Income Tax Appellate Tribunal - Chandigarh
Haryana Financial Corporation Ltd.,, ... vs Assessee
Author: G.S.Pannu
Bench: G.S.Pannu
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES 'B' CHANDIGARH
BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER
AND MS SUSHMA CHOWLA, JUDICIAL MEMBER
ITA No. 211/Chd/2010
Assessment Year:2005-06
M/s Haryana Financial Corporation, Vs. The DC IT, Circle,
Chandigarh Chandigarh
PAN No. AAACH4685B
(Appellant) (Respondent)
Appellant By : S/Shri N.K.Nohria & Ravi Shankar /Shri A.K.Jindal
Respondent By: Shri S.S.Khemwal
ORDER
PER SUSHMA CHOWLA, JM
The appeal by the assessee is against the order of CIT(A), Panchkula dated 1.2.2010 relating to assessment year 2005-06 against the order passed under section 271 (1)(c) of the I.T. Act.
2. The assessee has raised the following grounds of appeal:-
1. That On the facts and circumstances of the case the learned CIT(A) Panchkula has erred in law and facts in upholding imposing of penalty of Rs. 8,35,36,111/- u/s 271 (1)(c) of Income Tax Act, 1961 though the assessee has disclosed the deduction in the return of income and the judgment of the Hon'ble Supreme Court at the time of revising the return of income was in favour of the Appellant.
2. That the order of learned Assessing Officer is barred by limitation under section 275(1)( c) of Income Tax Act, 1961.2
3. The onl y issue raised in the present appeal is against levy of penalt y u/s 271 (1)(c) of the Act amounting to Rs. 8,35,26,111/-. The brief facts of the case are that the assessee is State Financial Corporation.
During the year under consideration a provision of bad and doubtful debts amounting to Rs. 23,01,41,589/- was made. The said amount was claimed as an allowable business expenditure under proviso to section 36(1)(viia)
(c) of the Act. The Assessing Officer observed that as per scheme of the section, the expenditure was allowable onl y upto 5% of the total income, before deduction under this section and Chapter VI A of the Income Tax Act. The total income on verification of the books of account for the purpose of the aforesaid section was computed by Assessing Officer at Rs. 1,80,58,083/-. The computation of the said income is incorporated at page 6 of the assessment order. As per the Assessing Officer, the expenditure allowable u/s 36(1) (viia) (c) of the Act being 5% of the total income works to Rs. 9,02,904/-. The assessee had claimed expenditure of Rs. 2,33,728,300/- and hence excess claim of Rs. 23,28,25,396/- was disallowed by the Assessing Officer. The said disallowance was confirmed by the CIT(A). It was further observed by the CIT(A) that proviso introduced by Finance Act, 2002 w.e.f. 1.4.2003, provides for deduction not exceeding 10% of the doubtful debts or losses assessed as per RBI guidelines. The CIT(A) further held that the said proviso was applicable for any of the two consecutive Assessment Years commencing on or after Ist April, 2003 and ending before Ist April, 2005. Thus, it was held that the said proviso was not available for Assessment Year commencing on or after 1.4.2005 i.e. Assessment Year 2005-06 onwards. As the present appeal related to Assessment Year 2005-06, it was held by CIT(A), that deduction at the rate of 10% would not be available to the 3 assessee. The deduction computed by the Assessing Officer at the rate of 5% of the total income was upheld by CIT(A).
4. The Tribunal in ITA No.548/Chd/2008 vide order 31.12.2008 held as under:-
"If the aforesaid section is analyzed in the light of proviso added with clause ( c), it has specifically mentioned that deduction is allowable for any of the two consecutive assessment years commencing on or after the first day of April 2003 but ending before first day of April 2005. The only argument of the Revenue is that clause ( c) is only applicable wherein the amount should not exceed 5% of the total income whereas as per the proviso the amount should not exceed 10% of the amount of such assets shown in the books of account of such institution or corporation. There is a no dispute to the fact that for assessment year 2003, no such deduction was claimed, therefore, the deduction was claimed for the first time for assessment year 2004-05. The crux of arguments of the assessee is that the deduction is allowable for two consecutive years. However, we are of the view that these two assessment years must be between 1.4.2003 to 1.4.2005 meaning thereby the proviso inserted by the Finance Act, 2002 is not available for the assessment year commencing on or after 1.4.2005. The present appeal before us is for assessment year 2005-06, therefore, the deduction at the rate of 10% may not be available to the assessee. In view of these facts, we have no found infirmity in the impugned order, the same is upheld.
5. During the penalt y proceedings before the Assessing Officer, the assessee vide repl y dated 24.6.2009 stated that the assessee had claimed the deduction on the advise and under a bonafide belief that the deduction was allowable. It was further stated that there was no conscious concealment of facts and the assessee had not furnished any inaccurate particulars of income. Further, the assessee claimed that it was not guilt y of any fraud or gross and willful neglect in claiming the deduction. The assessee relied upon the various decisions for this proposition. Further, plea of the assessee was that any addition does not automaticall y lead to 4 levy of penalt y u/s 271 (1)(c) of the Act. Reliance was placed on the following cases:
i) Union of India & Others Vs. Dharmendra Textiles Processors and Others (2006) 306 ITR 277 (SC)
ii) Brook Bond India Ltd Vs. CIT (1997) 225 ITR 798 (SC)
iii) CIT Vs. SSP P. Ltd (2008) 302 ITR 43 (P&H)
6. The assessee further contended that it was not covered under the Explanation 1A or 1B to section 271(1) of the Act. The deduction was claimed under a reasonable and bonafide belief that if the first limb of the proviso is considered, then deduction is allowable for Assessment Year 2004-05 and 2005-06. The explanation offered was claimed to be bonafdie as the same was based on the advise of the counsel and the assessee being a government undertaking had to adhere to the said advice. The copy of the advice rendered by Shri B.K. Nohria, Chartered Accountant at the time of filing the Revised return of income was furnished. Another plea raised by the assessee was that there was no conscious breach of law and penalt y u/s 271 (1)(c) was not imposable, if there is no conscious breach of law. Reliance was placed on Hindustan Steel Ltd Vs. C IT State of Orissa [83 ITR 26 (SC) ].
7. The Assessing Officer noted that in the original return of income filed on 28.10.2005, the assessee had not claimed any deduction under Proviso to section 36(1) (viia) (c) of the Act. Later a revised return was filed, claiming deduction of Rs. 23,37,28,200/- under the proviso to section 36(1) (viia) (c) of the Act. During the course of assessment, the Assessing Officer computed the deduction 36(1) (viia) (c) of the Act to the extent of Rs. 9,02,904/- i.e. onl y under the substantive section and not 5 under the proviso to the section. The said addition was upheld by the CIT(A) and Tribunal. In view thereof the Assessing Officer was of the view that the assessee had put forward a patentl y wrong and completel y untenable claim, which in fact shows a certain degree of deliberateness in making this claim. The Assessing Officer further observed that the claim is taken to have been made at the advise of a counsel who was not their regular counsel. This Explanation was held to be not bonafide. Further, it was held by Assessing Officer that the belief of the assessee in claiming the deduction is not a bonafide belief. The Assessing Officer further observed that the claim was made by the assessee as it was aware that it had substantial brought forward losses and even if this claim was disallowed at the time of assessment, it would result in no additional tax liabilit y. The reliance placed by the assessee on various orders of Tribunals were held to be not applicable as these were in the context of the earlier law, which was omitted by the Finance Act, 1975. The Assessing Officer relied on the ratio laid down by Hon'ble Kerala High Court in Kuttoo Karan Machine Tools Ltd Vs. AC IT [313 ITR 413 (Kerala) ] wherein it was held that where a bogus claim for deduction had been made in the return prepared by the Auditor, it was held by the Hon'ble High Court "it was for the assessee to ensure that wrong claim are not made in the return". The Assessing Officer further relied on the ratio laid down in Union of India Vs. Dharmendra Textiles Processors [306 ITR 277) (SC) for the proposition that there was an element of limit of strict liabilit y on the assessee for concealment or for giving inaccurate particulars, while filing the return of income. It was further held by the Hon'ble Supreme Court that penalt y u/s 271 (1)(c) of the Act was a civil liabilit y and that willful concealment is an essential ingredient for attracting civil liabilit y. The Assessing Officer held as under:- 6
"8. Hence from the above discussion, it is clear that the assessee has furnished inaccurate particulars of income to the extent of Rs. 23,28,25,396/- i.e. excess deduction claimed which was not allowable for the Assessment Year 2005-06 as per the bare provisions of the proviso to section 36 (1)(viia)
(c). The assessee has thus committed the default as contemplated by section 271 (1)(c) read with Explanations 1 & 4(a) in respect of the total amount of Rs. 23,28,25,396/- for which penalty as provided in section 271(1)(iii) is imposable............"
8. The Assessing Officer thus levied penalty of Rs. 8,35,26,211/- u/s 271 (1)(c) of the Act.
9. Before the CIT(A) , learned counsel for the assessee filed written submissions which are incorporated at pages 7 to 15 of the appellate order.
10. On consideration of the issue, the C IT(A) held as under:-
"On careful consideration of the above facts and submissions, I find the arguments of the counsel for the Appellant devoid of any merit and the same are rejected. The argument of the counsel that there is ambiguity in the proviso and the deduction is debatable for considering which the two consecutive assessment years are carries no force. The provisions of section 36(1) (vii) (c) proviso are very clear and there is no ambiguity in the same. In the quantum appeal the Hon'ble ITAT has also held so. Moreover, the Appellant in the original return rightly did not claim the deduction. This shows that there is no ambiguity about the consecutive assessment years and the Appellant rightly understood the same while filing the original return. It was by filing the revised return that the Appellant made a false claim knowing that there is no ambiguity in the provisions. The argument of the counsel that the Appellant claimed the deduction on the basis of advice of the counsel and was under bonafide belief that the deduction is allowable is not correct. The Assessing Officer has rightly held that the explanation is false and is an after thought because during the assessment and penalty proceedings before the Assessing Officer and during the Appellate proceedings before the ITAT, the Appellant was not represented by Shri Nohria Chartered Accountant and could not have given the advice to the Appellant and this plea has been taken by the Appellant only at the penalty stage. The 7 counsel has wrongly claimed that the legal advice of the counsel is binding. The counsel only gives the advice but the final decision is of the Appellant. The revised return was signed by a senior IAS officer who is expected to know the consequences of filing the revised return and making the false claim particularly when the original return was also signed by the same officer. The argument of the counsel that the Appellant had reasonable cause and bonafide belief for the claim to be correct is without any merit and the same is rejected. In view of the clear provisions of section 36(1) (viia) (c) the explanation offered by the Appellant is not bonafide. The argument of the counsel that addition made does not automatically lead to penalty is correct. However, in the present case the Assessing Officer has proved that the explanation offered by the Appellant is false and the explanation is not bonafide. Hence the cases laws relied upon by the counsel do not help the Appellant. The addition made by the Assessing Officer is not on a debatable issue. Hence, the Jurisdictional High Court decision in CIT Jalandhar Vs. M/s Indersons Leather Pvt Ltd Jalandhar and the case of CIT Faridabad Vs. M/s SSP Ltd Faridabad do not help him. The Assessing Officer has rightly placed reliance on the Hon'ble Kerela High Court decision reported in 313 ITR 413 in which it is held that the assessee cannot escape from penalty by taking the plea of the wrong advice of the counsel. The Hon'ble High Court held that it was for the assessee to ensure that wrong claims are not made in the return. The Assessing Officer has also rightly placed reliance on the judgement in the case of Union of India & Others Vs. Dharmendra Textiles Processors and Others reported in 306 ITR 277 (SC) in which the Hon'ble Supreme Court held that the penalty is a civil liability and willful concealment is not an essential ingredient for attracting civil liability as is in the case in the matter of prosecution u/s 276 C of the Income Tax Act. The argument of the counsel that there is no conscious or deliberate concealment of facts or filing of inaccurate particulars of income carries no force and is rejected."
To sum up the Assessing Officer has rightly held that the explanation offered by the Appellant for concealment of income is false and the same is not bonafide and making of a patently wrong and inadmissible claim for deduction by the assessee is furnishing of inaccurate particulars of income which attracts the levy of u/s u/s 271 (1)(c) of the Income Tax Act. The Assessing Officer has rightly levied the penalty of Rs. 8,35,26,111/-. The penalty order passed by the Assessing Officer levying penalty is confirmed. The second ground of appeal is rejected".
11. The learned AR for the assessee stated that the penalt y u/s 271 (1)(c) of the Act as per CIT(A) had been levied on a wrong and 8 inadmissible claim of deduction. The learned AR pointed out that the original return of income declaring nil income was filed on 28.10.2005, copy of which is furnished at pages 14 & 15 of the paper book. The assessee furnished revised return of income on 17.4.2006 claiming loss of Rs. 21.56 crores and the copy of the same is enclosed at pages 16 & 17 of the paper book. The contention of the learned AR was that in the revised return of income, claim of deduction under proviso to section 36(1) (viia)
(c) of the Act was made. The return of income was revised pursuant to the legal opinion received by the assessee. The copy of the legal opinion received is enclosed at page 8 of the paper book. The learned AR for the assessee pointed out that the Assessing Officer in the assessment order passed u/s 143 (3) of the Act relating to Assessment Year 2004-05 had noted the assessee to have made the similar claim of deduction in the said year. The copy of the order is placed at pages 44 to 48 of the paper book. It was further pointed out that the Tribunal in assessee's own case relating to Assessment Year 2004-05 had allowed the claim of deduction. He further contended that under the proviso to section 36(1) (viia) (c) of the Act, the option to avail deduction is available for two consecutive years i.e. either starting from 1.4.2003 or 1.4.2004. He further submitted that once the deduction has been allowed in Assessment Year 2004-05, then the second consecutive year was Assessment Year 2005-06, but the said claim has been disallowed by the Tribunal. The learned AR for the assessee pleads that the claim of the assessee was bonafide and correct as the provision was made bonafidel y because of the provisions of the said section. The material facts in connection with the said claim of deduction were made available with the Assessing Officer. The learned AR further drew our attention to the fact that in Assessment Year 2008-09, the assessee had written off the said sum as bad debts and the same were 9 allowed pursuant to the revised return filed by the assessee. The copy of the return of income relating to Assessment Year 2008-09 is furnished at pages 21 & 23 of the paper book. The learned AR clarified that the Assessing Officer during the year had allowed the claim to the extent of Rs. 9,02,904/- and the balance claim was rejected. The learned AR for the assessee placed reliance on the ratio laid down by the Apex Court in CIT Vs. Reliance Petro Products Pvt Ltd 322 ITR 158 (SC) and also on [CIT Vs. Tek Ram (HUF) (P&H)] 300 ITR 354. The learned AR further submitted that in view of the bonafide claim of the assessee and also on account of the fact that partial deduction has been allowed to the assessee though under the substantive provisions of the Section and not under the proviso, and the quantum being different, there is no merit for levy of penalt y for concealment under section 271(1)(c) of the Act for furnishing of inaccurate particulars of income. The learned AR also pointed out that the ratio laid down in Union of India Vs. Dharmendra Textiles Processors & Others (supra), has been considered in M/s Reliance Petro Chemicals (supra). Further, reliance was placed on the ratio laid down in CIT Vs. Haryana Warehousing Corporation 314 ITR 215 (P&H) and Kanbey Software India (P) Ltd Vs. DC IT, [ 119 ITD 153 (Pune)] and the CIT Vs. West Inn Ltd, Tax appeal No. 1980 of 2008 (Gujarat), date of decision 25.11.2009. The learned AR for the assessee further clarified that in the Explanatory notes to the Budget Speech of the Finance Minister, when it was proposed to introduce proviso to section 36(1) (viia) (c) of the Act, while increasing the limit of 5% to 10% and also extending the facility to a Public Financial Institution, State Financial Corporation or State Industrial Investment Corporation, it was proposed that the optional deduction shall be available for a period of two consecutive Assessment Years commencing on or after Ist April, 2003 and 10 ending before Ist April 2005. The said explanatory notes are reported at 254 ITR 136 (Statute). The learned AR pointed out that while introducing the proviso to section 36(1) (viia) (c) of the Act, it has been provided that the deduction is available for any of the two consecutive assessment years. The learned DR placing reliance on the order of the CIT(A) further placed reliance on the ratio laid down by the Kerela High Court in Kuttoo Karan Machine Tools Ltd Vs. AC IT [313 ITR 413 (Kerala)]. The learned DR for the Revenue in repl y stated that the proviso to the said section were part of the statute and the explanatory notes to the Finance Bill were onl y to clarify and the explanation of the assessee in this regard does not merit consideration. The learned DR stressed that in the circumstances, where the claim of deduction of assessee was rejected, the assessee is said to have furnished inaccurate particulars of income.
12. We have heard the rival contentions and perused the records. Penalt y for concealment is leviable u/s 271 (1)(c) of the Act in case any one of the two pre-conditions are satisfied. The pre-conditions for levy of penalt y are either the assessee should have concealed the particulars of its income or in the alternative, the assessee should have furnished inaccurate particulars of income. Either of the two conditions needs to be fulfilled before levy of penalt y u/s 271 (1)(c) of the Act. The provisions of the Act envisages an opportunit y of hearing to be afforded to the assessee to prove its bonafides and where the assessee is able to prove the bonafides of his claim, with regard to the particulars of income furnished in the return of income, in such circumstances no penalt y is leviable for concealment of income or for furnishing inaccurate particulars of income u/s 271 (1)(c) of the Act. The expressions 'concealment' and 'inaccurate particulars' u/s 271 (1)(c) of the Act has 11 been deliberated upon in plethora of judgments by various Courts. The Hon'ble Supreme Court in Dharmendra Textiles & Processors case (supra), observed that the penalt y u/s 271 (1)(c) of the Act is a civil liabilit y. However, the liability is penal in nature though being civil liabilit y and there is no requirement of establishing the mens rea of the intention of the assessee in cases where the assessee is found to have concealed the particulars of his income or furnished inaccurate particulars of income. Where, the information furnished by the assessee in the return of income to the best of knowledge of the assessee is correct and complete, it cannot be said that the onus on the assessee has not been discharged to prove its bonafides. Where any addition to, or disallowance from, had been made to the returned income, it per se cannot be the foundation of penalt y u/s 271 (1)(c) of the Act as findings in the assessment order cannot be taken a conclusive proof of concealment for the purpose of levy of penalt y u/s 271 (1)(c) of the Act. Under the Explanation 1 to section 271 (1)(c), the onus is upon the assessee to establish the bonafides of his claim and where the assessee discharges its onus of proving his claim to be bonafidel y made, the Courts have held that there is no merit in levy of penalt y u/s 271(1)(c) of the Act. .
13. The Hon'ble Supreme Court of India in CIT, Ahemdabad Vs. Reliance Petroproducts Pvt. Ltd (supra) while referring in the word particulars in "inaccurate particulars of income", observed, "as per Law Lexicon, the meaning of word 'particular' is a detail or details, the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in Section 271 (1)(c) would embrace the meaning of the details of the claim made." It was further held as under:- 12
"We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in the case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to inaccurate particulars. (underlined supplied by us)
14. The Hon'ble Supreme Court in CIT, Ahemdabad Vs. Reliance Petroproducts Pvt Ltd (supra) further noted that in the facts of the case before it, there were no findings that any details supplied by the assessee in its return of income were not incorrect or erroneous or false nor any statement made or any details supplied was found to be factuall y incorrect. The Court thus held that merel y because the assessee had claimed the expenditure, which was not accepted or was not acceptable to the Revenue, that by itself would not, attract penalt y under section 271 (1)(c) of the Act. It was also laid down by the Court that the intendment of the Legislature is not to levy penalt y u/s 271 (1)(c) of the Act in case of every non acceptance of claim made by the assessee in the return of income,
15. Similar ratio has been laid down by the Hon'ble Punjab & Haryana High Court in CIT Vs. Shahbad Cooperative Sugar Mills Ltd [322 ITR 73 (P&H)], wherein it has been observed that making wrong claim for deduction, does not amount to concealment or giving of inaccurate particulars within the meaning of section 271 (1)(c) of the Act. 13
16. The Hon'ble Punjab & Haryana High Court in CIT Vs. Tek Ram (HUF) (supra) had held that where the issue is highl y debatable in as much as two views were possible on the said issue and where the claim of the assessee on the issue was based on one possible view, the making of such bonafide claim on the basis of a possible view could not be treated as concealment of its income by the assessee or furnishing of inaccurate particulars of income so as to attract the penal provisions of section 271 (1)(c) of the Income Tax Act.
17. The Hon'ble Punjab & Haryana High Court in CIT Vs. Sidhartha Enterprises [(2010) 228 CTR (P&H) 579 ] held that "the judgment of the Hon'ble Supreme Court in Dharmendra Textile (supra) cannot be read as laying down that every case where particulars of income are inaccurate, penalty must follow. What has been laid down is that qualitative difference between criminal liability under section 276C and penalty under s. 271(1)(c) had to be kept in mind and approach adopted to the trial of a criminal case need not be adopted while considering the levy of penalty. Even so, concept of penalty has not undergone change by virtue of the said judgment. Penalty is imposed only when there is some element of deliberate default and not a mere mistake. This being the position, the finding having been recorded on facts that the furnishing of inaccurate particulars was simply a mistake and not a deliberate attempt to evade tax, the view taken by the Tribunal cannot be held to be perverse."
18. Coming to the facts of the present case before us, the assessee had furnished the original return of income declaring nil income on 28.10.2005. Thereafter, a revised return was furnished in which the 14 assessee claimed loss of Rs. 21,56,70,220/- by making a claim of deduction in view of the proviso to section 36(1)(viia)(c ) of the Act. The basis for furnishing the revised return was the legal opinion received by the assessee. The claim of the assessee in this regard is that it being a State Financial Corporation, as per the Legal Advice, it claimed the provision of bad and doubtful debts as an allowable business expenditure under proviso to section 36(1)(viia)(c) of the Act. The said claim was not allowed to the assessee, though the Assessing Officer computed part allowance under the sustentative provisions of section 36(1)(viia)(c) of the Act.
19. The proviso to section 36(1)(viia)(c) of the Act was introduced b y Finance Act 2002, w.e.f. 1.4.2003 under which it was proposed to provide deduction of an amount not exceeding 10% of provision of bad and doubtful debts or losses to public financial institutions. Similar claim was made in Assessment Year 2004-05 and this year being consecutive, further claim was made. While introducing the said proviso to section 36(1)(viia)(c ) of the Act in the Finance Bill for 2002-03, the Finance Minister in its Budget Speech observed as under;-
"Presently, banks are allowed to deduct upto 5% of their total income against provisions made by them for bad and doubtful debts. In order to strengthen the financial position of banks, I propose to increase this allowance to 7.5% of the total income. Further, in my budget for the year 1999-2000, I had granted an option to banks to deduct upto 5% of their NPAs falling in the category of loss or doubtful assets as on the last day of the accounting year. I propose to enhance this optional deduction to 10% and also allow a similar option of deduction upto 10% of loss or doubtful assets to public financial institutions.15
20. In the explanatory notes reported at 254 ITR 136 (Statute), it was explained as under:-
" 32.5 The Act has increased the limit of five percent given under the proviso to sub clause (a) to ten percent and also extended this facility to a public financial institutions, State Financial Corporation or State Industrial investment corporation. The optional deduction shall be available for a period of two consecutive Assessment Years commencing on or after Ist April, 2003 and ending before Ist April, 2005."
21. The substantive provisions of section 36(1)(viia)(c) of the Act and proviso to the said section read as under:-
"36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28--
( viia) in respect of any provision for bad and doubtful debts made by--
(c) a public financial institution or a State financial corporation or a State industrial investment corporation, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A:
[Provided that a public financial institution or a State financial corporation or a State industrial investment corporation referred to in this sub-clause shall, at its option, be allowed in any of the two consecutive assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, of an amount not exceeding ten per cent of the amount of such assets shown in the books of account of such institution or corporation, as the case may be, on the last day of the previous year."
22. Under the substantive provisions of the said sub section, a public financial institution or a State financial corporation or a State industrial investment corporation, is entitled to claim deduction of an amount not exceeding five per cent of the total income, computed before making any 16 deduction under this clause and Chapter VI-A, in respect of any provision for bad and doubtful debts made by it. The proviso to said section was inserted by the Finance Act, 2002 w.e.f. 1.4.2003. The proviso provides that for any of the two consecutive Assessment Years commencing on or after first day of April 2003 and ending before first April, 2005, deduction in respect of provision made for doubtful assets or losses, in accordance with the guidelines issued by Reserve Bank of India, shall be allowable of an amount not exceeding 10% of the amount of such assets shown in the books of account as on the last day of the previous year of the concerned institution.
23. Undoubtedl y, the assessee before us is a State Financial Corporation and had claimed the deduction under the proviso to section 36(1)(viia)(c ) of the Act in Assessment Year 2004-05 for the first time. The Tribunal in ITA No.80/Chd/2009 vide order 30.3.3009 relating to Assessment Year 2004-05, held the assessee entitled to the claim of deduction under the aforesaid proviso and the issue was set aside to the file of Assessing officer to determine the deduction allowable to the assessee. The assessee claimed similar deduction in Assessment Year 2005-06. The contention of the assessee in this regard was that as per the first limb, the deduction for any of the two consecutive years is allowable which means that there are more than two blocks of consecutive Assessment Years, and there is an option available to the assessee to choose a block of two consecutive Assessment Years out of available more than two blocks. As per the second limb, deduction is to be allowed for the year commencing on or after first day of April, 2003 and ending before first day of April, 2005. Consequently, the belief of the assessee was that once it had 17 claimed the deduction for the first time in Assessment Year 2004-05, it was entitled to claim the deduction in Assessment Year 2005-06. However, the said deduction was not allowed to the assessee by the Tribunal in ITA No.548/Chd/2008 vide order 31.12.2008 holding that the proviso inserted by the Finance Act, 2002 is not available for the Assessment Year commencing on or after 1.4.2005. Pursuant to such disallowance, the assessee was held liable for levy of penalt y u/s 271 (1)(c) of the Act for furnishing inaccurate particulars of income.
24. Reading the provisions of the Section and the proviso, there appears to be a debatable issue vis-à-vis considering which of the two consecutive years under which the said deduction can be claimed. As per the first limb, deduction is allowable for any of the two consecutive years, however, as per the second limb, deduction is to be allowed on or after the first day of April 2003 and ending before first day of April, 2005, which reflects that if the deduction is taken for any of the two consecutive years commencing from first day of April, 2003, it will end with year commencing from first day of April, 2004. If the deduction is taken as commencing from first day of April, 2004, then the second consecutive year would start from first day of April, 2005, which is outside the provisions of the proviso under consideration. The ambiguit y in the provisions is further apparent from the explanatory notes to the Budget Speech of Finance Minister at the time of introduction of the provisions of proviso to section 36(1)(viia)(c ) of the Act, under which it was explained that the optional deduction shall be available for a period of "two consecutive Assessment Years" commencing on or after First day of April, 2003 and ending before First day of April, 2005. However, in the 18 proviso to section 36(1)(viia)(c ) of the Act the said option is to be exercised and allowed in "any of the two consecutive assessment years"
commencing on or after First day of April, 2003 and ending before First day of April, 2005. From the bare reading of the provisions of the Act, we find that the disallowance in the hands of the assessee is purel y on difference of opinion in interpretation of law. The assessee had furnished complete particulars in respect of the claim of deduction in the return of income and no discrepancy has been pointed out by the authorities below in this regard. The deduction was not allowed to the assessee holding that the same is not allowable for the period commencing from First day of April, 2005. The year under consideration is Assessment Year 2005-
06. However, the claim of the assessee in respect of deduction on account of provisions for bad and doubtful debts had been allowed under the substantive provisions of the section 36(1)(viia)(c) of the Act and not under the proviso to the said section.
25. The issue which arises before us that in view of the above said facts and circumstances whether the assessee is exigible to levy of penalt y u/s 271(1)(c) of the Act. The assessee had made a claim under the provisions of Act which was ultimatel y found to be not acceptable and the same cannot be said to amount to furnishing inaccurate particulars of income. We find guidance from the ratio laid down by the Hon'ble Supreme Court in CIT Vs. Reliance Petro products Pvt Ltd (supra) wherein it has been held that a mere making of a claim, which is not sustainable in law, by itself would not amount to furnishing of inaccurate particulars regarding the income of the assessee. In the facts of the present case, there is no finding that the assessee has furnished an y 19 incorrect or false particulars. Onl y the claim of the assessee has been found to be not sustainable in law in view of interpretation of the provisions of the Act. The issue being debatable and having two views, where the assessee having followed one of the views, claimed deduction, such bonafide claim made by the assessee cannot be treated as furnishing of inaccurate particulars, making assessee liable to levy of penalt y u/s 271(1)(c) of the Act. We find support from the ratio laid in CIT Vs. Tek Ram (HUF), as referred in paras hereinabove. In such circumstances, we find no justification in the levy of penalty for concealment u/s 271(1)(c) of the Act.
26. The second contention raised by the assessee is that as it had made the claim for deduction on the basis of the advise of its legal counsel under a bonafide belief that deduction is allowable and thus no penalt y can be imposed for acting on such legal advice. The alternate plea of the assessee was that deduction u/s 36(1)(vii) of the Act, by writing of the abovesaid advances as bad debt is also allowable to the assessee instead of claiming the same under the proviso to section 36(1)(viia)(c) of the Act. The assessee has claimed the said amount in Assessment Year 2008-09, as bad debt after writing off the same u/s 36(1)(vii) of the Act.
27. The Hon'ble Punjab & Haryana High Court in the case of CIT, Karnal Vs. Deepak Kumar in ITA NO. 191 of 2009 vide order dated 8.3.2010 had observed that in the facts of the case, 'In the return filed by the assessee-respondent, he claimed that the profit on the sale of shares was exempt under section 10(36) of the Act. The Assessing Officer completed the assessment under section 143(3) of the Act and it was held 20 that the assessee respondent had wrongly claimed the profit on sale of shares under section 10(36) of the Act. The assessee was held to have concealed the particulars of income and penalt y under 271(1)(c) of the Act was imposed by the Assessing officer. The CIT(A) deleted the penalt y u/s 271(1)(c) of the Act. rel ying on the ratio laid down by the Hon'ble Punjab & Haryana High Court in CIT Vs. Ajaib Singh and Co. 253 ITR 630(P&H), wherein it was held that no litigant should suffer on account of mistake committed by the counsel because the advise tendered by the counsel is accepted by the litigant, which is based on bonafide belief of being correct. The Tribunal confirmed the order of C IT(A). The Hon'ble High Court upholding the order of the Tribunal held that it is not unknown that income tax returns are filed through the experts in the Income tax laws and, therefore the advise given by the learned counsel can be acted upon with bonafide belief to be correct. The appeal was dismissed as there was no substantial question of law.
28. Similar ratio has been laid down by Hon'ble High Court of Gujarat in CIT Vs. West Inn Ltd. (supra) upholding the order of the Tribunal that in view of several amendments taking place every year, where the assessee had acted upon the advise given by CA, it cannot be said that the assessee has made a false claim.
29. Following the above said ratio, we find that the assessee before us had acting on the advise of his legal counsel, claimed the aforesaid deduction and in such circumstances, the claim of deduction made by the assessee cannot be said to be non bonafide. The disallowance of such claim by the authorities does not satisfy the conditions of furnishing of inaccurate particulars of income. The assessee is not liable to levy of 21 penalt y u/s 271(1)(c) of the Act once such a claim is rejected in the hands of the assessee. We hold so.
30. The learned DR for the Revenue had placed reliance on the contrary ratio laid down by the Hon'ble Kerala High Court in Kuttoo Karan Machine Tools Ltd Vs. ACIT (supra). In view of the ratio laid down by the Jurisdictional High Court in CIT Karnal Vs. Deepak Kumar (supra) and C IT Vs. West Inn Ltd. (Gujarat) (supra), we find no merit in the said reliance of the learned DR for the Revenue.
31. The learned AR for the assessee admitted that there was ambiguit y in the proviso and deduction is debatable for considering which of the two consecutive Assessment Years. The claim was made for two consecutive years starting from Assessment Year 2004-05 under bonafide belief. We find merit in the plea of the assessee that in view of the ambiguit y in the provisions of the Act, the claim at best can be said to be an erroneous claim and the same cannot be equated with furnishing of inaccurate particulars of income.
32. The authorities below have referred to Explanation 1 to Section 271(1)(c) of the Act to justify levy of penalt y in this case. However, in our view and following the aforesaid discussion, we find no force in this stand of the Assessing officer. It is clear that the assessee has furnished an explanation which is bonafide and no material facts has been found to be false. Mere non-acceptabilit y of a claim in law does not justify invoking Explanation to section 271(1)(c) of the Act and, therefore, the Assessing officer / CIT(A) erred in levyi ng the penalt y based on the said Explanation.
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33. In view of our discussion in paras hereinabove, in such cases where the assessee had made a bonafide claim and furnished complete particulars with regard to its claim, the disallowance of such a claim on difference of opinion and interpretation of law does not tantamount to furnishing of inaccurate particulars of income. The assessee is a Government Corporation, who acting on the legal advice of its counsel revised the return of income, can not be said to have concealed its income or furnished inaccurate particulars of income. Accordingly, we hold that the assessee is not liable to the levy of penalt y u/s 271(1)(c) of the Act. We set aside the order of CIT(A) and direct the Assessing officer to delete the penalt y levied u/s 271(1)(c) of the Act.
34. In the result, appeal of the assessee is allowed.
Order Pronounced in the Open Court on this 9 t h day of September, 2010.
Sd./- Sd/-
(G.S.PANNU) (SUSHMA CHOWLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 9 t h September, 2010
Rkk
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR
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