THE TIRUCHIRAPALLI DISTRICT CENTRAL CO-OP. BANK LTD.,TRICHY vs. ACIT, CIRCLE-1(1), TRICHY

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ITA 1104/CHNY/2026Status: DisposedITAT Chennai17 July 2026AY 2010-117 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that a mere disallowance of a claim, even if ultimately inadmissible, does not amount to furnishing inaccurate particulars or concealment of income. The levy of penalty under Section 271(1)(c) was found unsustainable as the assessee had disclosed all primary facts and the dispute was on legal interpretation.

What were the facts?

The assessee, a cooperative bank, claimed deductions under Section 36(1)(viia) and exemption based on the principle of mutuality. The Assessing Officer made additions, and subsequently levied penalty under Section 271(1)(c) for furnishing inaccurate particulars. The CIT(A) confirmed the penalty ex-parte.

What were the issues?

Whether penalty under Section 271(1)(c) is leviable for disallowance of deduction under Section 36(1)(viia) and for claiming exemption based on the principle of mutuality when all facts were disclosed.

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, ‘A’ BENCH: CHENNAI

Before: SHRI ABY T. VARKEY & MS. PADMAVATHY.S

For Respondent: Ms. R.Anita, CIT

आदेश / O R D E R

PER PADMAVATHY.S, A.M: These appeals by the assessee are against the separate orders of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, (in short "CIT(A)") passed u/s. 250 of the Income Tax Act, 1961 (in short "the Act") for Assessment Years (AYs) 2010-11 to 2012-13. The appeals are emanating from the penalty order passed u/s.271(1)(c) of the Assessing Officer (A.O)

ITA Nos.1104, 1105 & 1106/Chny/2026 Thiruchirappalli District Central Co-op. Bank Ltd. :- 2 -:

ITA No.1104/Chny/2026 – AY 2010-11: 2. The facts pertaining to AY 2010-11 which is considered as the lead case is stated hereunder. The assessee is a cooperative bank headquartered in Tiruchi and having 58 branches across Tiruchirapalli, Karur and Ariyalur Districts. The assessee filed a return of income for AY 2010-11 on 21.09.2010 declaring Nil income. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The A.O completed the assessment assessing income at Rs.43,20,79,075/-. Aggrieved, the assessee filed further appeal before the CIT(A). The CIT(A) gave partial relief to the assessee. The A.O subsequently initiated penalty proceedings towards the additions sustained by the CIT(A) towards disallowance u/s. 36(1)(viia) of the Act and also towards the net assessable income claimed as exempt by the assessee based on principle of mutuality. Accordingly, the A.O passed the order u/s. 271(1)(c) of the Act levying of penalty of Rs. 4,67,98,089/-. Aggrieved, the assessee filed further appeal before the CIT(A). The CIT(A) confirmed the penalty ex-parte for the reason that the assessee did not furnish any details nor respond to the notices issued by the CIT(A). The assessee is in appeal before the Tribunal against the order of the CIT(A).

3.

The Ld. Authorized Representative (AR) of the assessee submitted that the assessee has made a claim towards deduction u/s. 36(1) (viia) of the Act towards provision for bad and doubtful debts on the bonafide belief that the same is allowable under the Act. The Ld. AR further submitted that the net assessable income is claimed as exempt on the principle of mutuality which is a recognized common law doctorine independent of section 80P of the Act. The Ld. AR also submitted that all the particulars pertaining to the impugned claims made by the assessee has been disclosed in the computation and

ITA Nos.1104, 1105 & 1106/Chny/2026 Thiruchirappalli District Central Co-op. Bank Ltd. :- 3 -:

nothing therein is found to be false or fabricated. Accordingly, the Ld. AR argued that it cannot be held that the assessee has furnished inaccurate particulars warranting penalty u/s. 271(1)(c) of the Act. It is submitted that a legal position taken bonafide and litigated year after year is the very antithesis of furnishing inaccurate particulars and whether mutuality applies to cooperative banks remains a debatable question thereby negating the presumption.

4.

The Ld. Departmental Representative (DR), on the other hand, made a details submission on the merits of the allowability deduction u/s. 36(1)(viia) of the Act which has been taken on record. The Ld. DR Submitted that the assessee without making a provision in the books of accounts towards bad and doubtful debts has made claim of deduction u/s. 36(1)(viia) of the Act whereby it is clear that the assessee has furnished inaccurate particulars warranting levy of penalty u/s. 271(1)(c) of the Act. It was submitted that the assessee had accepted the addition made on account of the claim of exemption based on the principle of mutuality and, therefore, the penalty on that issue was rightly levied. The ld DR placed reliance on various judicial precedence in this regard.

5.

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 and the income claimed as not taxable on the principle of mutuality. With regard to levy of penalty towards disallowance of deduction u/s.36(1)(viia), 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 Nos.1104, 1105 & 1106/Chny/2026 Thiruchirappalli District Central Co-op. Bank Ltd. :- 4 -:

“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. 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

ITA Nos.1104, 1105 & 1106/Chny/2026 Thiruchirappalli District Central Co-op. Bank Ltd. :- 5 -:

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.”

6.

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.

ITA Nos.1104, 1105 & 1106/Chny/2026 Thiruchirappalli District Central Co-op. Bank Ltd. :- 6 -:

7.

Further the AO has also levied the penalty on the ground that the assessee wrongly claimed exemption of its income based on the principle of mutuality. It is an undisputed fact that the assessee had disclosed the entire income in the return and has made a bonafide claim on the basis of a legal contention. Further there is no finding by the A.O. that any material fact was concealed or that any of the particulars furnished by the assessee were false or inaccurate towards the impugned claim and that the dispute is purely with regard to the legal sustainability of the claim. In this regard it is relevant to consider the decision of the Hon'ble Supreme Court in the case of Reliance Petroproducts (P.) Ltd (supra) where it is held that mere rejection of a legal claim does not amount to furnishing inaccurate particulars of income so as to attract penalty under section 271(1)(c). In the present case, the Revenue has merely rejected the assessee's claim of exemption on the principle of mutuality without demonstrating any concealment of income or furnishing of inaccurate particulars. Therefore, the essential conditions for levy of penalty under section 271(1)(c) are not satisfied. We, accordingly, direct the A.O to delete the penalty levied on this issue.

ITA No.1105 & 1106/Chny/2026 – AY 2011-12 & 2012-13:

8.

From the perusal of the records, we notice that the A.O has levied penalty for AY 2011-12 & 2012-13 as per details given below: Assessment Disallowance u/s. Penalty levied Year 36(1)(viia) @ 100% of tax 2011-12 Rs. 29,50,84,411/- Rs. 9,10,28,642/- 2012-13 Rs. 35,71,31,525/- Rs. 11,02,01,202/-

9.

We have while deciding the issue of levy of penalty u/s. 271(1)(c) of the Act towards disallowance made u/s. 36(1)(viia) of the Act for AY 2010-

ITA Nos.1104, 1105 & 1106/Chny/2026 Thiruchirappalli District Central Co-op. Bank Ltd. :- 7 -:

11 has held that a claim disallowed by the Revenue cannot be held to be filing of inaccurate particulars by the assessee and accordingly deleted the penalty. For he years under consideration from the above table, it is clear that the levy of penalty for the years under consideration is only based on the disallowance made u/s. 36(1)(viia) of the Act. Therefore, in our considered view, our decision in AY 2010-11 is mutatis mutandis is applicable to the years under consideration also. Accordingly, we direct the A.O to delete the penalty u/s.271(1)(c) levied towards disallowance of deduction u/s.36(1)(viia) for AY 2011-12 & 2012-13 also.

10.

In the result, the appeals of the assessee in ITA Nos.1104, 1105 & 1106/Chny/2026 are allowed.

Order pronounced on 17th day of July, 2026 at Chennai.

Sd/- Sd/- (एबी टी. वक�) (पदमावती यस) (ABY. T. Varkey) (Padmavathy.S) लेखा सद�य सद�य सद�य /Accountant Member सद�य लेखा लेखा लेखा �याियक �याियक सद�य �याियक �याियक सद�य सद�य / Judicial Member सद�य चे�नई/Chennai, �दनांक/Dated: 17th July, 2026. EDN, Sr. P.S आदेश क� �ितिल�प अ�े�षत/Copy to: Digitally signed by EJTADA DURGA EJTADA DURGA NARESH 1. अपीलाथ�/Appellant NARESH Date: 2026.07.21 17:36:22 +05'30' 2. ��थ�/Respondent 3. आयकर आयु�/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF

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