THE DY. COMMR. OF INCOME TAX, CIR.-2,, JAMNAGAR vs. THE JAMNAGAR DISTRICT CO. OP. BANK LTD.,, JAMNAGAR

Briefly stated, the assessee is a Primary Cooperative Agricultural Society with its main object being advance of loans to farmers for agriculture. For the AY 2011-12 in consideration, the assessee inter alia claimed deduction of Rs.3,39,69,786/- as deduction under s.36(1)(viia) of the Act being an amount to the extent of profits available during the year. The AO restricted the claim of deduction to Rs.2,38,96,000/- as written off in the P&L account and rejected the remaining claim of deduction to the extent of Rs.1,00,73,786/-. The AO also invoked the provision of Section 271(1)(c) of the Act on such partial denial of deduction and imposed penalty quantified at Rs.31,59,030/- vide order dated 21.09.2015.

Aggrieved by the imposition of penalty, the assessee preferred appeal before the CIT(A). The assessee made detailed submission before the CIT(A) with which the CIT(A) concurred and granted relief from the levy of penalty to the assessee. The relevant paras of the order of the CIT(A) is reproduced hereunder:

The Appellant would further like to submit that as per the above provision penalty can be levied if the assesses provide inaccurate details or concealed income and mere disallowance of claim would not amount to furnishing of inaccurate particulars of claim and will not attracts the penalty provisions.

The appellant would like to further submit that claim to the extent of available profit in hooks of accounts and in earlier year this practice was followed consistently. In the year under consideration we claimed deduction of Rs. 3,39,69,786/- to the extent of available profit and within permissible limit of deduction u/s 36(1)(viia) read with rule 6ABA. However CIT(A) has restricted deduction to the extent of provision made in profit and loss account i.e. 2,38,96,000/-. This is mere different interpretation of law and disallowance but our claim was permissible and has basis for claim of Rs 3,39,69,786/- which assessing office failed to observe.

The appellant would like to further submit that in our case we have show the figures in the Profit and Loss accounts as well as in the Return of income and there will be no inaccurate particulars of income and the same is disallowed due to the different Interpretation adopted only and moreover in the following cases interpretation as adopted by us is also accepted so the same will not amount to non discloser of information because the same is only the debatable issue for which the law required to be decided.

We would also like to rely on the following decisions of the Honorable Courts in which the interpretation adopted by us is accepted in the case of Syndicate Bank reported in 78 ITD 103 the Honourable Tribunal held that irrespective of the Debit to the profit and loss account on account of provision for bad and doubtful debts, an assessee is entitled to 10% of Average Advances as deduction u/s 36(1)(viia) of the Act, The relevant Observation of the aforesaid decision was as fallows :

We would also like to rely on the decision of the Vijaya Bank, Bangalore vs. Department of Income Tax by the Honourable Tribunal ITA 578/Bang/2012 that Excess deduction made in the return of income than actual claimed made in the books of accounts are allowable.

The appellant would further like to submit that we have not hide any details or furnished the inaccurate

The appellant would further like to submit that the issue is highly debatable and even interpretation adopted by the Appellant have been accepted in some of the case by the Honorable Benches of Tribunal surf High Court and hence the same is not the furnishing of in accurate particulars but the Misinterpretation of the Particular Clause.

The Hon. apex Court in the case of CIT Vs. Reliance Petro Products Pvt. Ltd. (2010) 322 1TR 158 (SC) has held that "merely because the Assesses, has claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, attract penalty u/s 271(1)(c). By any stretch of imagination, mining as incorrect claim in law cannot tantamount to furnishing inaccurate particualrs.

Moreover the Honorable Tribunal In appellant own case for the A.Y. 2009-10 deleted the penalty on the ground that the case is covered by the CIT Vs. Reliance Peto Products Pvt Ltd wherein held that “ merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that bty itself would not, in our opinion, attract the penalty under section 271(1)(c), if we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c). This is clearly not the intendment of Legislature.” Respectfully following the Decision of the Honorable Apex Court in case of in case of CIT Vs. Reliance Petro products PVT. Ltd. (supra) and in the facts of the case, that the assessee has disclosed material facts on the issue of its claim of deduction at the time of filling of return itself, and conduct of the assesses being bonafide, and the issue of deduction being legal and highly debatable in nature, for which two view are possible, I hold that it is not a fit case for the issue of penalty levied under section 271(1)(c) is decided in favor of the assessee, against the revenue, and accordingly, I agree with the proposed order of the Ld. JM on the issue of cancellation of penalty under

Reliance is placed in the matter decided by Supreme court CIT V. Skyline Ante Products (p) Ltd. (2004) 271 ITR 335 : (2005), that mere omission from the return of an item of receipt does neither amounts to concealment nor deliberate furnishing of inaccurate particulars of income unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon.

Reliance is placed on the above Delhi High Court in the case of CIT V. Valimkbhai H Patel (2006) held that if the explanation given by the Petitioner was bonafide, penalty u/s 271(1)( C) will not be attracted.

The petitioner would like to submit that in the lights of following facts and circumstances of the case, the Ld. AO is totally wrong, unjust and missing the proper verification of documents and records produced in confirming the Impugned Assessment Order.

In view of the facts and circumstances of the case and by considering the legal provision and even the Honorable Tribunal of different jurisdiction accepted the Interpretation adopted by the Appellant then the same would not amount to furnishing of the inaccurate particulars which call for a penalty u/s 271(1)(C) of the Act.

The Ld. AO has passed the biased order which is not based on the provisions of the Act but only on the surmise conjectures and suspicious to hit the petitioner which can be depicts from the above discussion also and in these case when the biased mind set involve lacks the principles of natural justice arid equity.

In these type of situation and circumstance, The petitioner request you honor kindly act objectively and mitigate the hardship and undue harassment to the petitioner. We request you honor to kindly consider the case in the lights of facts and circumstances of the case and set aside the Impugned assessment order in total and delete the addition made to the returned income,

I have duly considered the submission of the appellant and also gone through the discussion made in the penalty order. I am of the considered view that the case is not fit for levy of penalty u/s.271(1)(c) because the appellant has neither concealed its income nor has furnished any inaccurate particulars of income. Hence, penalty levied is hereby cancelled.”

Aggrieved by the deletion of penalty by the CIT(A), the Revenue is in appeal before the Tribunal.

The learned DR for the Revenue supported the penalty action of the AO and contended that the claim of deduction at larger amount under s.36(1)(viia) of the Act was made in contradiction to the statutory provisions of the Act. The learned DR submitted that the claim of Rs.3,39,69,786/- has no statutory basis whereas the figure of Rs.2,38,96,000/- as bad and doubtful debts and reserve accepted by the AO under s.36(1)(viia) of the Act is based on statutory tax audit report furnished by the assessee. The learned DR thus submitted that the excess claim made by the assessee in defiance of law would necessarily invite civil liability in the form of penalty under s. 271(1)(c) of the Act

The learned AR for the assessee, on the other hand, justified its action of higher claim deduction under s.36(1)(viia) of the Act. It was contended that the assessee is entitled to 10% of average advances as deduction irrespective of book claim in the P&L account towards provision for bad and doubtful debts. For this assertion, the assessee relied upon the decision of ITAT in the case of Syndicate Bank

We have carefully considered the rival submissions. The controversy before us is whether AO was justified in imposing penalty under s. 271(1)(c) of the Act on account of reduction of eligible claim of bad and doubtful debts under s.36(1)(viia) of the Act. We find that identical issue arose in assessee’s own case concerning AY 2009-10 before the ITAT. The penalty was deleted by the co-ordinate bench in the similarly placed facts which order was approved by the Hon’ble Gujarat High Court. The action of the assessee being bonafide and the issue being debatable, the larger claim of deduction per se cannot be bracketed in the league of ‘concealment of particulars of income’ or ‘furnishing inaccurate particulars of income’. It is not in dispute that all the relevant facts were on record to enable the AO to formulate the opinion on the issue. This being so, there was no justification to invoke the provision of Section 271(1)(c) of the Act in the facts of the case. The CIT(A) in our view has rightly concluded the issue in favour of the assessee and against the Revenue notwithstanding the

In the result, the appeal of the Revenue is dismissed.