JOINT COMMISSIONER OF INCOME TAX (OSD), CIRCLE-1, TIRUCHIRAPALLI vs. THE TIRUCHIRAPALLI DISTRICT CENTRAL CO-OPERATIVE BANK LIMITED, TIRUCHIRAPALLI

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ITA 2307/CHNY/2026Status: DisposedITAT Chennai08 September 202612 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the disallowance of deduction was due to a difference in interpretation of statutory conditions and not due to concealment or furnishing of inaccurate particulars. Therefore, the penalty under Section 271(1)(c) was unsustainable.

What were the facts?

The Revenue appealed against the deletion of penalty levied under Section 271(1)(c) by the CIT(A). The penalty was imposed due to disallowance of deduction claimed under Section 36(1)(viia) for provision for bad and doubtful debts, as the assessee had not created the specific provision in its books.

What were the issues?

Whether a penalty under Section 271(1)(c) can be levied when a deduction is disallowed due to a difference in interpretation of law, rather than furnishing of inaccurate particulars.

Which sections of the Income-tax Act were involved?

Section 36(1)(viia),Section 271(1)(c)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI

Before: SHRI GEORGE GEORGE K & SHRI GAGAN GOYAL

Hearing: 27.08.2026Pronounced: 08.09.2026

आदेश/ O R D E R PER GEORGE GEORGE K, VICE PRESIDENT: This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 10.02.2026 passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2009-10.

ITA No.2307/CHNY/2026 - 2 - The Tiruchirappali Dist. Co-Op Bank Ltd. 2. The grounds raised by the Department read as follows:- (1) The order of the Ld. CIT(A) is opposed to law on the facts and in the circumstances of the case. (2) The Ld. CIT(A) erred by deleting the penalty levied u/s 271(1)(c) by relying that the deduction u/s 36(1)(viia) was originally allowed in the Assessment order dated 31.12.2011, since this issue was set-aside by Hon'ble ITAT for fresh consideration. (3) The Ld.CIT(A) erred by relying on the issue of section 36(1)(viia) in the assessment order dated 31.12.2011 which was set-aside by Hon'ble ITAT leading to legal violation. (4) The Ld.CIT(A) failed to appreciate the fact that in the case of CIT Vs Reliance Petro Products P. Ltd. (322 ITR 158), the disallowance was made solely on account of different view taken on the same set of facts which is not so in the instant case and hence the decision relied on by Ld. CIT(A) does not apply to the case of the assessee. (5) For these and such other grounds that may be adduced at the time of hearing and it is prayed that the order of the Ld. CIT(A) may be reversed and that of the Assessing Officer be restored.

3.

Brief facts of the case are as follows: The assessee is a District Central Co-operative Bank with its head office at Tiruchirappalli and branches spread over Tiruchirappalli, Karur and Ariyalur Districts. The assessee is engaged in the business of banking. For the assessment year 2009-10, return of income was filed on 27.09.2009 declaring ‘nil’ income. The assessment was completed u/s.143(3) of the Act vide order dated 31.12.2011 determining total income at Rs.30,86,41,426/-. The assessee bank preferred an appeal before the CIT(A), which was rejected. On further appeal before the Tribunal, the assessee challenged the following additions:-

ITA No.2307/CHNY/2026 - 3 - The Tiruchirappali Dist. Co-Op Bank Ltd. a) Disallowance of provision for bad and doubtful debts i.e., the claim of aggregate rural advances under Section 36(1)(viia) amounting to Rs.7,12,33,313/- b) Disallowance of ex-gratia payment to employees not covered by Payment of Bonus Act amounting to Rs.24,63,280/- c) Addition under Gratuity Fund amounting to Rs.1,40,60,607/-

4.

The Tribunal vide its order dated 03.03.2017 in ITA No.832, 833 & 834/Mds/2013 deleted the addition with reference to items (b) and (c) mentioned above. As regards the disallowance of bad and doubtful debts, the Tribunal restored the matter to the AO. The Tribunal directed the AO to follow its directions given in assessee’s own case for assessment year 2007-08.

5.

Consequent to the Tribunal’s direction, the AO reworked the eligible deduction u/s.36(1)(viia) of the Act of Rs.7,10,48,568/- as detailed below:- a) Deduction under Section 36(1)(viia) @ 7.5% of Gross Total Income: Rs.2,83,05,859/- b) Deduction under Section 36(1)(viia) @ 10% of average aggregate rural advances: Rs.4,27,42,709/- Total eligible deduction: Rs.7,10,48,568/-

However, the AO held that for claiming deduction under clause (a) of section 36(1)(vii) of the Act, the assessee bank was required to make provision for bad and doubtful debts in its books of accounts. The AO

ITA No.2307/CHNY/2026 - 4 - The Tiruchirappali Dist. Co-Op Bank Ltd. on verification held that the assessee has not made any specific provision for bad and doubtful debts as required u/s.36(1)(viia) of the Act and hence, not entitled to deduction u/s.36(1)(viia) of the Act. The explanation of the assessee that provision for NPA (non- performing assets) was created and claimed as deduction u/s.36(1)(viia) of the Act, was rejected by the AO. As a result, the deduction which was allowed in the original assessment of Rs.7,12,33,312/- was also disallowed in the order passed u/s.143(3) r.w.s 254 of the Act on 30.11.2017.

6.

During the course of assessment proceedings, the AO was of the view that assessee had furnished inaccurate particulars of income resulting in escapement of income and accordingly, initiated penalty proceedings u/s.271(1)(c) of the Act vide notice dated 30.11.2017. After affording reasonable opportunity of hearing to the assessee, the AO imposed penalty of Rs.1,95,65,690/- vide order dated 31.05.2018 being 100% of the tax sought to be evaded.

7.

Aggrieved by the AO’s order imposing penalty u/s.271(1)(c) of the Act, the assessee filed an appeal before the First Appellate Authority (FAA). Before the FAA, assessee raised a contention that

ITA No.2307/CHNY/2026 - 5 - The Tiruchirappali Dist. Co-Op Bank Ltd. penalty order is barred by limitation and also grounds on merits. On merits it was contended before the FAA that assessee had claimed deduction u/s.36(1)(viia) of the Act towards provision for bad and doubtful debts created in accordance with RBI guidelines and that all relevant particulars were duly furnished. The claim was originally allowed in the assessment u/s.143(3) of the Act, but was subsequently disallowed u/s.143(3) r.w.s.254 of the Act on the same set of facts. It was contended that the provision for NPA, though so named in the accounts, was in substance a provision for bad and doubtful debts and that mere nomenclature could not disentitle the assessee from the deduction. Reliance was placed on various decisions of the Tribunal, including ITAT, Delhi Bench in DCIT v. Sarva UP Gramin Bank in ITA No.2096/Del/2017 (order dated 24.02.2020) and ITAT, Chennai Bench in Tamil Nadu State Apex Co- operative Bank Ltd. v. ACIT in ITA No.948/Mds/2013 (order dated 21.01.2024), Vellore Dist. Central Co-operative Bank Ltd. v. CIT inITA No.914/Mds/2013 (17.07.2013). It was further submitted that the AO had not established that the particulars furnished by the assessee were false or inaccurate and that the disallowance arose merely due to a difference of opinion. Relying on the decision of Hon’ble Madras High Court in Gopalratnam Santha Mosur v. ITO reported in (2017)

ITA No.2307/CHNY/2026 - 6 - The Tiruchirappali Dist. Co-Op Bank Ltd. 399 ITR 155 (Mad), the assessee contended that a bona fide claim, even if disallowed, would not amount to concealment or furnishing of inaccurate particulars. Accordingly, the penalty u/s.271(1)(c) of the Act was pleaded to be deleted.

8.

The FAA did not adjudicate the issue whether penalty order passed by the AO is barred by limitation or not. On merits, the FAA deleted the penalty, observing that the disallowance of deduction u/s.36(1)(viia) of the Act was based on a difference of opinion regarding interpretation of law and did not amount to furnishing inaccurate particulars. The FAA noted that the claim had originally been allowed by the AO in the assessment order dated 31.12.2011 and that all relevant particulars had been duly furnished by the assessee. The subsequent disallowance was made only while giving effect to the directions of the Tribunal. The FAA further observed that the decision in CIT v. Atul Mohan Bindal relied upon by the AO did not support the levy of penalty, as the essential conditions of concealment or furnishing of inaccurate particulars were absent in the present case. Relying, inter alia, on the decision of the Hon’ble Supreme Court in CIT v. Reliance Petroproducts Pvt. Ltd., reported in (2010) 322 ITR 0158 (SC), the FAA held that a bonafide claim,

ITA No.2307/CHNY/2026 - 7 - The Tiruchirappali Dist. Co-Op Bank Ltd. merely because it was disallowed, would not attract penalty u/s.271(1)(c) of the Act. Accordingly, the penalty levied by the AO was held to be unjustified and deleted.

9.

Aggrieved by the order of FAA, the Revenue has filed the present appeal before the Tribunal. The Ld.DR contended that the FAA erred in deleting the penalty by relying upon the fact that the deduction u/s.36(1)(viia) of the Act was originally allowed in the assessment order dated 31.12.2011, since the said issue had subsequently been set aside by the Tribunal for fresh consideration. Therefore, reliance on the original assessment order was misplaced. The Ld. DR further contended that the decision of the Hon’ble Supreme Court in Reliance Petroproducts Pvt. Ltd. (supra) relied upon by the FAA was distinguishable, as the disallowance in that case was purely on account of a different view on the same set of facts, whereas the facts of the present case were different. Accordingly, the DR supported the levy of penalty u/s.271(1)(c) of the Act and prayed for restoration of the AO’s order.

10.

The Ld.AR on the other hand submitted that the issue in question, on identical facts is squarely covered in favour of the assessee by the

ITA No.2307/CHNY/2026 - 8 - The Tiruchirappali Dist. Co-Op Bank Ltd. order of the Tribunal in assessee’s own case for the assessment year 2008-09, wherein the Tribunal had deleted the penalty imposed u/s.271(1)(c) of the Act

11.

We have heard rival submissions and perused the material on record. On identical facts, the Tribunal in assessee’s own case for the assessment year 2008-09 in ITA No.748/Chny/2019 (order dated 17.07.2016) had deleted the penalty imposed u/s.271(1)(c) of the Act. The Tribunal held that the disallowance of claim u/s.36(1)(viia) of the Act arises on account of interpretation of statutory conditions governing the deduction and not on account of any concealment of income or furnishing inaccurate particulars of income. It was further held by the Tribunal that assessee has disclosed all the primary facts relating to the claim and disallowance was made only because of deduction which was held to be inadmissible to the extent of required provision was not created in the books of accounts. The relevant finding of the Tribunal in assessee’s own case for assessment year 2008-09 reads as follows:- “24. The assessee in the present appeal has contended the levy of penalty u/s.271(1)(c) towards disallowance made u/s.36(1)(viia) of the Act. In this regard we notice that the Pune Bench of the Tribunal in the case of DCIT vs The Karad Janata Sahakari Bank Ltd., (ITA No.919/PUN/2023 dated 24.04.2024) while considering an identical issue has held that –

ITA No.2307/CHNY/2026 - 9 - The Tiruchirappali Dist. Co-Op Bank Ltd. “9. We have heard learned counsels from both the sides & perused the material available on record. We find that during the year under consideration i.e. in assessment year 2008-09 under section 143(3) proceedings the AO disallowed excess expenditure of Rs 2,08,09,305/- claimed u/s 36(i)(viia) of the IT Act for which provision was not made in the books of account. The disallowance of expenditure was confirmed by CIT(A) as well as by this Tribunal. On the basis of this disallowance the then AO proceeded to impose penalty of Rs.62,39,793/- u/s 271(1)(c) of the IT Act. In first appeal relying on the judgement of Hon’ble Apex Court in the case of CIT vs Reliance Petro products pvt Ltd- 322 ITR 158 SC, the CIT (A) deleted the penalty imposed u/s 271(1)(c) of the I.T. Act. 10. We find in assessee’s own case for Asstt. year 2009-10 similar penalty u/s 271(1)(c) was deleted by the CIT (A) & the same order was confirmed by Co-ordinate Bench of this Tribunal in ITA No. 2600/PUN/2017 by observing as under : “9. We heard the rival submissions and perused the material on record. The issue in the present appeal relates to the levy of penalty u/s 271(1)(c) of the Act. The Assessing Officer disallowed the excess claim of deduction u/s 36(1)(viia) on the ground that the assessee had not created the requisite provision and levied penalty u/s 271(1)(c) by holding that the respondent-assessee is guilty of furnishing of inaccurate particulars of income. On perusal of the assessment order, it will clearly suggest that, it is a case of mere disallowance of excess claim for want of creation of requisite provision which, in our considered opinion, does not tantamount to furnishing inaccurate particulars of income, nor can it be said that it is false claim. Therefore, the ratio of decision of the Hon’ble Apex Court in the case of Reliance Petro Products Pvt. Ltd. (supra) is squarely applicable to the facts of the present case. Further, on mere perusal of the assessment order as well as the penalty order, we do not find any finding of the Assessing Officer as to how in what manner the assessee had furnished inaccurate particulars of income leading to the subject addition to the returned income. In the absence of this finding, the order of penalty cannot be sustained in the eyes of law as held by the following catena of decisions :- i) CIT Vs. Balbir Singh (2008) 304 ITR 125. ii) National Textiles Vs. CIT (2001) 249 ITR 124. iii) Nainu Mal Het Chand Vs. CIT (2007) 294 ITR 185. iv) CIT Vs. Super Metal Re-Rollers Pvt. Ltd. (2004) 265 ITR 82. v) Diwas Enterprise Vs. CIT (2000) 246 ITR 571 Delhi. vi) CIT Vs. Shivnarayan Jamnalal & Co., (1998) 232 ITR 311. vii) CIT Vs. T. Abdul Majeed (1998) 232 ITR 50.

ITA No.2307/CHNY/2026 - 10 - The Tiruchirappali Dist. Co-Op Bank Ltd.

10.

Therefore, we do not find any fallacy and illegality in the order of the ld. CIT(A) deleting the penalty of Rs.59,00,884/- u/s 271(1)(c) of the Act. Thus, the issue raised in the grounds of appeal stands dismissed.” 11. Since the facts of the instant case are identical to the facts of the case already decided by the Tribunal in assessee’s own case for A.Y. 2009-10, therefore, we find no infirmity in the order passed by the ld. CIT(A) in deleting the penalty of Rs.62,39,793/- u/s 271(1)(c) of the Act . The ld. DR also could not brought anything new in support of the case of the Revenue. Therefore, respectfully following the decision passed by the Co-ordinate Bench of this Tribunal in ITA No 2600/PUN/2017 order dated 18-01-2022 in assessee’s own case, we uphold the order passed by the CIT(A) & dismiss the appeal filed by the revenue. Thus, the issue raised by the revenue in the grounds of appeal is dismissed.”

25.

From the perusal of the orders of the lower authorities we notice that the disallowance under section 36(1)(viia) arises on account of the interpretation and application of the statutory conditions governing the deduction and not on account of any concealment of income or furnishing of inaccurate particulars by the assessee. We further notice that the assessee has disclosed all primary facts relating to the claim and the disallowance was made only because the deduction was held to be inadmissible to the extent the requisite provision was not created in the books of account. In our considered view a claim, though ultimately disallowed, cannot be regarded as a false claim or as furnishing inaccurate particulars of income and a mere disallowance of a claim does not ipso facto attract penalty under section 271(1)(c). In the absence of any material to establish that the assessee has furnished any inaccurate particulars, a claim which according to the revenue is incorrectly made by the assessee cannot result in levy of penalty under section 271(1)(c) of the Act. Therefore respectfully following the ratio laid down by the judicial precedence we hold that the levy of penalty under section 271(1)(c) is unsustainable and is directed to be deleted.”

12.

In the instant case, the facts are identical and the claim of deduction u/s.36(1)(viia) of the Act has been denied only for the reason, required provision was not created in the books of accounts.

ITA No.2307/CHNY/2026 - 11 - The Tiruchirappali Dist. Co-Op Bank Ltd. The assessee for the relevant assessment year had disclosed all the primary facts relating to the claim. Therefore, there was no concealment of income or furnishing inaccurate particulars of income. The disallowance of claim in the instant case was only on account of interpretation / understanding of the statutory conditions governing the deduction and disallowance of claim in the facts of the instant case cannot be regarded as false claim or furnishing inaccurate particulars of income warranting imposing of penalty u/s.271(1)(c) of the Act. Therefore, we see no reason to interfere with the order of FAA and we uphold the same as correct and in accordance with law. It is ordered accordingly.

13.

In the result, the appeal filed by the Revenue is dismissed.

Order pronounced in the open court on 8th September,2026 at Chennai.

Sd/- Sd/- (जॉज� जॉज� के) (गगन गोयल) (GAGAN GOYAL) (GEORGE GEORGE K) लेखा सद�य/ACCOUNTANT MEMBER उपा�य� /VICE PRESIDENT चे�नई/Chennai, �दनांक/Dated, the 8th September, 2026 RSR, Sr.PS

ITA No.2307/CHNY/2026 - 12 - The Tiruchirappali Dist. Co-Op Bank Ltd. आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त /CIT, Madurai 4. �वभागीय ��त�न�ध/DR 5. गाड� फाईल/GF. By Order REKHA Digitally signed by REKHA SENTHIL RAJ SENTHIL Date: 2026.09.10 RAJ 11:07:57 +05'30'

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