Income Tax Appellate Tribunal - Amritsar
Pathankot Primary Cooperative ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH: AMRITSAR.
BEFORE SHRI H.L. KARWA, VICE PRESIDENT AND
SHRI MEHAR SINGH, ACCOUNTANT MEMBER.
I.T.A. No.372(ASR)/2010.
(Assessment year: 2006-07)
The Dy. C.I.T., Pathankot Primary Co-operative
Circle, PATHANKOT. Development Bank Ltd.,
Near Super Bazar,
PATHANKOT.
(Appellant) Vs. (Respondent)
Appellant by: Shri Tarsem Lal, D.R.
Respondent by: Shri P.N. Arora, Adv.
ORDER
Per H.L. Karwa, Vice President.
This appeal filed by the Revenue is directed against the order of the CIT(A), Amritsar dated 11-6-2010 in cancelling the penalty of Rs.22 lacs imposed under section 271(1)(c) of the Income tax Act, 1961 (in short, 'the Act') for the assessment year 2006-07.
2. Briefly stated, the facts of the case are that the assessee filed return of income declaring loss of Rs.93,31,795/- on 31-10-2006. However, the A.O. made the assessment under section 143(3) of the Act vide order dated 20-10-2008 at a loss of Rs.22,65,588/-. At the time of assessment, penalty proceedings under section 271(1)(c) of the Act were initiated and notice under section 274 read with section 271 of the Act was issued to the assessee for furnishing inaccurate particulars of loss. In response to show 2 cause notice, the assessee filed a reply on 3-6-2008 stating that the provisions for NPA (Non-performing assets) was made as per the RBI guidelines in respect of debts which had become sub-standard/bad and doubtful. It was also submitted by the assessee before the A.O. that the NPA was checked and verified by the auditors before finalizing the balance sheet. The entire income of the society was exempt under section 80P of the Act, as the assessee is engaged in the business of providing credit facilities to its members. It was also submitted before the A.O. that though the provisions for NPA was made and claimed as per RBI guidelines, the same may be added to the income as non allowable expenditure. In the assessment proceedings, the A.O. made the disallowance of Rs.70,66,207/-and initiated penalty proceedings for furnishing inaccurate particulars of income. The A.O. imposed penalty of Rs.22 lacs being 100% of tax sought to be evaded after considering the submissions of the assessee as made during the course of assessment proceedings.
3. On appeal, the CIT(A) cancelled the penalty, observing as under:-
"6.1 The appellant has contended that the claim of provision in the Profit and Loss account had no bearing on the income of the assessee as the entire income of the assessee is deductible u/s.80P of the Act and consequently it cannot be said that any tax was sought to be evaded. There was no conscious breach of law on the part of the assessee but only a bonafide mistake and the assessee has not concealed any particulars of income. It has been further contended that the assessee was under bonafide belief that provisions of section 36(viia) of the Act were applicable in it case. The provisions of section 36(viia) read as under:-
"(viia) in respect of any provision for bad and doubtful debts made by-
(a) a scheduled bank [not being a bank 3 incorporated by or under the laws of a country outside India] or a non-scheduled bank [or a cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank], an amount [not exceeding seven and one-half per cent] of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding [ten] per cent of the aggregate average advance made by the rural branches of such bank computed in the prescribed manner."
Thus, it is clear from the above that the provisions of section 36(viia) of the Act were not applicable to the appellant's case as a primary co-operative agricultural and rural development bank is explicitly excluded from claiming deduction on account of provisions for NPA. Under the amended explanation 4(a) to section 271(1)(c) w.e.f. 1-4-2003, the penalty is leviable if the assessment has the result of reducing the loss. It is correct that the appellant is eligible to claim deduction of its income u/s.80P of the Act and any addition made on account of disallowance of such provision for NPA would not have effect on the taxability of its income but the argument that there as no tax sought to have been evaded is not correct. The explanation 4(a) to section 271(1)(c) dealing with the loss cases defines the tax sought to have been evaded which corresponds to the tax that would have been chargeable on the income in respect of which inaccurate particulars of income have been furnished had such income been the total income. As regards argument of conscious breach of law, the Hon'ble Supreme Court in the case of CIT Vs. Atul Mohan Bindal (317 ITR page 1) has held that penalty u/s.271(1)(c) is neither a criminal nor quasi criminal but a civil liability, albeit a strict liability and such liability being civil in nature, mens rea is not essential. The explanation appended to section 271(1)(c) indicates strict liability for giving inaccurate particulars while filing the return. However, the Hon'ble Courts have further held that a distinction and a false claim of deduction. Now it is only to be seen whether it was a bonafide mistake leading to wrong claim of deduction or not. The 4 appellant has contended that the provision for NPA was made as per the RBI guidelines in respect of debts which had become substandard/bad and doubtful. The NPA provision was checked and verified by the auditors before finalizing the balance sheet. It is thus, seen that the non performing assets (NPA) are classified and quantified as per the guidelines of Reserve Bank of India by the banks in respect of cases where recovery becomes difficult. Hence, the provision for NPA is integral part of the business of banking wherein such provision more or less corresponds to the bad debts. The auditor has checked this aspect and finalized the balance sheet after claiming the deduction of provision for NPA in the P & L account. It is also a matter of record that the appellant, being a co-operative bank, is eligible to claim deduction of its entire income from the business of banking u/s.80P of the Act. Keeping in view the above facts coupled with the facts that the loss declared by the appellant in its return of income was much higher than the claim of deduction of provision for NPA an the appellant was eligible to claim deduction u/s.80P of the Act, it cannot be inferred that there was a deliberate attempt to claim deduction of provision for NPA. Hence, the claim made by the appellant appears to be bonafide though under the wrong interpretation of the provisions of section 36(viia) of the Act. The Hon'ble Punjab & Haryana in the case of Sidhartha Enterprises (228 CTR 579) has held that :-
"We are unable to accept the submission. The judgment of the Hon'ble Supreme Court in Dharmendra Textile cannot be read as laying down that in 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 section 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 had 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 5 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."
Similarly, the Hon'ble Gujarat High Court in the case of Manibhai & Bros. (supra) has held that if an assessee claims some deduction under a bona fide mistake, he cannot be considered liable for penalty. The Hon'ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. (supra) has held that "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. If this contention is accepted then in case of every return where the claim made is not accepted by the AO for any reason, the assessee will invite penalty u/s.271(1)(c). That is clearly not the intendment of the Legislature. In order to expose the assessee to the penalty unless the case is strictly covered bv the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot be tantamount to furnishing inaccurate particulars." In the light of rationale laid down in the above judgment by the Hon'ble Supreme Court, the appellant cannot be held to have furnished inaccurate particulars of income in respect of claim of deduction of provision for NPA. Considering the above discussed factual and legal position, it is held that there was no case of furnishing of inaccurate particulars of income by the appellant. The penalty order passed by the AO levying penalty of Rs.22,00,000/- is therefore, cancelled. The grounds Nos.1 & 4 of the appeal are general in nature and covered in the above decision."
4. Before us, Shri Tarsem Lal, the learned D.R. submitted that the learned CIT(A) has not correctly appreciated the order of the A.O. because the penalty has been based on the addition of Rs.70,66,207/- made by the A.O. on account of NPA provisions, which has not been allowable expenditure. He further submitted that simply the income of the assessee during the relevant year is exempt under a particular section of Income tax 6 Act does not mean that it gives the assessee right to claim wrong/ inadmissible expenditure with the intention to increase loss. Shri Tarsem Lal, the learned D.R., vehemently argued that in the instant case, the assessee has not discharged its onus that the wrong/inadmissible expenditure is a bonafide mistake rather than done intentionally. Shri Tarsem Lal, the learned D.R. has invited our attention to letter dated 15-7-2008 and submitted that from the said letter, it is proved that the assessee knew that the assessee had intentionally made a false claim in the return of income and when the same was detected by the A.O., the assessee came forward to surrender the same. According to the learned D.R., the claim was so patently false that the assessee could not have even any pretension of its being allowable even by an erroneous view of law. He further pointed out that in para 3 of the assessee's written submissions filed before the CIT(A), as appearing at page 2, para 5 of the CIT(A)'s order that "The assessee was under bonafide belief that provisions of section 36(viia) extended to all the co-operative banks entitling the assessee deduction as per the norms an on this account the provision was not added back." In this regard, Shri Tarsem Lal, the learned D.R. submitted that it has been expressly stated in the provisions of section 36(viia) that the deduction under the said section shall be allowed only to a Scheduled Bank. So in the first place, the assessee being not a Scheduled Bank could not be under any such belief that its NPA provision is allowable as deduction under this section. Further, the said sub- section further envisages allowing of an amount not exceeding seven and one-half percent of the total income and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank (Scheduled Bank). According to the learned D.R., the assessee was running into losses and had no income and was not entitled to deduction at 7 all. This clearly proves that the particulars furnished by the assessee were patently inaccurate and also willful and the learned CIT(A) has clearly erred in holding that the assessee had furnished incorrect claim and not furnished inaccurate particulars and no penalty is leviable in view of the judgment of the Hon'ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. reported at 230 CTR 320. Shri Tarsem Lal, the learned D.R. also relied on the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Escorts Finance Ltd., reported at (2010) 328 ITR 44, wherein the Hon'ble High Court held (Head Notes) as under:-
"(ii) That the assessee had nowhere pleaded that the return was filed claiming benefit of section 35D of the Act on the basis of the opinion of the chartered accountants. Merely because information was available in the tax audit report that would not absolve the assessee.
Even if there was no concealment of income or furnishing of inaccurate particulars, but on the basis thereof the claim which was made was ex facie bogus, it could attract penalty provision. It was not a case where two opinions about the applicability of section 35D were possible. Therefore, it could not be a case of a bona fide error on the part of the assessee. The relief under section 35D of the Act was confined only to an existing industrial undertaking for extension or for setting up a new industrial unit. It was, thus, not a "wrong claim"
preferred by the assessee, but was a clear case of "false claim". The matter was remitted back to the Assessing Officer for determining the penalty afresh attributing the conduct relating to claim under section 35D of the Act only as attracting penalty proceedings."
5. Shri P.N. Arora, Advocate, the learned counsel for the assessee, submitted that in view of reply dated 15-7-2008 the A.O. should not have initiated the penalty proceedings under section 271(1)(c) of the Act against the assessee. He further submitted that provisions of section 36(viia) of the Act are not applicable to the assessee's case. This fact was brought to the notice of the A.O. during the course of assessment proceedings itself.
8However, Shri P.N. Arora, Advocate, the learned counsel for the assessee, submitted that wrong claim of deduction or allowance does not entitle the A.O. to levy the penalty. He further submitted that there are number of decisions wherein the Courts have ruled in favour of the assessee that their disallowance of claim/expenses claimed under the bonafide belief though disallowed in the assessment proceedings will not attract any penalty under section 271(1)(c) of the Act. He, therefore, submitted that the learned CIT(A) has correctly cancelled the penalty.
6. We have heard the rival submissions and have also carefully gone through the material available on record. There is no dispute that the provisions of section 36(viia) of the Act were not applicable to assessee's case as the primary co-operative agricultural development bank is explicitly excluded from claiming deduction on account of provisions for NPA. In the instant case, the A.O. has categorically stated in the penalty order that the claim made by the assessee was wrong/inadmissible. In the instant case, the learned CIT(A) correctly observed that it was a bonafide mistake leading to wrong claim of deduction. It is seen that the assessee has contended that the provisions for NPA was made as per RBI guidelines in respect of which it has become sub-standard/bad and doubtful. The NPA provision was checked and verified by the auditor before finalizing the balance sheet. It is also seen that non performing assets are classified and quantified as per guidelines of RBI by the banks in respect of cases where recovery becomes difficult. Hence, the provision for NPA is integral part of the business of banking wherein such provision more or less corresponds to the bad debts. In the instant case, the auditors have checked this aspect and finalized the balance sheet after claiming the deduction of provision for NPA in the profit and loss account. It is also true that the assessee, being a co-operative 9 bank is eligible to claim deduction of its entire income from the business of banking u/s.80P of the Act. Keeping in view the above facts it could be safely held that there was not a deliberate attempt to claim deduction of provision for NPA. In our view, the claim made by the assessee was bonafide though under the wrong interpretation of the provisions of section 36(iiia) of the Act. In our considered view, mere making of this claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. While taking such view, we are fortified by the decision of the Hon'ble Supreme Court in the case of CIT Vs. Reliance Petroproducts (P) Ltd. (2010) 230 CTR (SC) 320 wherein the Hon'ble Supreme Court held that by any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In that case, the Hon'ble Supreme Court concluded as under:-
"Merely because the assessee claimed deduction of interest expenditure which has not been accepted by the Revenue, penalty under s. 271(1)(c) is not attracted; 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."
The assessee claimed deduction, which was not accepted by the Revenue, penalty under section 271(1)(c) of the Act is not attracted. In the case of Reliance Petroproducts (P) Ltd.(suprra), the Hon'ble Supreme Court conclude that "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." In our considered view, the ratio laid own by the Hon'ble Supreme Court in the case of CIT Vs. Reliance Petroproducts (P) Ltd. (supra), is squarely applicable to the facts of the present case. In the instant case also, wrong claim made by the assessee was held inadmissible.
107. In the case of CIT Vs. The Shahabad Coop. Sugar Mills Ltd. (2011) 322 ITR 73 (P&H), the Hon'ble Punjab and Haryana High Court concluded that the assssee-society engaged in marketing of sugar by its members making of wrong claim under sections 80(2)(d) and 80P cannot be at par with concealment or giving of inaccurate information, which may invoke penalty under section 271(1)(c) of the Act.
8. In the case of CIT Vs. Manibhai & Bros. (2007) 294 ITR 501 (Guj.), the Hon'ble Gujarat High Court held that the CIT(A) and the Tribunal having found that the assessee had no intention to conceal facts when it made incorrect claim of depreciation which was withdrawn by the assessee, penalty under section 271(1)(c) was not leviable for making the wrong claim.
9. In the submissions of the learned D.R. we do not see any merit. In the instant case, the A.O. categorically stated in the penalty order that "The assessee has not discharged its onus that the wrong/inadmissible expenses is a bonafide mistake rather than done intentionally". The case of the A.O. is that the claim made by the assessee was wrong/inadmissible and the claim made by it was intentional. It is not the case of the A.O. that the claim made by the assessee was false. Therefore, the decision relied upon by the learned D.R. of the Hon'ble Delhi High Court in the case of CIT Vs. Escorts Finance Ltd. (supra) is not applicable to the facts of the present case. In our view, the D.R. cannot improve upon the contention and categorical findings of the A.O. As we have already observed hereinabove that the judgment of the Hon'ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. (supra) is squarely applicable to the facts of the present case and in that view also, the decision relied upon by the D.R. is misplaced.
1110. Keeping in view the facts and the circumstances of the present and also the decisions referred to above, i.e. the cases of CIT Vs. Reliance Petroproducts Pvt. Ltd.(SC) (supra) and also CIT Vs. Shahabad Co-op. Sugar Mills (P&H) (supra), we are of the considered opinion that 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. In view of the above, we do not find any infirmity in the order of the CIT(A) and accordingly, we uphold the same.
11. In the result, the appeal is dismissed.
Order pronounced in the Open Court on 22nd June, 2011.
Sd/- Sd/-
(MEHAR SINGH) (H.L. KARWA)
ACCOUNTANT MEMBER. VICE PRESIDENT.
nd
Dated: 22 June, 2011.
KC/-
Copy of the order forwarded to:
(1) The Assessee: The Pathankot Primary Co-op. Agri. Dev. Bank Ltd., Near Super Bazar, Pathankot.
(2) The DCIT, Circle, PTK.
(3) The CIT, Asr.
(4) The CIT(A), Asr.
(5) The Sr.D.R., ITAT, Asr.
True Copy By order
Asstt. Registrar,
Income tax Appellate Tribunal,
Amritsar.