COMMISSIONER OF INCOME TAX vs. M/S. THE CUDDALORE DISTRICT

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TCA/434/2016HC Madras10 July 2025Bench: Honourable The CHIEF JUSTICE5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the issue was squarely covered by the judgment of the Bombay High Court in Principal Commissioner of Income Tax v. ICICI Bank Ltd. The Court agreed with the ITAT's view that the provisions of Section 271(1)(c) were not attracted. The reasoning was that the assessee had made a bona fide claim linked to business profit. A mere variance in the deductions allowable due to a change in the determination of business profit cannot be construed as furnishing inaccurate particulars of income or concealing income. The Court cited the Apex Court's decision in Commissioner of Income Tax Vs. Reliance Petro Products Pvt Ltd., stating that if the Revenue's contention were accepted, every return where a claim is not accepted by the Assessing Officer would invite penalty. A claim made in the return, even if not sustainable in law, by itself does not amount to furnishing inaccurate particulars. The question of law was answered in favour of the assessee. The appeals were dismissed.

What were the facts?

The appeals were filed by the Commissioner of Income Tax, Pondicherry (Revenue) against the common order dated 29.05.2015 passed by the Income Tax Appellate Tribunal (Tribunal). The Tribunal had decided appeals in favour of the assessee, M/s. The Cuddalore District Central Co-operative Bank Ltd. The appeals to the High Court were admitted on 21.09.2016. The core of the dispute revolves around the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961, concerning deductions claimed by the assessee, which the Revenue contended were not applicable to co-operative banks.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the penalty under Section 271(1)(c) cannot be levied on the assessee, even though the assessee had claimed deductions under Section 36(1)(viia) among others which were not applicable to co-operative banks. Assessee's Contention: The judgment does not record specific arguments made by the assessee before the High Court. However, it refers to the Tribunal's view that the assessee made a bona fide claim under Section 36(1)(viii) (though the issue framed mentions 36(1)(viia)) linked to business profit, and a mere variance in allowable deductions due to profit determination does not amount to furnishing inaccurate particulars or concealment. The assessee relied on the Supreme Court decision in Commissioner of Income Tax Vs. Reliance Petro Products Pvt Ltd. Revenue's Contention: The Revenue argued that the assessee claimed deductions that were not applicable to co-operative banks. The Revenue contended that even if income was offered and deductions were not claimed in the original return, claiming such deductions later during assessment proceedings, which were found to be not applicable, would attract penalty under Section 271(1)(c).

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 36(1)(viia),Section 36(1)(viii),Section 260A

AI-generated summary — verify with the full judgment below

T.C.A.Nos.434 & 435 of 2016

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 10.07.2025 CORAM : THE HON'BLE MR.K.R.SHRIRAM, CHIEF JUSTICE AND THE HON'BLE MR.JUSTICE SUNDER MOHAN T.C.A.Nos.434 & 435 of 2016 & C.M.P.No.9110 of 2016 Commissioner of Income Tax Appellant in Pondicherry .. both TCAs. Vs. M/s. The Cuddalore District Central Co-operative Bank Ltd. Bench Road Cuddalore 607 001. Respondent in PAN: AAAAT0209P .. both TCAs. Prayer : Appeals under Section 260A of the Income Tax Act, 1961 against the common order dated 29.05.2015 passed in ITA Nos.2805 & 2806/Mds/2014 on the file of the Income Tax Appellate Tribunal, C Bench, Chennai. __________ Page 1 of 5 https://www.mhc.tn.gov.in/judis ( Uploaded on: 11/07/2025 09:21:08 pm ) T.C.A.Nos.434 & 435 of 2016

For Appellant : Dr.S.Sathiyanarayanan Senior Standing Counsel For Respondent : Mr.Varun Ranganathan For Mr.Ravi Kannan JUDGMENT (Judgment of the Court was delivered by the Hon'ble Chief Justice) On 21.09.2016, the Court was pleased to admit the appeals. The following substantial question of law was framed in both the appeals: “Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the penalty under Section 271(1)(c) cannot be levied on the assessee, even though the assessee had claimed deductions under Section 36(1)(viia) among others which were not applicable to co-operative banks.” 2. In our view, as submitted by Shri.Sathiyanarayanan, the issue is squarely covered by the judgment of the Bombay High Court in Principal Commissioner of Income Tax v. ICICI Bank Ltd.1, to which, one of us was a Member (K.R.Shriram, CJ). It will be useful to re-produce paragraphs 3 and 4 of the said judgment, which read as under: 1 [2024] 161 taxmann.com 454 (Bom.) __________ Page 2 of 5 https://www.mhc.tn.gov.in/judis ( Uploaded on: 11/07/2025 09:21:08 pm ) T.C.A.Nos.434 & 435 of 2016

“3. Assessee challenged the assessment order before the Commissioner of Income Tax (Appeals) (CIT(A)) and thereafter before the ITAT. When assessee's appeal was pending before the ITAT, the AO issued a notice to assessee under Section 271(1)(c) of the Act and the allegation was the additions made in the assessment order were a result of furnishing of inaccurate particulars of income or concealment of income by assessee. Assessee's objections were rejected and the AO passed an order imposing penalty of Rs.48,86,23,673/- under Section 271(1)(c) of the Act. In the appeal filed by assessee, the CIT(A) deleted the penalty imposed by the AO. The Department challenged that order of CIT(A) before the ITAT and the ITAT upheld that finding of the CIT(A). 4. It is the case of revenue that in the return of income, assessee did not claim certain deductions, during the course of assessment proceedings. Assessee claimed such deductions and thereby has furnished inaccurate particulars of income. It is department's case that only because assessee has offered income and not claimed deductions in the return of income would not absolve assessee from the liability of Section 271(1)(c) of the Act. The ITAT, in our view, correctly held that provisions of Section 271(1)(c) of the Act are not attracted. The ITAT was of the view and rightly so that assessee had made a bona fide claim under Section 36(1)(viii) as such deductions claimed is linked to the business profit. Only because there was variance in the deductions allowable due to change in determination of business profit, it cannot be said that assessee has furnished inaccurate particulars of income or concealed inaccurate particulars of income. As held by the Apex Court in Commissioner of Income Tax Vs. Reliance Petro Products Pvt Ltd. [[2010] 189 Taxmann 322/322 ITR 158 (SC)] if we accept the contention of revenue, then in case of every return where the claim sum is not accepted by the AO for any reason, assessee will invite penalty under Section 271(1)(c) of the Act. 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 assessee, such claim made in the return cannot amount to be inaccurate particulars.” __________ Page 3 of 5 https://www.mhc.tn.gov.in/judis ( Uploaded on: 11/07/2025 09:21:08 pm ) T.C.A.Nos.434 & 435 of 2016

3.

In the circumstances, the question of law is answered in favour of the assessee. Appeals are dismissed. There shall be no order as to costs. Consequently, the interim application is also dismissed. (K.R.SHRIRAM, CJ) (SUNDER MOHAN,J.)

10.07.2025 Index : Yes/No Neutral Citation : Yes/No kpl To 1. The Assistant Registrar Income Tax Appellate Tribunal Chennai Benches, Chennai. 2. The Commissioner of Income Tax (Appeals) - VI Chennai. 3. The Assistant Commissioner of Income Tax Circle I Pondicherry. __________ Page 4 of 5 https://www.mhc.tn.gov.in/judis ( Uploaded on: 11/07/2025 09:21:08 pm ) T.C.A.Nos.434 & 435 of 2016

THE HON'BLE CHIEF JUSTICE AND SUNDER MOHAN

,J.

(kpl)

T.C.A.Nos.434 & 435 of 2016

10.07.2025 __________ Page 5 of 5 https://www.mhc.tn.gov.in/judis ( Uploaded on: 11/07/2025 09:21:08 pm )

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