COMMISSIONER OF INCOME TAX-II vs. PATHANKOT PRIMARY CO-OPERATIVE AGRIL DEV BANKD LTD.

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ITA/27/2012HC Punjab & HaryanaPHHC01099349201218 September 2012Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE S.P. BANGARH7 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that no substantial question of law arose in the appeal and dismissed the revenue's appeal. The court relied on the Supreme Court's decision in CIT v. Reliance Petro Products (P) Ltd. (2010) 230 CTR 320 (SC), which held that merely making a claim that is unsustainable in law does not, by itself, amount to furnishing inaccurate particulars regarding the income of the assessee. The ITAT had found that the claim for NPA provision was a bonafide mistake, made under a wrong interpretation of Section 36(viia), and not a deliberate attempt to claim an inadmissible deduction. The court noted that the assessee's income was exempt under Section 80P, and even after disallowing the expense, the balance remained a loss. The Revenue failed to show that the assessee had intentionally not furnished correct particulars. Therefore, the penalty under Section 271(1)(c) was not attracted.

What were the facts?

The Revenue (Commissioner of Income Tax-II, Amritsar) appealed against an order of the Income Tax Appellate Tribunal (ITAT) which upheld the cancellation of a penalty imposed on the assessee, Pathankot Primary Co-operative Agriculture Development Bank Ltd. The assessment year in question is 2006-07. The Assessing Officer (AO) had disallowed an expense of ₹70,66,207 claimed by the assessee for NPA provision under Section 36(viia) of the Income Tax Act, 1961. Consequently, penalty proceedings under Section 271(1)(c) were initiated, and a penalty of ₹22,00,000 was imposed. The Commissioner of Income Tax (Appeals) [CIT(A)] cancelled this penalty, and the ITAT affirmed the CIT(A)'s decision, leading to the present appeal by the Revenue.

What were the issues?

The substantial question of law before the High Court was: Whether, when the assessee has not discharged its onus that the wrong/inadmissible expenditure was a bonafide mistake with no intention of increasing its loss, the Hon'ble ITAT Bench was justified in law and on the facts in holding that mere making of claims, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee? Contentions of the Revenue: The Revenue argued that the quantum addition made by the AO had become final. In such a situation, the cancellation of penalty by the CIT(A) and the ITAT was arbitrary and bad in law. The Revenue contended that the assessee had not discharged its onus to prove that the inadmissible expenditure was a bonafide mistake without intent to increase its loss. Contentions of the Assessee: The judgment does not explicitly record separate contentions for the assessee. However, the reasoning of the CIT(A) and the ITAT, which the High Court upheld, indicates that the assessee argued the claim for NPA provision was made as per RBI guidelines and was a bonafide mistake, not a deliberate attempt to furnish inaccurate particulars. The assessee also relied on the fact that its entire income was exempt under Section 80P.

Which sections of the Income-tax Act were involved?

Section 260A,Section 143(1),Section 143(3),Section 36(viia),Section 271(1)(c),Section 80P

AI-generated summary — verify with the full judgment below

-1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA No. 27 of 2012 (O&M) Date of Decision: 18.9.2012 Commissioner of Income Tax-II, Amritsar ....Appellant. Versus Pathankot Primary Co-operative Agriculture Development Bank Ltd. ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. HON'BLE MR. JUSTICE S.P. BANGARH. PRESENT: Mr. Denesh Goyal, Advocate for the appellant. AJAY KUMAR MITTAL, J.

1.

Delay in refiling the appeal is condoned.

2.

This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 22.6.2011 passed by the Income Tax Appellate Tribunal, Amritsar Bench “A”, Amritsar (hereinafter referred to as “the Tribunal) in ITA No. 372(ASR)/2010, for the assessment year 2006-07, claiming the following substantial question of law:- “Whether on the facts and circumstances of the case, when the assessee has not discharged its onus that the wrong/inadmissible expenditure was a bonafide mistake with no intention of increasing its loss, the -2- Hon'ble ITAT Bench was justified in law and on the facts in holding that mere making of claims, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee?”

3.

Briefly the facts necessary for adjudication of the present appeal as narrated therein are that the assessee filed its return on 31.10.2006 declaring loss of ` 93,31,795/-. The said return was processed under Section 143(1) of the Act on 14.03.2007. The assessment was framed under Section 143(3) of the Act by the Assessing Officer vide order dated 20.10.2008 (Annexure A-2) and the loss was assessed at ` 22,65,588/-. The assessee had claimed expenses of ` 70,66,207/- for NPA provision under Section 36(viia) of the Act. The Assessing Officer made addition of ` 70,66,207/- holding that the assessee was not entitled to the said deduction. Accordingly, the penalty proceedings under Section 271(1)(c) of the Act were initiated for furnishing inaccurate particulars of income and penalty amounting to ` 22 lacs being 100% of tax sought to be evaded was imposed vide order dated 30.4.2009 (Annexure A-1). Against the penalty order dated 30.4.2009 (Annexure A-1), the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”] who vide order dated 11.6.2010 (Annexure A-3) cancelled the penalty of ` 22 lacs levied under Section 271(1)(c) of the Act. Feeling dissatisfied, the revenue filed an appeal before the Tribunal. The Tribunal vide order dated 22.6.2011 (Annexure A-4) upheld the order of the CIT(A) and dismissed the appeal.

-3- Hence, the present appeal by the revenue.

4.

We have heard learned counsel for the revenue.

5.

Learned counsel for the revenue submitted that the quantum addition in the case of the assessee had been made by the Assessing Officer which had become final and in such a situation cancellation of penalty by the CIT(A) as well as by the Tribunal was arbitrary and bad in law.

6.

Examining the legal position, it may be noticed that the Hon'ble Supreme Court in Commissioner of Income Tax v. Reliance Petro Products (P) Ltd. (2010) 230 CTR 320 (SC) had held that mere making of a claim which was ultimately found to be unsustainable may not by itself amount to furnishing of inaccurate particulars regarding the income. The revenue was required to show that the deduction claimed was against the statutory provision. It was recorded as under:- “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 this 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 bring the case, there would be no question of inviting the penalty under section 271(1)(c) of the Act. A mere making of the -4- 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 the inaccurate particulars.”

7.

In the present case, the assessee had claimed expenses of ` 70,66,207/- for NPA provision under Section 36(viia) of the Act in respect of debts which had become substandard/bad and doubtful thought it was not legally admissible. The income of the assessee was exempt under Section 80P of the Act and further the return which was filed was declaring loss and after disallowing the aforesaid expense, the balance still remained negative figure. The CIT(A) while deleting the penalty recorded that there was no intentional furnishing of inaccurate particulars of income in respect of claim of deduction of provision for NPA and it was due to bonafide mistake leading to wrong claim of deduction. The Tribunal while upholding the order of the CIT(A) concluded as under:- “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 cooperative agricultural development bank is explicitly excluded from claiming deduction on account of provisions for NPA. In the instant, the A.O. has categorically stated in the penalty order that the claim made by the assessee was wrong/ -5- 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 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 -6- 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. (supra), the Hon'ble Supreme Court conclude that “A mere making of the claim, which is not sustainable in law, by itself, will not -7- amount to furnishing inaccurate particulars regarding the income of the assessee”. In our considered view, the ratio laid down by the Hon'ble Supreme Court in Sugar Mills Ltd. (2011) 322 ITR 73 (P&H), the Hon'ble Punjab and Haryana High Court concluded that the assessee-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 view of the above findings which have not been shown to be perverse or erroneous in any manner, no question of law arises in the present appeal as the revenue was unable to show that the assessee had intentionally not furnished correct particulars. Accordingly, the present appeal is dismissed. (AJAY KUMAR MITTAL) JUDGE September 18, 2012 (S.P. BANGARH) gbs JUDGE

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