea that it is a cooperative society and undertook the activity of providing credit facilities to its members during the year under consideration. Further, he held that this status of the assessee continued to remain the cooperative society, even after its license to transact banking activity was cancelled by the RBI. Therefore, he accepted that income earned from providing credit facilities to its members qualifies for deduction under section 80P(2)(a)(i). Accordingly, he allowed deduction under section 80P(2)(a)(i) on an income of Rs 1,26,03,473/-, being interest earned by the assessee on the advances 5 given to its members. Finally, AO concluded the assessment determining the assessed income at Rs. 97,75,14,603/- after allowing the deduction u/s 80P(2)(a)(i) only on said interest income relatable to the credit facilities amounting to Rs. 1,26,03,473/-.
Appellate Proceedings on Disallowance of Claim of Deduction
7. During the first appellate proceedings, it was contended that the assessee was a cooperative bank carrying on its banking activities in accordance with a validly granted license which was in operation and the activities were carried on validly pursuant to the license issued by the RBI and as such the assessee was entitled to exemption under section 80P(2)(a)(i). It was further contended that the assessee being a cooperative society is also involved in providing credit facilities to its members. Therefore, the claim is allowable on either of the activity i.e. banking or providing credit facilities. It was further submitted that the assessee is a cooperative society involved in either of the two activities, income from other sources are also exempted following the decision of the Hon'ble Supreme Court in the case of CIT vs. Karnataka State Cooperative Apex Bank, 251 ITR 194. Considering the submissions of the assessee, the CIT gave relief by holding as under:
"3.9. I have carefully considered the submissions of the learned Authorized Representative and gone through the assessment order and the judicial decisions cited. Section 80P primarily refers to a cooperative society. Section 80P(2)(a)(i) specifically speaks about the cooperative society engaged in carrying on the business of the banking or providing credit facilities to its members. The appellant was registered as a State Cooperative Bank by the notification of Govt. of Maharashtra. In his assessment order at page 7 the Assessing Officer has accepted that it is a cooperative society which has granted loans to various member cooperative societies from which it was earning income.........
3.10. Since the appellant is a cooperative society and has advanced loans to its members, it is entitled to deduction under section 80P(2)(a)(i). Cancellation of its banking license and its status as a Cooperative Bank by order of High Court and Supreme Court will not have any effect on the admissibility of deduction under section 80P of the Act. In view of this the AO is directed to allow deduction under section 80P(2)(a)(i) as claimed".6
8. CIT(A) also granted deduction u/s 80P(2)(a) in respect of the receipts from investment amounting to Rs. 10,07,82,579/-. Consequent to above findings, the CIT (A) vide Para No.4.4 allowed deduction in respect of income arising out of investments with RBI holding that the receipts are from the investments in government securities compulsorily made by the banking company. Para No.4.4 is as under:
"4.4. I have carefully considered the submissions of the learned AR and gone through the facts of the case. The AO has already granted deduction under section 80P in respect of Rs. 1,26,03,473/- as income arising out of providing credit facilities to its members. In view of the decision of the Supreme Court and the decision of the ITAT cited by the learned AR, the balance sum of Rs 10,07,85,279/- will also be entitled to deduction under section 80P(2)(a) as the receipts are from the investments in Govt. Securities compulsorily made by the banking company. The AO is directed to allow the deduction in respect of this income".
9. Similarly the CIT (A) accepted that the assessee is a banking company and allowed the deduction under section 80P, on the incomes disallowed by the Assessing Officer except gains from sale of securities which he treated as Long Term Capital Gain vide the findings in Para 5.4. Therefore, both the assessee and revenue are contesting the issue on the directions of the CIT in this regard. Thus, after giving effect to the order of the CIT(A), the assessed income modified worked out to Rs 36,29,58,998/-.
Proceedings before the Tribunal
10. During the appellate proceedings before the Tribunal on the merits of denial of claim of deduction u/s 80P(2)(a) of the Act, the Revenue contended that the impugned receipts tabulated in the subsequent paragraphs cannot be considered as income from banking business and relied on the judgment of the Hon‟ble Supreme Court in the case of Totgars Cooperative Sales Society Ltd. Vs. ITO (322 ITR 283) (SC). It is the submission of the Revenue that since the assessee is a cooperative society, the income from the so called banking activities cannot be allowed as a deduction without there being any banking business.
11. On the other hand, Shri Arun Sathe & Aarti Sathe, Ld Counsels for the assessee submitted that even though the license was cancelled, as it is in the 7 process of winding up and the income earned on the sale of investment should be considered as income arising in the course of banking business, not as capital gains as held by the CIT (A). Ld Counsel also relied on the provisions of section 176(3A) of the Act in this regard. Further, Ld Counsel relied on various jurisdictional High Court judgments in this regard. It is the claim of the assessee that assessee is entitled for deduction u/s 80P(2)(a)(i) in respect of the income earned on the banking business.
12. On hearing both the parties, the Tribunal noticed that for the AY 2005-06, assessee earned income to the tune of Rs. 100.30 Crs and the breakup is as follows.
a) Interest earned on loans and advances Rs. 1,26,03,473
b) Interest on investments Rs.10,07,02,579
c) Interest earned on balance with RBI and Rs. 27,19,052
other interbank funds
d) Commission Exchange and Brokerage Rs. 3,11,942
e) Profit on sale of investment Rs.86,69,70,200
f) Miscellaneous incomes Rs.1,97,09,071
13. The Tribunal analyzed if the interest income on investment/advances & loans/balances/commission/others should be considered as income from banking business and, if so, whether deduction under section 80P(2)(a) on the above income is eligible for deduction u/s 80P(2)(a) of the Act. Eventually, Hon‟ble Tribunal is critical of the relief granted by the CIT (A) in respect of the interest on investments and reversed the finding of the CIT (A) vide para 33 of the impugned order. Further, regarding the Profit on sale of investment of Rs. 86,69,70,200/-, which includes Rs. 5,33,56,510/- (profit in respect of shares held for lesser than one year), which is held by the CIT (A) as non-banking income but the capital gain income, the Tribunal confirmed the order of the CIT(A). Relevant discussion can be seen from para 35 of the Tribunal‟s order. Regarding the miscellaneous income of Rs. 1,97,09,071/-, which is an unclaimed dividend provided earlier, CIT (A) considered that this amount is merely write back of the earlier years should not be added to the income of the assessee. Tribunal confirmed the said decision of the CIT (A) as such interest earned on loans and advances amounting to Rs. 1,26,03,473/-.
814. Factually, AO allowed the claim of deduction u/s 80P(2)(a)(i) as it relates to the credit facilities to the members of the assessee. In the process, the Tribunal examined the provisions of section 80P(2)(a)(i) and sections 5 & 6 of the Banking and Regulation Act, 1949. Further, the Tribunal also considered the judgment of the Hon‟ble Supreme Court in the case of Totgars Cooperative Sales Society Ltd (supra). Tribunal explained the provisions of section 176(3A) of the Act and held that the said provisions will not be of any help to the assessee. In the result, the Tribunal dismissed the appeal of the assessee on merits vide its order dated 30.11.2011. At the end of the second appellate proceedings, the total income modified worked out to Rs. 46,37,41,577/-, which is the subject matter of penalty u/s 271(1)(c) of the Act. The break-up of the said income is as follows:
Banking Income Rs. 10,07,82,579/-
LTCG as per order giving effect of CIT (A)‟s order dated 2.12.2008 Rs. 30,94,03,456/- STCG as per order giving effect of CIT (A)‟s order dated 2.12.2008 Rs. 5,33,56,510/- Income from other sources as per order giving effect of CIT (A)‟s Rs. 1,99,023/-
order dated 2.12.2008 _______________ Revised Total Income Rs. 46,37,41,577/-
Penalty Proceedings u/s 271(1)(c) of the Act:
15. Subsequent to the said order of the Tribunal, AO issued show cause notice on 5.7.2012 and provided various issues to the assessee. To state briefly, AO informed the assessee about the determination of the assessed income of the assessee of Rs. 97,75,14,603/- against Rs. NIL income returned by the assessee. Assessee claimed a sum of Rs. 91,58,59,221/- as revised deduction u/s 80P of the Act. He also informed after giving effect to the order of the CIT (A), total income was reduced to Rs. 36,29,58,998/-. Further, after the decision of the Tribunal, the total income stands at Rs. 46,37,41,577/-. The AO informed the assessee that in view of the judgment of the Hon‟ble Supreme Court cancelling the notification of the State Government as well as the cancelling the banking license by the RBI barring the assessee from doing the banking activities, the claim of deduction u/s 80P of the Act is not a bona fide claim as the assessee is not supposed to carry on banking business in India. AO is of the opinion that provisions of section 271(1)(c) of the Act are applicable to the facts of the case as the assessee made a wrongful claim in respect of the entire 9 income u/s 80P(2)(a)(i) of the Act which amounts to furnishing of inaccurate particulars of income. In response to the said show cause notice, the assessee submitted that it is qualified for deduction u/s 80P(2)(a)(i) and mentioned that the order of the ITAT is incorrect and relied on the judgment of the Hon‟ble Supreme Court in the case of CIT vs. Reliance Petro Products Ltd [2010] 322 ITR 158 (SC) and various other decisions. Finally, the AO considered the above reply of the assessee and eventually AO levied the penalty vide the order dated 27.7.2012.
16. In the impugned penalty order, AO discussed the circumstances led to the cancellation of the banking license of the assessee finally by the Apex Court and the developments before the AO, CIT (A) and the ITAT and discussed the total income enhanced from Rs. 36,29,58,998/- to Rs. 46,37,41,577/- at the stage of first appellate authority. AO discussed the contents of the show cause notice issued and the reply given by the assessee in this regard. Subsequently, in the penalty order, the AO incorporated the relevant findings of the ITAT and explained the provisions of sections 6, 22A and 56 of the Act. In para 8 of the penalty order, the AO discussed the facts about the cancellation of the banking license and discussed comments of the Auditors i.e., M/s. A.B. Mansinghka & Co., C.As. The said comments vide point 3(a) of the auditor‟s report read as under:
3(a) Attention is drawn to the fact the accounts are prepared on going concern basis in spite of the fact that during the last year society, which was functioning as an Apex Bank since 1996, has got its banking license cancelled by the Reserve Bank of India from 30.10.2003 in compliance with the judgment of the Hon‟ble Supreme Court of India. This also has the effect of putting an end to the principle of objects for which the society was formed.
The Reserve Bank of India has precluded the society from disbursing or passing funds or incurring liability or entering into compromise or arrangements to sell, transfer or otherwise dispose of any of its properties or assets except to the extent and in the manner provided by specific directives to be given by the Reserve Bank of India to the society from time to time.
Attention is also drawn to the fact that the accounts are prepared without considering the various norms for Asset Classification and Income Recognition prescribed by the Reserve Bank of India under the Banking Regulation Act, 1949 as the management of the society is of the opinion that in view of the fact that the Banking License is cancelled by the Reserve Bank of India, the provisions of the Banking Regulation Act, 1949 are no longer applicable to the Society as on 31st March, 2005.
8.1. The above factual position has been pointed out by the Auditors in the notes on Accounts vide point no.1, wherein it is stated as under:10
"The Apex Urban Cooperative Bank of Maharashtra & Goa Ltd was functioning as an Apex Body of the Urban Cooperative Banks within the area of the state of Maharashtra & Goa from 22.3.1996 till 29.10.2003. The Reserve Bank of India has cancelled the banking license and prevented it from carrying on the banking business from 30.10.2003, in compliance with the judgment of the Hon‟ble Supreme Court of India. The Reserve Bank of India has further directed that the society should follow specific Reserve Bank of India Directives issued to the society from time to time."
17. In the penalty order, AO highlighted the fact that the assessee claimed deduction u/s 80P in respect of Rs. 91,58,59,221/- despite the advice of the accountants. Relevant comments of the AO vide para 8.2 are inserted as under:
"8.2. ...............The above facts pointed out by the Auditors clearly show that „State Cooperative Bank‟ in the FY 2004-05 relevant to AY 2005-06 and therefore, could not engage itself in any banking activity as the license was cancelled and, hence, is not eligible to claim deduction under section 80P(2)(a)(i) in respect of incomes arising from the business of banking which does not form part of „providing credit facilities to its members‟. In view of the above, and considering the fact the assessee was not permitted to carry on banking business under section 5(b) of Banking Regulation Act (B.R. Act) 1949 during the FY 2004-05 relevant to AY 2005-06, the claim made by the assessee in the return of income in respect of incomes arising from banking business is deliberate and intentional without any regard to the provisions of law."
18. In support of the above, Assessing Officer relied on the judgment of the Delhi High Court in the case of CIT vs. Zoom Communication P. Ltd (327 ITR 510) for the proposition that "if the assessee makes a claim which is not only incorrect in law, but is also wholly without any basis and explanation furnished by him for making such a claim is not found to be bona fide, Explanation-1 to section 271(1)(c) would come into play and assessee will be liable to penalty". In the penalty notice, AO asserted that the assessee is not a banking company and the income earned from such activity will not qualify for deduction u/s 80P(2)(a)(i) of the Act. Referring to the Wanchoo Committee recommendations on the amendments made in section 271(1)(c) by Taxation Law (Amendment) Act, 1975, the AO imported relevant lines mentioning that "the appropriate penal provisions form a necessary compliment to this approach of voluntary compliance of taxation laws". Relevant parts read as under:
"As the no. of tax payers increases, the tax administration has of necessity to rely more and more on voluntary compliance of tax laws by the assessee. Appropriate penal provisions form a necessary compliment to this approach as they impel compliance with the tax laws by imposing additional monetary burden on those who happen to go astry either inadvertently or by design."11
19. Finally, as discussed in para 14 and 15 of the penalty order, AO imposed the penalty @ 100% amounting to Rs. 11,31,04,414/- on the total concealed income of Rs. 46,37,41,577/-. The relevant paras 14 and 15 read as under:
"14. In this case, the facts mentioned above clearly does not support the claim made by the assessee us/ 80P in the return of income as the assessee‟s license was cancelled by the RBI in the previous year relevant to the AY 2004-05. Hence, the assessee could not do banking business as it was not a State Cooperative Bank as held by the Hon‟ble Supreme Court in the assessee‟s own case. Further, as per the provisions of Section 80P(2)(a)(i), a cooperative society engaged in providing credit facilities to its members cannot be considered as a cooperative society engaged in carrying on in the business of banking. Therefore, the incomes that will not form part of providing credit facilities t its members cannot be followed as a deduction under section 80P(2)(a)(i). The above factual position has also been certified by the Auditors and stated that "the Management of the Society is of the opinion that in view of the fact that the Banking License is cancelled by the Reserve Bank of India, the provisions of the Banking Regulation Act, 1949 are no longer applicable to the Society as on 31 st March, 2005". Hence, there is no doubt that the deduction claimed in the return in respect of incomes arising from banking business during the previous year relevant to the AY 2005-06 is an intentional and deliberate attempt to not to pay the taxes due as per Law particularly when the assessee was well aware that it is not eligible to carry on banking business as it was not a State Cooperative Bank since its license was cancelled by the RBI in the previous year relevant to the AY 2004-05. It is also noted that the assessee has not offered any explanation, for claiming such deduction in the return for which it not eligible, in response to the show cause notice issued and has merely stated that the same do not warrant any comments.
15. In view of the above, I am satisfied that the assessee has committed default within the meaning the provisions of section 271(1)© of the Income Tax Act. Therefore, I am of the opinion that this is a fit case for levy of penalty u/s 3271(1)(c) of the Act. The penalty u/s 271(1)(c) of the Act is worked out as under: Minimum penalty @ 100% Rs. 11,31,04,414/- & Maximum Penalty @ 300% Rs. 33,93,13,242/-. Looking at the facts and circumstances of the case, I levy the minimum penalty of Rs. 11,31,04,414/- u/s 271(1)(c) of the Act."
20. Aggrieved with the above order of the AO, assessee filed an appeal before the first appellate authority.
Before the CIT (A) - Penalty proceedings u/s 271(1)(c) of the Act:
21. During the proceedings before the CIT (A), assessee submitted that the assessee is not a defaulter qua the discloser of the details in the return and its annexures. Assessee argued that the AO has not discharged his onus that the particulars disclosed are inaccurate and relied on the judgment of the Hon‟ble Supreme Court in the case of CIT vs. Reliance Petro Products Ltd (supra), which 12 is relevant for the proposition that the penalty cannot be levied even when the claim made by the AO is unsustainable. Regarding the applicability of the Delhi High Court‟s judgment in the case of CIT vs. Zoom Communications Pvt. Ltd. (supra), assessee mentioned that the facts of the case are distinguishable. In the impugned order, CIT (A) discussed the provisions of section 271(1)(c) and relied heavily on the comments of the C.A.‟s, which in a way is against making the claim of deduction u/s 80P(2)(a)(i) of the Act. The said comments are given vide in Col. No. 8(a) of Form No.3CD enclosed to the return of income. CIT (A) discussed the assessee‟s attitude of claiming the deduction u/s 80P(2)(a)(i) despite (i) the cancellation of banking license to the assessee thereby making assessee as a non-banking entity; (ii) binding judgment which goes against the assessee making banking activities; (iii) advise of the statutory auditors who had adequate reservations against the assessee categorizing the impugned income as banking income; (iv) despite the knowledge of the assessee on the un-sustainability of the claim of deduction u/s 80P(2)(a) of the Act etc. CIT(A) also discussed the cryptic and evasive replies of the assessee against the cited show cause notice issued by the AO. For example, from the assessee‟s reply, CIT (A) quoted few lines ie "all the facts stated in your notice to show cause in para 1 to 3 including sub para 7 do not warrant any reply form us"
and thus, CIT(A) concluded by stating that the assessee has no justifiable reason for claiming of deduction u/s 80P(2) of the Act. Further, CIT (A) referred to the judgment of the Hon‟ble Supreme Court in the case of Anwar Ali (76 ITR 671) and also in the case of Reliance Petro Products Ltd (supra) and distinguished them as they are not relevant to the facts of the present case. Ld CIT (A) analyzed the Explanation 1 to section 271(1)(c) of the Act and mentioned that the assessee is under obligation to furnish the bona fide explanation and in this case, he has failed to explain the same for claiming the said deduction. CIT(A) reasoned that when the Hon‟ble Supreme Court has already cancelled the banking license, where is the scope for happening of the valid banking activities and therefore, the validity for earning of such income and therefore, the claim of deduction is vividly and patently unsustainable. The assessee is very well aware of these facts. On the disclosure- centric argument, CIT (A) reasoned that the said explanation is no defense 13 considering the fact that the assessee is very well aware that the claim is unsustainable in law and his explanation on the penalty is only to be rejected, and held that the assessee was failed to prove that it had rendered a bona fide explanation by the Income tax Authorities. CIT (A) also distinguished the decisions in the cases of (i) Hindustan Steel Ltd vs. State of Orissa (83 ITR 26); (ii) Dilip N Shroff vs. CIT (291 ITR 519); (iii) Union of India vs. Dharmendra Text. Procrs (295 ITR 24) and (iv) CIT vs. Reliance Petro Products P. Ltd. (322 ITR 158). He also referred to the erroneous reliance of the assessee on the provisions of section 176(3A) of the Act and relied on the finding of the Tribunal vide para 28 of the order of the ITAT (supra), wherein it was held that these provisions have no application to the facts of the case as per the Tribunal. CIT (A) also dealt with the issue of debatability of the impugned additions and held that considering the binding judgments cited above, assessee is precluded from conducting the banking activities and when they are still done and earned the impugned income, the same is not qualified to be the banking income within the meaning of section 80P(2) of the Act. In that sense, there is no debate on the non-banking nature of the impugned income and the CIT (A) concluded by stating that to the extent of addition confirmed by the Tribunal i.e., Rs. 46.37 Crs, there is no debate exists on this issue. Accordingly, CIT (A) confirmed the penalty of Rs. 11,31,04,414/-. Aggrieved with the same, assessee filed the present appeal before the Tribunal with the above referred grounds.
Before the Tribunal
22. During the proceedings before us, Ld Counsel for the assessee narrated the above mentioned details and the facts of the case and stated that there is no concealment or deemed concealment of income and no furnishing of inaccurate particulars in this case. Therefore, the provisions of section 271(1)(c) are not properly invoked by the AO in levying the penalty of Rs. 11,31,04,411/-. In this regard, Ld Counsel reiterated all the arguments and the contentions made before the AO and the CIT (A) and relied heavily on them.
1423. Briefly summarized, it is the case of the assessee that the assessee earned income by way of interest on the loans/advances, sale of investments, other receipts discussed above and all of them are incidental to the banking activities of the assessee. Consequently, the assessee is entitled to claim of deduction u/s 80P(2)(a)(i) of the Act. Further, assessee relies heavily on the provisions of section 176(3A) of the Act. Further, it is the case of the assessee that the claim may be wrong claim and the said claim ipso facto, do not invite the penal provisions of section 271(1)(c) of the Act, since, there is no mala fade in the said claim of deduction. The fact that the impugned income is undisputedly connected to the banking activities of the assessee and the same is accepted by the Revenue till the AY 2005-06, the said income shall become „non-banking‟ in nature. Consequently, the said income should not become disentitled to the claim of deduction. Therefore, the income under consideration is bound to accrue without any efforts of the assessee in this transitional AY and the same is relatable to the process of winding up of the banking activities and therefore, the assessee‟s explanation submitted relying on the provisions of section 176(3A) of the Act, constitutes bona fide one and it should be accepted. These provisions provides for deeming any sum received after discontinuation of business and taxing the same as income of the assessee on receipt basis. There is discontinuation of business in the present case for invoking the said provisions. Further, the said section 176(3A) does not apply to the present situation, where the dispute revolves around (i) if the impugned income earned in the year under consideration constitutes „income of banking business‟; or (ii) if the assessee is justified in making such unsustainable claim despite the advice of an expert; (iii) if the said claim is made under bona fide belief etc. Of course, the Tribunal rejected this part of the submissions in quantum proceedings vide the contents of paragraph 29 of the order of the Tribunal.
24. Expanding and elaborating the above summarized arguments, Ld AR mentioned that, despite the judgment of the Hon‟ble Supreme Court in the assessee‟s case on the dispute relating to cancellation of cited notification of the State Government and the license of Banking by the RBI, it is not in the hands of the assessee to not to earn the aforesaid banking income as the assessee is in the 15 process of winding up the banking business activity. Further, he mentioned that the assessee is otherwise entitled for deduction u/s 80P(2)(a)(i) of the Act, which is evident from the decision of the AO / ITAT, wherein the interest earning from credit facilities offered to the members was held sustainable. Similarly, AO should have appreciated the claim of deduction in respect of the banking linked income receipts too instead of denying the deduction and levying the penalty u/s 271(1)(c) of the Act. Ld Counsel also stated that the order of the ITAT on the merits of the denial of deduction in respect of banking income, is not correct and therefore, the reliance placed by the CIT (A) on the said order of the ITAT is required to be reversed. He was also critical of the „comments of the statutory auditors‟ discussed above and also the „decisions of the directors‟ of the assessee-society in this regard. Referring to the order of the Tribunal in the case of Supreme Industries Limited (122 TTJ 56/28 SOT 19), where one of us (AM) is a party to the said decision, Ld Counsel mentioned that the facts of that case are distinguishable. Otherwise, the said decision is relevant for the proposition that "a patently wrong claim of deduction attracted penalty u/s 271(1)(c) Explanation 1, in cases falling under Explanation 1 to section 271(1)(c) where the AO does not have to prove the explanation of the assessee to be false or establish the mala fide on the part of the assessee in making such a wrong and patently impermissible claim, the amount disallowed is deemed to represent income in respect of which the particulars have been concealed". Further, Ld Counsel mentioned that the appeal by the assessee against the said decision of the Tribunal is admitted before the Hon‟ble Bombay High Court and therefore, the ratio of the said decision need not be followed in confirming the penalty u/s 271(1)(c) of the Act in this appeal. Further, referring to the Delhi High Court in the case of CIT vs. Zoom Communication P. Ltd (supra), Ld Counsel mentioned that the said judgment is distinguishable on facts, wherein it is held that " if the assessee makes claim which is incorrect in law and the explanation given by the assessee is not bona fide, Explanation-1 to section 271(1)(c) could come into play and the assessee will be liable to penalty". However, on the comments of the statutory auditors M/s. A.B. Mansinghka & Co (CAs) and the opinion of the management of the society referred to in the penalty order, Ld Counsel has 16 nothing to state in specific. Further, he relied on the judgment of the Hon‟ble Supreme Court in the case of CIT vs. Reliance Petro-products Ltd (supra) as well as on the judgment of the Hon‟ble Punjab & Haryana High Court in the case of CIT vs. Shahabad Co-op Sugar Mills Ltd, reported in 322 ITR 73 (P&H), which was decided based on the facts of making a wrong claim u/s 80P(2)(d) and the penalty u/s 271(1)(c) was deleted on the facts of that case. Ld AR also filed a copy of the order of the judgment of the Hon‟ble Bombay High Court in the case of CIT vs. Nalin P Shah (HUF) vide Income Tax Appeal (LOD) No.49 of 2013 in support of his claim. Another judgment of the Hon‟ble Delhi High Court in the case of Shervani Hospitalities Ltd vs. CIT [2013] 89 DTR (Del) 169, which is relevant for the proposition that "mere making an unsustainable claim does not invite penalty when assessee furnished full particulars in the return itself and the claim enjoys debatability". Judgment of the Delhi High Court in the case of CIT vs. Jakson Ltd vide ITA No.48/2013 and 49/2013 is also relevant for the identical proposition.
25. Per contra, Ld DR relied heavily on the penalty order of the AO, decision of the Tribunal relating to related quantum appeal on merits, the impugned order of the CIT (A) and stated that this is a case where the assessee deliberately made a claim of deduction knowing conclusively that the same is unsustainable in law as the assessee is prevented from doing the banking activities by none other than Apex Court of India. When the income claimed as deduction u/s 80P(2) of the Act, is not eligible to be called banking related income as the assessee no longer a banker, the impugned income shall not be termed as income from banking activities. Consequently, the said income is ineligible for the claim of deduction. In this regard, Ld DR mentioned that assessee was expressly prevented by the Apex Court vide its judgment dated 29.10.2003 treating the assessee is a non-banking entity. Ld DR also referred to the facts relating to comments of the statutory auditors in the TAR. He also mentioned about the fact that the management of the assessee-society is well aware of the fact that assessee is no longer a bank as per the Banking Regulation Act. In this regard, Ld DR also specified mentioning that the management of the society is aware of the fact that the assessee is prevented from continuing banking activities be it earning of the interest income, sale of the 17 investment and other income which was treated by the assessee as banking income, therefore eligible for deduction u/s 80P of the Act. Further, it is relevant to mention that the Ld DR filed written submissions explaining the above point to make out that it is a fit case for levy of penalty u/s 271(1)(c) of the Act. In the written note, he also explained as to how this case is squarely covered by the judgment of the Hon‟ble Delhi High Court in the case of Zoom Communication P. Ltd (supra). As seen from para 7 of his note, Ld DR distinguished the case laws cited by the Ld AR. Paras 7.1 and 7.1.1 are relevant in this regard which read as under:
"7.1. The Id AR has relied on the decision of the Hon‟ble Punjab & Haryana High Court in the case of CIT vs Shahabad Co-op Sugar Mills Ltd reported in 322 ITR 73 (P&H) in support of his contention that no inaccurate particulars of the income were filed by the appellant in its return of income filed making it liable for the levy of penalty u/s 271(1)(c) of the Act. However, on perusal of the said decision of the Hon‟ble High Court, it is clear that in that case it is held that "there was no conscious breach of law which was required for the levy of penalty", meaning thereby the claim made by the assessee in that case was a mere wrong claim (where two views could be possible) but not admissible in law as also held by the Hon‟ble Supreme Court in the case of Reliance Petroproducts Pvt Ltd ( 322 ITR 158). But, a material difference of facts as evident in the case of the present appellant which is not in dispute i.e. the claim made u/s 80P(2) of the Act in the return of income filed was not admissible was well known to the appellant as it was advised about the same by its auditors, tax consultants etc after the cancellation of the banking license given by RBI was confirmed by the Hon‟ble Supreme Court, but still the assessee completely in disregard or defiance of the same still went ahead of claiming the said deduction in its return of income filed; which to my considered opinion does tantamount to furnishing of inaccurate particulars as also held by the Hon‟ble Delhi High Court in the case of Zoom Communications (supra). Or in other words, in this case there was definitely conscious breach of law by the appellant inasmuch as its wrong claim u/s 80P(2) is concerned, which as discussed above is duly proved by the Revenue. Therefore, in this case although mensrea is not required to be proved in 271(l)(c) penalty ( Dharmendra Textiles 306 ITR 277) being a civil liability still from the facts on record it appears that it is proved beyond doubt as the AR has not explained on what basis the appellant claimed a patently wrong claim knowing it fully well way before its filing of the return of income that it is not eligible for the same.
7.1.1. The reliance of the AR on Reliance Petroproducts (supra) is filed separately in a tabular form to this write up, the same may be considered accordingly. Further as directed in the last hearing, I am filing herewith a detailed chart explaining the computation of the income on which tax sought to be evaded is worked out by the AO based on the assessment records duly supported by the tax computation form (ITNS - I50A) forming part of the assessment order / appeal effect orders. In addition, I also rely on the following more case laws on this issue:
i. Universal co-op L/C Society Ltd vs ITO 154 Taxman 35 (Asr) ii. Darwabshaw B. Kursetjee Sons Ltd vs ITO 137 lTD 331 (Kol) iii. Chinnammal ENT Medical Education & Research Foundation vs ACIT 25 taxmann corn 139 (Chenn) iv.Prem Prakash Gupta, Karta vs ITO 25 taxmann.com 447 (Chd)"18
26. In connection with cited judgment in the case of Reliance Petroproducts Pvt. Ltd (322 ITR 158), Ld DR made detailed write/table and demonstrated that the said judgment of the Apex Court is distinguishable on fact. We insert the said page in verbatim as under:
1927. Thus, the case of the Revenue is that the assessee being a cooperative society is entitled to claim deduction u/s 80P in respect of income from credit facilities offered to its members. However, the assessee is prevented from doing banking activities and the judgment of the Hon‟ble Supreme Court is clear on this issue. The banking license was canceled by the RBI. Under these circumstances, assessee‟s income, if any out of impugned income, is not eligible for deduction u/s 80P of the Act. When the management is aware of these facts and the statutory auditors have expressly advised the assessee on this aspect, making a claim of deduction u/s 80P of the Act in the return is a deliberate attempt to make an unsustainable claim which constitutes furnishing of inaccurate particulars attracting the penal provisions. It is not the case of making just an unsustainable claim but the claim in the return is much more considering the deliberate attempts of the assessee in making such unsustainable claim, which is barred under the Statute. The Revenue distinguished the judgment of the Hon‟ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd (supra) as per the table given above and it relies heavily on the judgment of the Delhi High Court in the case of Zoom Communications Pvt. Ltd (supra) and the order of the ITAT in the case of Supreme Industries Pvt. Ltd (supra).
Decision of the Tribunal:
28. We have heard both the parties and perused the orders of the Revenue Authorities and the Tribunal. We have also examined the cited judgments by the Ld Representatives of both the parties and the written submissions.
29. Undisputed facts & summary of the proceedings: The undisputed facts relevant to the issue include that the assessee was originally registered under Multi State Cooperative Societies Act, 1984 on 10.10.1994. Subsequently, it obtained the status of State Cooperative Bank vide Notification dated 30.12.1995. On 22.3.1996, RBI granted license under Banking Regulation Act, 1949 for undertaking the banking business and commenced the banking activities. But, M/s Maharashtra State Cooperative Bank challenged the said notification dated 30.12.1995 and the litigation travelled to the High Court of Bombay and then to 20 Supreme Court and the said notification was quashed and such quashing has become final at Supreme Court vide its judgment dated 29.10.2003. Further, on 30.10.2003, RBI cancelled the banking license and prohibited the assessee from carrying on the banking business. RBI also directed the assessee in May 2004 (AY 2005-06) to sale the investment and to refund the deposits. After the said binding judgments and after cancellation of the Banking License, assessee earned income by way of interest, profits on sale of shares/investments, brokerage commission and other miscellaneous income and treated them as banking related income in the Return filed on 31.3.2006. In the TAR of the Auditors, the non-banking nature of the assessee‟s activities was mentioned. Despite the active advise of the Auditors, assessee made a claim of deduction u/s 80P(20(a)(i) of the Act and filed the Nil return for the AY 2005-06. In the assessment, the AO determined the assessed income at Rs. 97,75,14,603/- after disallowing the deduction u/s 80P(2)(a)(i) of the Act. Of course, AO allowed the claim of deduction only in respect of the income relatable to the interest of Rs. 1,26,03,473/- earned on the credit facilities offered to the members of the society. On merits, CIT (A) granted relief partly and the modified income after the first appellate proceedings worked out to Rs. 36.30 cr. At the end of the second appellate proceedings, ITAT reversed some of the conclusions of the CIT(A) and consequently, the income modified worked out to Rs. 46,37,41,577/-, which is the subject matter of penalty u/s 271(1)(c) of the Act. The income assessed at the end of the second appellate proceedings is Rs. 46,37,41,577/- and the breakup was already provided in the paragraphs above. Subsequently, the AO initiated the penalty proceedings u/s 271(1)(c) of the Act and issued show cause notice alleging the impugned income of Rs. 46,37,41,577/- do not constitutes eligible „banking income‟ for the purposes of deduction under section 80P(2) of the Act. In the process, AO relied on the said judgments of Hon‟ble High Court of Bombay against the assessee, RBI notification cancelling the banking license, comments of the Statutory Auditors, order of the Tribunal in the assessee‟s own case on merits of disallowance of the claim etc and mentioned that the claim of deduction is not only unsustainable but also contumacious as the said unsustainable claim is deliberately done. In response, the assessee refuted the said views of the 21 AO and mentioned that the banking business of the assessee cannot be simply shut down overnight and therefore, impugned income is earned continue to be the banking related income and consequently, it is entitled for deduction u/s 80P(2) of the Act. In the process, the assessee relied not only on the provisions of section 176(3) of the Act but also on the principles relating to disclosure and furnishing of particulars in the Return as well as on various favorable judgments. Assessee submitted for not levying the penalty u/s 272(1)(c) of the Act. Eventually, AO rejected the explanation of the assessee vide the Explanation 1 to section 271(1)(c) and mentioned that the assessee made the unsustainable claim of deduction knowing very well that the assessee is barred from doing the banking business and also knowing that the provisions of section 176(3) does not apply to its case. AO distinguished the Supreme Court‟s judgment in the case of Reliance Petroproducts Ltd (supra) and relied heavily on the Delhi High Court‟s judgment in the case of Zoom Communications P Ltd (supra). Finally, he levied the penalty of Rs. 11,31,04,414/-. In summary, the case of the assessee is that the penalty is not leviable in the case considering the disclosure of accurate particulars in the return of income and also the apex court‟s judgment in the case of Reliance Petroproducts Ltd (supra), which is relevant for the proposition that the mere unsustainability of a claim made in the return should not attract the penal provision. Therefore, we need to examine if the submissions of the assessee are valid legally. For this purpose, it is relevant to analyse the: (i) Relevant portions of the Supreme Court‟s Judgment dated 29th October, 2003 relating to the „banking activities‟; (ii) Relevant „comments of the Statutory auditors‟; (iii) scope of the provisions of Explanation to section 271(1)(c) of the Act, (iii) analyse the relevant judgmental laws on the topic; (iv) CIT(A)‟s conclusions; (v) incorrect explanation of the assessee on the inapplicability of the provisions of section 176(3); (vi) Assessee‟s arguments on the disclosure of information in the Return.
22(i) Relevant portions of the Supreme Court‟s Judgment dated 29th October, 2003 relating to the „banking activities‟
30. The genesis for all the problems on the issue of disallowance of claim of deduction and also the penalty u/s 271(1)(c) of the Act is the Judgment of the Apex Court dt 29.10.2003. Extracts from page 38 of the said Judgment:
"...it has been held that RBI could not have granted the license unless the appellats were first declared a state cooperative bank under the NABARD Act. As it is now being held that the appellants could not have been declared as a state cooperative bank under the NABARD Act and it is held that as such declaration was correctly struck down it will have to be held that the RBI cannot issue it a license to carry on banking business. In view of the contrary stand taken only RBI, it cannot now be left to discretion of RBI to cancel the license granted by it. It is held that the High Court was in error in not striking down the issuance of the license by RBI to the appellants. In view of what was have held, we direct the RBI to forthwith revoke the banking license granted to the Appellants.
30.1. Further, on the special request before the Supreme Court for allowing the operation of the banking activities in the state of Goa at least, the Supreme Court rejected the said prayer as follows,-
"In this case, the RBI was wrong in issuing a license to the Appellants for the States of Maharashtra and Goa when, admittedly, the appellants had not been declared a state cooperative bank in the state of Goa. Thus, it is held that the banking license could not have been issued for the State of Goa".
Before the Hon‟ble Supreme Court, appellant prayed for allowing the assessee to do restrictive banking activities in the State of Maharashtra. It was submitted that at this stage, the Supreme Court should not strike down the Notification or the grant of license. Assessee cited the flowing as the reasons, namely (i) large deposits are already collected by the assessee in state of Maharashtra, which is the source for interest income one of the types of receipts under consideration; and (ii) carried on extensive business already in the State. In response, Honble Supreme Court held as follows,-
"Appellants have all along been aware that their status was under challenge in a Court of law. Thereafter, the High court struck down the Notification. Now the appellants know fully well that that was the law. Merely because on obtaining a stay from this court they continued to operate would not be circumstance which can be taken into consideration by this Court. The appellants cannot be allowed to continue to operate as a State cooperative Bank when in law they are not entitled to be one. We, therefore, do not accept this submission."23
31. Thus, the Supreme Court‟s directions are unambiguous that the assessee is prevented from doing any banking activities in any State of India. On the issue of deposits and larger volume of the banking business, Supreme Court questioned the contumacious attitude of the assessee in persisting the banking business merely based a stay order. As per the Hon‟ble Supreme Court, the assessee, being aware of the law, is not entitled to any concessions. In other words, the assessee knows that he is not on the side of the law and he also knows the consequences of such blatantly disobedience to the law of the land.
(ii) Comments of A.B. Mansinghka & Co., Auditors & Management of Society‟s Opinion‟ on the consequences of said Supreme Court‟s Judgment:
32. We have already discussed in the preceding paragraphs of this order that the Statutory Auditors have briefed the assessee about the making of the accounts not in accordance with the Banking Regulations/ prudential guidelines considering the above discussed judgment of the Honble Supreme Court. Thus, in the opinion of the Auditors, the impugned income is not to be claimed as deduction u/s 80P of the Act. Para 6 of the impugned order refers to the comments of the auditors dated 30.4.2005 and point 3(a) of the said A.B. Mansinghka & Co., auditors‟ comments is reproduced here under:
"3(a) .................. This also has the effect of putting an end to the principle objects for which the society was formed.............
Attention is also drawn to the fact that the accounts are prepared without considering the various norms for Asset Classification and Income Recognition prescribed by the Reserve Bank of India under the Banking Regulation Act, 1949 as the Management of the Society is of the opinion that in view of the fact that the Banking License is cancelled by the Reserve Bank of India, the provisions of the Banking Regulation Act, 1949 are no longer applicable to the Society as on 31 st March, 2005."
(iii) Scope of Explanation 1 to section 271(1)(c) of the Act:
33. The case of the Revenue is that it is the case of disallowance of an unsustainable claim in "computing the total income of such person as a result 24 thereof shall, for the purposes of clause (c) of this sub section, be deemed to represent the income in respect of which particulars have been concealed". The provisions of Explanation 1 to section 271(1)(c) of the Act apply. The said provisions were explained in the reported decision of the Tribunal in the case of M/s. Supreme Industries Ltd (supra) and the contents of para 8 are relevant. Considering its relevance here, the contents of para 8 to 10 of the said order of the Tribunal are reproduced here which reads as under,-
"8. In matters relating to the provisions of section 271(1)(c), the wilfulness of the assessee in concealing the income or in furnishing of inaccurate particulars, is not essential. Relevant provisions of said section and the Explanation 1 are important and they read as under.
" 271(1) If the assessing officer or the commissioner (Appeals) or the commissioner in the course of any proceedings under this Act, is satisfied that any person--
(a)...
(b)...
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,
(d)..
he may direct that such person shall pay by way of penalty,--
Explanation1.- where in respect of any facts material to the computation of the total income of any person under this Act,-
(A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that the such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub section, be deemed to represent the income in respect of which particulars have been concealed.
9. ..... From the Explanation 1 above, it refers to a couple of independent groups of cases, which narrate the deemed cases of concealment. They are: (A) This group covers cases, there are again two sub groups of persons and they are: (i) the persons, who fail to offer an explanation or (ii) the persons, who have offered an explanation which is found to be out right false by the revenue authorities; or (B) This group refers to cases where the explanation offered by the person is not found false out right, but those cases other than such-false-explanation cases. These are identified by the following symptoms. They are: (i) such person does not able to substantiate the explanation offered; and (ii) such person not only fails to prove that the such explanation is bona fide but disclosed all the facts relating to the such explanation and material to the computation of his total income.
10. On comparison, the assessee‟s case is found covered by the cases of group
(b) above and the onus is on the assessee to substantiate the explanation or prove the bona fide and also the responsibility of full disclosure of all the facts 25 relating to the explanation and materials as stated above. Per contra, the AO is not under obligation to prove the wilful attempt of the assessee in matter of concealment or the explanation of the assessee in this regard is not bona fide. Thus, it is the assessee‟s responsibility to meet the above requirements. Wilful concealment is not an essential ingredient for attracting civil liability such a penalty u/s 271(1)(c). The above view is fortified by the apex court judgment in the case of Union of India vs Dharamendra Textiles Processors 306 ITR 277 (SC) or 174 Taxmann 571(SC). This judgment has disapproved the judgment in the case of Dilip N Shroff (161 Taxmann 218) (SC) too. The gist of the said judgment in the case of Dharamendra Textiles Processors (supra) and relevant paragraphs are as under.
"Absence of specific reference to mens rea in provisions of penalties is not a case of casus omisus. In fact, the provisions with expression „liable to pay penalty‟, by no stretch of imagination, be said that the adjudicating authority has even a discretion to levy less than what is legally ad statutorily leviable (para 12).
It is a well-settled principles, in law, that the Court cannot read anything into a statutory provision or a stipulated condition which is plain and unambiguous. A statute is a determinative factor of the legislative intent (para 13).
It is significance to note that the conceptual and contextual difference between section 271(1)© and section 276C was lost sight of in Dilip N Shroff‟s case (para 24) The explanations appended to section 271(1)(c) entirely indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars of income while filing return. The judgment in Dilip N Shroff‟s case (supra) had not considered the effect ad relevance of section 276C. Object behind enactment of section 271(1)(c), read with the Explanations thereto, indicates that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability, as is the case in the matter of prosecution under section 276C (para 25)."
34. Summary of other decisions cited before us: Further, we have examined the applicability of the judgment of the Hon‟ble Supreme Court in the case of Reliance Petro Products Ltd (supra), which is relied heavily by the assessee‟s representative. We find that the said judgment is distinguishable on facts and we approve the list of differences traced by the Ld DR. of course, we have made the said difference as part of this order. Further, we have perused the judgment of the Hon‟ble Delhi High Court in the case of CIT vs. HCIL Kalindee ARSSPL (ITA No.480/2012) and CIT vs. ARSSPL Triveni (JV) (ITA No.481/2012), dated 29.7.2013 and find the said judgments are in favour of the Revenue and are relevant for the proposition that the penalty u/s 271(1)(c) is found leviable on the facts of that case where the assessee made claim u/s 80IA of the Act on the strength of From No. 3CB, 3CD and 10CCB issued by the Auditors, 26 when the contents are not in harmony with the ground realities. In those cases, the assessee did not execute the work; but claimed deduction on the basis of the said Auditors Reports. We find that Ld CIT(A) distinguished the Apex Court judgment in the case of Reliance Petroproducts Ltd (supra) and relied on the judgments in the case of and Dilip N. Shroff vs. JCIT [2007] 291 ITR 519 (SC) and Union of India vs. Dharmendra Textile Processors [2008] 306 ITR 277 for confirming the penalty imposed by the AO. In the said judgment (Reliance Petro Products Ltd), it is held vide para 7, when the relevant question to be asked and answered is whether the assessee has discharged the onus and satisfied the conditions mentioned in Explanation-1 to section 271(1)(c) of the Act. In the instant case, the explanation of the assessee, which revolves around the provisions of section 176(3A) of the Act is factually unsustainable, considering the Hon‟ble Supreme Court ruling in the assessee‟s case relating to the cancellation of banking license and continuing to undertake any business activities despite the ban imposed by the Supreme Court. Further, we have also examined other decisions cited by the Ld AR i.e., in the case of CIT vs. Nalin P. Shah (HUF) (supra); Shervani Hospitalities Ltd vs. CIT (supra) and other precedents and we find that these decisions are distinguishable from the angle of deliberately making a claim knowingly well in advance that the claim is unsustainable in law. It amounts not only to the breach of law but it amounts to a conscious breach of law together with an attitude of disregard to the express provisions of the Act contumaciously. We have also examined the judgment of the Hon‟ble Delhi High Court in the case of Zoom Communications Pvt Ltd (supra) and find that the provisions of Explanation-1 come into effect to the facts of this case where it is a conscious breach of law inasmuch as it is a wrong claim u/s 80P(2)(a)(i) of the Act. The penalty should be levied in a case where the assessee acted against the express provisions of law and made deliberate claims knowing fully well that the claim is unsustainable in law.
35. (iv) CIT(A) Conclusions: We have so far discussed the contents of the binding Judgment of the Supreme Court in assessee‟s own case and traced that the assessee is not on the side of the law when it undertook the banking activities. Hon‟ble Supreme Court „directed the RBI to forthwith revoke the banking 27 license granted„. Further, we discussed the scope of the provisions of Explanation 1 to section 271(1)(c) of the Act and . Now we shall take up the relevant portions from the impugned order of the CIT(A) in general and the contents of para 11.5 to 13.3.1 in particular. Considering their importance, the said paras are reproduced here under:
"11.5. Thus it can be seen that pre amendment, while the assessee was required to furnish a bonafide explanation, after the amendment he is required to prove that his explanation is bonafide. In terms of this clause, the appellant was required to prove the bonafides of its claim under section 80P. Can it be said that a claim in utter disregard of Supreme Court‟s ruling be a bonafide claim? In my considered opinion, such a claim cannot be held as a bonafide one. The word bonafide means in "good faith". In this case the appellant being aware of Supreme Court decision, having been advised that its license to carry banking business was cancelled, still goes ahead and makes a claim. Thus appellant‟s conduct was certainly not bonafide. Therefore, I am of the considered opinion that appellant failed to prove that it had rendered a bonafide explanation.......
12.1 In the case of Hindustan Steel, the Supreme Court held that penalty cannot be levied for a venial breach of law. However, the observations made by Supreme Court in this case are against the appellant.
An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi- criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. (emphasis supplied) Thus, as held above, the appellant clearly acted in conscious disregard of its obligation i.e., in claiming a deduction which it was not entitled to in law.
12.2 In the case of Dilip N. Shroff the Supreme Court held that mens rea is essential factor in deciding culpability for penalty u/s.271(1)(c). However, this case was overruled by the Supreme Court in U.0.I vs. Dharmendra Textiles Processor 291 ITR 519....
12.3 The appellant relied on Reliance Petro Products P. Ltd. 322 ITR 158. This case has already been distinguished in para 9.3 above.
13. ....
13.1.1 The appellant claims that he is carrying on two independent lines of business both entitled for deduction u/s. 80P(2)(a)(i). As discussed above, just because the AO allowed deduction in respect of credit facilities provided to its members, as held above, the assessee is not entitled to deduction u/s.80P(2)(a)(i) in respect of income from banking business even if business was forced to discontinue.
13.1.2 The appellant claims that since the business is discontinued, provisions of sec.176(3A) apply and therefore, income from banking even after discontinuance assumes the character income from banking. The Hon‟ble ITAT has clearly held vide para 28 of its order (supra) that assessee‟s income from banking is not entitled to deduction notwithstanding section 176(3A). Therefore, this ground of appeal is dismissed.
13.2 ....
13.2.1 This contention of the appellant is not acceptable for the reason that income may be varied by appellate authorities but the important thing to see is whether conditions for levy of penalty are satisfied or not. Merely because income is varied does not absolve the appellant of its liability if other conditions are satisfied for levy of penalty. Therefore, this ground of appeal is dismissed.
13.3 Ground III: The AO erred in applying the decision of Delhi High Court in the case of CIT vs. Zoom Communication Private Ltd because of the following:
(i) In the Zoom Communications case no explanation was given for the mistake in computing certain income, whereas, in this case explanation was given and was not found false by AO.
(ii) The claim in this case was properly based on the provisions of Sec. 80P(2) read with the fiction created by provisions of sec. 176(3A) and was wholly supported in law.
(iii) Malafide of claim is not properly established by the AO and the facts in both the cases being different that case cannot govern the proceedings in this case.
13.3.1 The AO has rightly placed reliance upon the decision of Delhi High Court in the case of Zoom Communications. As held above, the appellant has not substantiated its explanation at all. Its plea that the claim for deduction was based on the provisions of section 80P(2)(a)(i) r.w.s. 176(3A) is not based on correct application of law in the light of Supreme Court‟s decision that appellant was not entitled to carry on the business of banking. The plea that the A.O. has not properly established the mala fide nature of the claim would not succeed because it is held that the appellant has failed to prove that its explanation was bona fide. Therefore, this ground of appeal is dismissed.
2836. From the above, it is the opinion of CIT (A) that the penalty is leviable in this case where the assessee deliberately made an unsustainable claim of deduction knowing well that the same is against the law of the land. CIT (A) rejected the assessee‟s explanation that revolves around among others, a couple of submissions i.e., (i) disclosure of the facts in the return and (ii) provisions of section 176(3A) of the Act. CIT (A) relied on the Delhi High Court‟s judgment in the case of Zoom Communications Ltd (supra) and distinguished the Apex Court‟s judgment in the case of Reliance Petroproducts Ltd (supra). Therefore, we shall now take up the analysis of the above arguments of the assessee and analyze the conclusions of the revenue.
36.1 Thus, Ld CIT(A) highlighted the blatant attitude of the assessee and for this he relied on the rejected advise of the CAs and the binding the judgment of Hon‟ble Supreme Court in the assessee‟s own case. In effect, decision of the CIT(A) is in tube with the decisions of the Delhi Bench of the Tribunal (i) in the case of Shyam Behari vs. Asst. Commissioner of Income Tax reported in 43 SOT 129 and (ii) ACIT vs. Khanna & Annadhanam [2011] 142 TTJ 1, which considered following assessee‟s arguments i.e., (i) there was a disclosure of the facts in the computation & balance sheet; (ii) the opinion of 3 tax experts had been taken; (iii) the issue was debatable & (iv) the assessee‟s appeal on the merits had been admitted by the High Court and rejected the same. Finally, the Tribunal held as follows: (i) section 271(1)(c) imposes "strict civil liability"; (ii) the fact that the legal opinion were not furnished during the assessment proceedings (but were furnished only during the CIT (A) penalty proceedings) indicates that the assessee realized the ineffectiveness of these opinions and still ventured into making the non-allowable claim; (iii) though there was disclosure in the computation and balance sheet, in order to minimize disclosure, the assessee took the "smart route" of directly crediting the receipt in the capital accounts of partners to evade tax; and (iv) The fact that a substantial question of law on the merits was admitted by High Court does not mean penalty is not leviable.
37. From the Explanation 1 above, it refers to a couple of independent groups of cases, which narrate the deemed cases of concealment. They are: (A) This group covers cases, there are again two sub groups of persons and they are: (i) the persons, who fail to offer an explanation or (ii) the persons, who have offered an explanation which is found to be out right false by the revenue authorities; or (B) This group refers to cases where the explanation offered by the person is not found 29 false out right, but those cases other than such-false-explanation cases. These are identified by the following symptoms. They are: (i) such person does not able to substantiate the explanation offered; and (ii) such person not only fails to prove that such explanation is bona fide but disclosed all the facts relating to such explanation and material to the computation of his total income.
38. (v) Incorrect explanation of the assessee on the inapplicability of the provisions of section 176(3): In the light of the above scope, we proceed to examine the instant case and find the assessee‟s explanation, which revolves around the provisions of section 176(3) of the Act, are both false and unsubstantiated. The same deeply analysed by the Tribunal while dealing with the quantum appeal vide para 28 & 29 of the Tribunal‟s order. The said paragraphs relating to the non- applicability of section 176(3) of the Act to the facts of the present assessee is extracted as under:
"28. Decisions rendered in the context of cooperative bank did not apply to the cooperative society. In the course of arguments, the learned Counsel relied on various judgments given in the context of cooperative bank. Since the assessee is not a cooperative bank, those cases are not applicable to the facts of the case and hence no reliance can be placed on the judgments given in the context of business of banking/cooperative bank. Reliance was placed on the provisions of Section 176(3A) by the Ld. Counsel that the income arising out of the discontinued business should also be brought to tax. Provisions of Section 176(3)A are as under:-
"176(3)A. Where any business is discontinued in any year, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance".
29. There is no doubt on provisions of section 176 are applicable to a discontinued business and Sub-section 3A provides for taxing the sums received after discontinuance as income of the year of the receipt. In our opinion reliance placed on the above provision is misplaced as the assessee has not discontinued the business. During the year the assessee is in the business and has offered income from interest on advances to the members as business income only. Therefore, the question of considering the discontinuation of business does not arise. What happened in the assessee‟s case is only cancellation of license to do the banking business, but the assessee is not prevented in doing any other business by the cooperative society. Only the activity of banking was prohibited. Even otherwise, the issue is not whether the income is to be brought to tax as business income or not. The issue is whether the incomes arising out of investment is eligible for deduction under section 80P(2)(a)(i) as of banking business. Therefore, we are of the opinion that provisions of section 176(3)A does not help the case of assessee."
3039. (vi) Incorrect explanation of the assessee -Assessee‟s Arguments on the disclosure of information in the Return: Further, we find the said explanation suffer from lack of credibility. How the assessee could go ahead and claim the deduction u/s 80P(2)(a) of the Act in respect of the ineligible and so called banking income? How can cooperative society earn banking income with the banking license? We find the assessee consistently taking law into their hand and the same is evident from the observations of the Supreme Court‟s judgment extracted above. With this kind of conduct of the assessee, in our opinion, no amount of disclosure of particulars in the return of income shall save the assessee from the award of penalty. We find what is disclosed in the return is only the claim of deduction and disrespected advise of the Auditors. What is the use of such disclosure of information? As such, there is information on the return why he made such unsustainable claims of deduction. When the law does not permit assessee to undertake banking activities, it has done so contumaciously. Now when the provisions of section 80P(2) do not permit claim of deduction in respect of such ineligible income, it has done so again contumaciously, which is not permitted by the Tribunal. Further, the assessee wants to apply the provisions of section 176(3) of the Act, when the same are not at all applicable to the facts of the case. It is completely objectionable and deplorable. It is surprising that the assessee is persistently violating the law of the land i.e., first the provisions of the Banking Regulation Act, 1949 and then the provisions of Income tax Act, 1961. Any way, we now focus on the provisions of Income tax Act, 1961, in general, and provisions of section 271(1)(c) of the Act, in particular.
40. Contents of the above paragraphs of this order amply suggest that the claim of deduction is not only unsustainable and such unsustainable claim of deduction is made with full knowledge of the assessee that the law is not on his side. None of the judgments relied upon by the assessee are comparable to the facts of this present case and therefore, they are distinguishable on facts. As such, finality on penalty proceedings are not only assessee-specific but also addition/disallowance-specific and are finalized after considering the facts of each case and such disallowance/additions. Therefore, the revenue fairly did not levy penalty in respect 31 of the interest income from credit facility offered to the members. Therefore, the assessee‟s argumentative ground no. 2, 3, 4 and 5 of the appeal with its sub grounds are unsustainable in principle.
41. Further, on the experts‟ (Statutory Auditors) advise: It is reported fact that the management of the society knows that the income earned does not qualify the „banking income‟ and so is the A.B. Mansinghka & Co., Auditors of the assessee. In a way, it is the case, where the assessee has not adopted the advise of the experts and proceeded to claim deduction u/s 80P(2) of the Act. Normally, the case is other way around and they issue certificates advising the claim of deduction and relevant cases are cited above. But in this case, Auditors advised that the impugned income is ineligible to be classified as banking income considering the judgment of the Supreme Court. But the assessee made a false claim of deduction and decided to provide false explanation in the penalty proceedings u/s 271(1)(c) of the Act.
42. Thus, it can be safely inferred that the assessee made a claim of deduction u/s 80P(2)(a)(i) in respect of the sums totaling to Rs 46,37,41,577/- knowing very well the impugned income is not eligible for such deduction. Assessee is fully aware of this fact and therefore the claim is made contumaciously and deliberately having no regard for the law. The said amounts „disallowed in computing the total income of the assessee as a result thereof shall, for the purposes of clause (c) of this sub section 271(1) of the Act, be deemed to represent the income in respect of which particulars have been concealed. Therefore, for all the reasons discussed above, the order of the CIT (A) does not call for any interference. Accordingly, ground nos. 1 to 5 of the appeal raised by the assessee are dismissed.
43. In the result, appeal of the assessee is dismissed.
Order pronounced in the open court on 18th September, 2013.
Sd/- Sd/-
(D. MANMOHAN ) (D. KARUNAKARA RAO )
उऩाध्मऺ / VICE PRESIDENT रेखा सदस्म / ACCOUNTANT MEMBER
भुंफई Mumbai; ददनांक 18.09.2013
32
व.नन.स./ OKK , Sr. PS
आदे श की प्रतिलऱपि अग्रेपिि/Copy of the Order forwarded to :
1. अऩीराथी / The Appellant
2. प्रत्मथी / The Respondent.
3. आमकय आमुक्त(अऩीर) / The CIT(A)-
4. आमकय आमुक्त / CIT
5. ववबागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / DR,
ITAT, Mumbai
6. गाडड पाईर / Guard file.
सत्मावऩत प्रनत //True Copy//
आदे शानस
ु ार/ BY ORDER,
उि/सहायक िंजीकार (Dy./Asstt. Registrar)
आयकर अिीऱीय अधिकरण, भंफ
ु ई / ITAT, Mumbai