SUVARNYUG SAHKARI BANK LTD,,PUNE vs. DEPUTY COMMISSIONER OF INCOME TAX,,

आयकर अपीलीय अिधकरण, पुणे �यायपीठ “ए” पुणे म� IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE सु�ी सुषमा चावला, �याियक सद�य एवं �ी डी. क�णाकरा राव, लेखा सद�य के सम� BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO, AM आयकर अपील सं. / ITA Nos.11 & 12/PUN/2017 िनधा�रण वष� / Assessment Years : 2008-09 & 2010-11 Suvarnyug Sahkari Bank Ltd., 1102/10/11 Marne Heights, Budhwar Peth, Pune-411002. अपीलाथ�/Appellant PAN : AACAS4805L …. Vs. DCIT, Circle-6, …. ��यथ� / Respondent Pune. Assessee by : Shri Vijay D. Khende Revenue by : Shri Rajesh Gawali सुनवाई क� तारीख / घोषणा क� तारीख / Date of Hearing : 09.04.2019 Date of Pronouncement: 07.06.2019 आदेश / ORDER PER D. KARUNAKARA RAO, AM : Both the appeals are filed by the assessee against the separate orders of CIT(A)-4, Pune dated 22.06.2016 and 09.09.2016 for the Assessment Years 2008-09 and 2010-11 respectively. Preliminary Issue - Condonation of Delay 2. Before us, at the outset, ld. Counsel for the assessee submitted that the appeal in ITA No.11/PUN/2017 for the assessment year 2008-09 could not be filed in time and the said appeal is now filed with the delay of 87 days. In this regard, ld. Counsel for the assessee filed an affidavit explaining the reasons for non-filing the appeal of the assessee in time. For

2 ITA Nos.11 & 12/PUN/2017 the sake of completeness, the relevant paras of the said affidavit are extracted hereunder :- “1) The order u/s 250 of CIT Appeal IV, Pune in respect of the said assessee is received on 08/08/2016 and hence the appeal for due for submission on or before 07/10/2016. 2) The appeal is being submitted on 2nd January, 2017 and thus there is a delay of about 87 days. 3) There were multiple appeals pending before the CIT appeals for A.Y. 2008-09, A.Y. 2010-11 and A.Y. 2011-12 and due to these multiple appeals the bank has lost the track and even though order for A.Y. 2008-09 is received, it was overlooked and kept aside and the bank has realized that the appeal against this order required to be filed only on 20th of December, 2016 and the procedural time thereafter has caused total delay in submitting the appeal of about 87 days. 4) The delay is accidental and without any malafide intention.” 3. The delay of 87 days cannot be considered an extra-ordinary delay. Further, single AR attending to the multiple appeals before the First Appellate Authority can result in the said delay. Considering the above reasons given by the assessee in the affidavit, we find it is a fit case for condoning the delay. Therefore, we condone the delay and proceed to adjudicate the appeal of the assessee in the following paragraphs. ITA No.11/PUN/2017 (A.Y. 2008-09) 4. The grounds raised by the assessee are as under :- “1. The learned CIT Appeal IV Pune has aid in law as well as in facts while confirming the order of assessing officer Dy. CIT Circle 6 levying penalty u/s 271(1)(c) upon the assessee to the extent of 100% of tax sought to be evaded on Rs.1450000/- on account of sustained addition of Rs.1450000/- to the taxable income of the assessee being the said amount claimed as deduction on account of inter branch and interbank adjustment as bad debts which is in fact the actual loss to the assessee which the assessee genuinely believe that the same is deductible from the taxable income of the assessee. 2. The assessee craves the right to add, alter, modify, annual or all together cancel any of the aforesaid grounds of appeal.” The assessee also raised the following additional ground :- 5.

3 ITA Nos.11 & 12/PUN/2017 “1. The learned Assessing Officer has erred in law as well as in facts while initiating the penalty u/s 271(1)(c) against the assessee appellant without recording the satisfaction note specifying whether the assessee appellant has concealed the particulars of income or furnished inaccurate particulars of income and the notice issued also does not specify the specific charge against the assessee for which the penalty is being initiated and since the notice is defective the levy of penalty u/s 271(1)(c) is bad in law and hence and requires to be deleted.” 6. Briefly stated the relevant facts include that the assessee is a co- operative society engaged in banking activities. The assessee filed the return of income declaring total income of Rs.4,55,50,220/-. At the end of the assessment proceedings u/s 143(3) of the Act, the Assessing Officer made certain additions under the various heads and added the same to the total income of the assessee. Further, the Assessing Officer initiated the penalty proceedings stating that “Penalty proceedings u/s 271(1)(c) of the Act are initiated separately for concealing income and furnishing inaccurate particulars of income” (para 03.1 and 04.1 of the assessment order). 7. In the penalty order, the Assessing Officer clearly stated that the levy of penalty for the default of furnishing inaccurate particulars (para 11 of the penalty order). 8. The CIT(A), relying on the decision of the Pune Bench of the Tribunal in the case of ITO vs. Talwalkar Bhaleroa & Mate in ITA No.1247/PN/2014 and the judgement of the Hon’ble Supreme Court in the case of CIT vs. Reliance Petro Products Pvt. Ltd., 322 ITR 158, upheld the penalty levied by the Assessing Officer. The contents of para 6 onwards of the appellate order are relevant in this regard.

4 ITA Nos.11 & 12/PUN/2017 9. Aggrieved with the said decision of the CIT(A), the assessee is in appeal before the Tribunal with the above extracted grounds/additional ground. 10. According to the ld. AR, the order of the CIT(A) shall have to be set- aside on the legal issue. Highlighting the legal requirement of making a specific reference to the specific limb of clause (c) of section 271(1) of the Act and relying on various binding judgments in the case CIT Vs. Shri Samson Perinchery (2017) 392 ITR 4 (Bom.) as well as the judgment of Hon’ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton and Ginning Factory 359 ITR 565, Ld. Counsel demonstrated that the penalty levied by the Assessing Officer is unsustainable in law and the same is wrongly upheld by the CIT(A). 11. On the other hand, ld. DR for the Revenue heavily relied on the orders of the authorities below. 12. We heard both the parties on this legal issue and also perused the material available on record. We find that this is a case where the Assessing Officer failed to record proper satisfaction while initiating and levying the penalty u/s 271(1)(c) of the Act. In this regard, we pursed the orders of the Revenue authorities. On perusal of para 03.1 and 04.1 of the assessment order relating to the penalty in respect of addition u/s 36(1)(vii) of the Act, we find the following is the reasons given at two different paragraphs for initiation of penalty proceedings :- “03.1 .......... Penalty proceeding u/s 271(1)(c) of the Act are initiated separately for concealing income and furnishing inaccurate particulars of income. ...........

5 ITA Nos.11 & 12/PUN/2017 04.1 ........... Penalty proceeding u/s 271(1)(c) of the Act are initiated separately for concealing income and furnishing inaccurate particulars of income.” 13. Further, we also perused the penalty order passed by the Assessing Officer on 18.03.2014. On perusal of para 11 of the penalty order, we find the following is the reasons for levy of penalty u/s 271(1)(c) of the Act :- “11 .......... “Hence, penalty u/s. 271(1)(c) read with explanation 1 of the Act, which is being 100% of the tax sought to be evaded is levied on assessee company at Rs.4,48,049/-.” 14. The above extracts reveal that the Assessing Officer suffers from ambiguity in his mind while recording the satisfaction at the time of initiation of penalty proceedings u/s 271(1)(c) of the Act. While a specific limb/charge is absent at the time of initiation of the penalty in the assessment order, the Assessing Officer brought in the charge of Explanation 1 of section 271(1)(c) of the Act while levying the penalty. 15. Considering the above, we are of the opinion that the legal requirement of making a clear cut reference to the applicable limb of clause (c) of section 271(1) of the Act, is not met by the Assessing Officer while initiating and levying the penalty u/s 271(1)(c) of the Act. Thus, the satisfaction of the Assessing Officer suffers from ambiguity in his mind. 16. Therefore, considering the above referred binding judgments, we are of the view that such penalty is unsustainable in law legally. It is a settled legal proposition that the Assessing Officer is under obligation to specify the appropriate limb of clause (c) of section 271(1) of the Act at the time of initiation as well as at the time of levy of penalty. In view of the above

6 ITA Nos.11 & 12/PUN/2017 deliberation on this issue, without going into the merits of the case, we set- aside the order of the CIT(A) and direct the Assessing Officer to delete the entire penalty imposed by him. Accordingly, the additional ground raised by the assessee is allowed on legal issue. The ground raised on merits of penalty stand dismissed as academic. 17. In the result, the appeal of the assessee is partly allowed. ITA No.12/PUN/2017 (A.Y. 2010-11) 18. The only issue raised by the assessee in this appeal relates to the disallowance of expenditure u/s 14A of the I.T. Act, 1961 r.w. Rule 8D of the I.T. Rules, 1962. 19. Briefly stated the relevant facts include that the assessee filed the return of income declaring total income of Rs.3,77,78,940/-. During the year under consideration, the Assessing Officer made an addition of Rs.4,62,84,400/- u/s 143(3) of the Act. The Assessing Officer further made another addition on account of disallowance of expenditure u/s 14A of the Act r.w. Rule 8D of the Rules amounting to Rs.32,17,426/-. The Assessing Officer quantified the sum of Rs.32,17,426/- under clause (iii) of Rule 8D(2) of the Rules for disallowance applying the set formula at the rate of 0.5% of investments of Rs.64.32 crores (rounded off). The assessee claimed the expenditure which was incurred for earning of such exempt income of Rs.1,02,704/- is never to the tune of Rs.32,17,426/-. So much is not required and not required at all. The Assessing Officer rejected the said explanation of the assessee and mechanically relying on the said formula,

7 ITA Nos.11 & 12/PUN/2017 the CIT(A) also confirmed the views of the Assessing Officer as per the discussion given in para 6.2.5 of the appellate order of the CIT(A). The CIT(A) relied heavily on the decision of the Special Bench of the ITAT Delhi in the case of Cheminvest vs. ITO, 124 TTJ 577 (SB). For the sake of completeness, the said para 6.2.5 of the order of the CIT(A) is extracted hereunder :- “6.2.5 In view of the discussion in the preceding paragraphs 6.2 to 6.2.5 supra, it is held that Assessing Officer correctly applied Rule 8D for disallowing expenditure in relation to tax free income under the provisions of Sec.14A. Ground of appeal Nos.2 & 3 fail. Accordingly, these grounds are dismissed.” 20. Aggrieved with the same, the assessee is in appeal before the Tribunal. 21. At the outset, ld. Counsel for the assessee brought our attention to page no.1 of the Paper Book giving the computation of disallowance to be made u/s 14A of the Act r.w. Rule 8D of the Rules and mentioned that the disallowance sum at the rate of 0.5% of the investments works out only Rs.1525/-. According to him, the average value of investments is Rs.3,05,000/- and not Rs.64.35 crores as erroneously quantified by the Assessing Officer. Ld. AR could not justify before us the Assessing Officer’s action. 22. The ld. DR for the Revenue, on the other hand, relied heavily on the orders of the Assessing Officer and the CIT(A). 23. We heard both the sides on this issue of disallowance made under clause (iii) of Rule 8D(2) of the Rules. There is no dispute on the fact that the exempt income is only Rs.1,02,704/- and the disallowance made by the

8 ITA Nos.11 & 12/PUN/2017 Assessing Officer is Rs.32,17,426/-. The encashment of the dividend warrants is only activity which requires certain expenditure connected with the earning of the exempt income in this case. Considering the same, we are of the opinion, the assessee’s computation of Rs.1525/- is fair and reasonable and the same should be confirmed. Accordingly, we direct the Assessing Officer to restrict the disallowance of Rs.1525/- only. Consequently, the ground raised by the assessee is partly allowed. 24. In the result, the appeal of the assessee is partly allowed. 25. To sum up, both the appeals of the assessee are disposed off as above. Order pronounced on 07th day of June, 2019. Sd/- Sd/- (SUSHMA CHOWLA) (D. KARUNAKARA RAO) �ाियक सद� / JUDICIAL MEMBER लेखा सद� / ACCOUNTANT MEMBER पुणे / Pune; �दनांक Dated : 07th June, 2019. Sujeet आदेश क� �ितिलिप अ�ेिषत/Copy of the Order is forwarded to : अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. 3. The CIT(A)-4, Pune; 4. The Pr. CCIT, Pune; िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “ए” / DR ‘A’, 5. ITAT, Pune; गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, स�यािपत �ित //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune