M/S. NARMADA MALWA GRAMIN BANK,INDORE vs. THE ACIT-3(1), INDORE

PER MANISH BORAD, A.M: These cross appeals filed by the Revenue and assessee pertaining to A.Y. 2008-09 are directed against the order of Ld.

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Commissioner of Income Tax(Appeals)-I, Indore, (in short ‘CIT(A)’), vide appeal No. IT-132/15-16 order dated 30.10.2015 which is arising out of the order u/s 271(1)(c) of the Income Tax Act 1961(hereinafter called as the ‘Act’) framed on 27.03.2015 by ACIT- 3(1), Indore. 2. Briefly stated facts as culled out on the records are that the assessment u/s 143(3) of the Act completed in the case of assessee on 21.12.2010. Ld. AO assessed income at Rs.16,95,85,380/-, after making various disallowance and adding them to the loss of Rs.19,54,00,058/- declared by the assessee in its return of income filed on 29.09.2008. Ld. AO while completing the assessment majorly made disallowance for depreciation at Rs.23,83,676/- and disallowance u/s 36(1)(vii)(a) for the claim of provision made for bad and doubtful debts at Rs.36,19,25,521/-. 3. Subsequently, penalty proceedings were initiated u/s 271(1)(c) and ld. AO imposed the penalty of Rs. 12,10,00,000/-, on the alleged disallowance for depreciation as well as provision for bad and doubtful debts. 4. Aggrieved the assessee filed an appeal before the ld. CIT(A) and partly succeeded as Ld. CIT(A) deleted the penalty except for the penalty levied on disallowance of depreciation. 5. Aggrieved now both the assessee and Revenue are in appeal before the Tribunal.

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First we take up Revenues appeal In ITANO. 81/Ind/2016 The Revenue has raised following grounds of appeal: “Whether on the facts and in the circumstances of the case the CIT(A) was justified in Law in directing to delete the Penalty levied on the addition made u/s. 36(1)(viia) of Rs.36,19,25,521/- whereas the same grounds of addition u/s. 36(1)(viia) was confirmed earlier by the Hon'ble I.T.A.T.”

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gist of the appellant’s submission is that the claim was made with a bonafide intention on interpretation of law on the basis of the judgment of the Bangalore Tribunal in the case of Syndicate Bank and also on the basis of remark of the Supreme Court in the case of Southern Technologies Ltd. Since the claim has been made on the legal interpretation of the statute no penalty can be levied u/s 271(1)(c). Appellant also cited the following judgments in support of the above claim. i. Cement marketing Co. v/s ACST 124 15 (Hon'ble Supreme Court) ii. CIT vs Reliance petrochemicals 322 ITR 158 iii. CIT vs. SPK Steels 270 ITR 156 (MP) iv. CIT vs. Harshwardhan Chemicals 259 ITR 212 (Raj) v. CIT vs. HM Udhyog 159 Taxmann 394 vi. CIT vs. Kevin Process Technologies 40 Taxmann.com 249 (Guj) vii. CIT vs. Pathankur Primary Co-op. Bank 40 Taxmann.com 283(Pun) viii. ACIT vs. Indore Premier Cooperative Bank in ITA No.71/2015 dated 06.10.2015 5.5 From the record it is seen that the claim of the appellant u/s 36(1)(vii(a) was disallowed following the line of argument taken in the appellant's own case for A.Y. 2007-08 wherein identical claim was made by the appellant by way of a revised return filed on the same grounds that the claim was in pursuance of the judgment of the ITAT Bangalore in the case of Syndicate Bank. It is also pertinent to note that the basic reason for denying the claim for both years was that the appellant was not a scheduled. bank. However that does not hold valid now in view of the fact that the ITAT for A.Y. 2007- 4

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08 vide its order dated 29/03/2012 in ITA No. l62/Ind/20l1 and ITA No.152/Ind./201l held that the appellant was a scheduled bank and was thus eligible for deduction u/ s 36(1)(vii(a). The second ground on which the claim was disallowed was that the claim was made without making a provision in the books of accounts as required by the provisions of section 36(1)(vii)(a). On this point the ITAT for A.Y. 2007-08 upheld the finding of the AO and the CIT(A) that the claim of deduction cannot be in excess of the provision created in the books of accounts and after observing that such provision has been created by the appellant restored the matter back to the file of the AO for re-computing the deduction after verification. 5.6 Against this order of ITAT for the A.Y. 2007-08 the appellant has filed appeal before the High Court wherein the following substantial question of law has been raised by the appellant. "Whether deduction under section 36(1) (li) (a) of the income tax Act is allowable on the basis of the amount claimed in the return to the extent of the maximum limits prescribed in section 36 (1)(vii)(a) (a) irrespective of the actual provision made in the books of account and without any condition of actual writing of off that provision in the books of account of the appellant- Bank?" The above appeal of the appellant has been admitted by the High Court 5.7 For the A.Y. 2008-09 however the

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contention of the appellant was that the claim of deduction was made even though no provision was created in view of the judgment of the ITAT Bangalore in the case of Syndicate bank. On perusal of the said judgment it is seen that the following observation have been made in Para 20 of the said judgment. "The learned commissioner has also acted under the misconception that deduction under clause (vii a) is related to the actual amount of provision made by the assessee for bad and doubtful debts. The true meaning of the clause, as indicated earlier, is that once a provision for bad and doubtful debts is made by a scheduled bank having rural branches, the assessee is entitled to a deduction which is quantified not with respect to the amount provided for in the accounts but with respect to a certain percentage of the total income and also a certain percentage of the aggregate average advances made by the rural braches of the bank. In other words, this is a specific deduction given by the statute irrespective of the quantum provided by the assessee in its accounts towards provision for bad and doubtful debts." 5.8 From the above it is thus seen that the claim made by the appellant was based on a view taken by the ITAT Bangalore and was therefore based on a legal interpretation of the provisions of section 36(1)(viia). Such view was also being followed in other cases as is evident from the fact that before the Karnataka High 6

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Court in the case of CIT (LTU) Bangalore Vs. Vijaya Bank Bangalore the following substantial question of law was raised by the department 5.9 whether the appellant authority were correct in holding that the deduction claimed u/ s 36 (1) of the Act towards provision for bad and doubt debts in excess of provision made in the account to the extent of Rs. 163440553 without making a provision in the accounts as per the section is allowable deduction? 5.10 The High court in its order in ITA No. 1066 of 2008 dated 21.10.2014 has decided the above substantial question of law by observing as under: "The Punjab and Haryana High court had an occasion to consider this provision in the case of state bank Of Patiala vs commissioner of income tax and another 272 ITR 54 where it was held as under “ a bare perusal of the above shows that the deduction allowable under the above provision is in respect of the provision made . Therefore making of the provision for bad and doubt debt equal to the amount mentioned in this section is a must for claiming such deduction .... we are therefore satisfied that the tribunal was right ' in holding that since the assessee had made a provision of Rs. 11936000 for bad and doubtful debts its claim for deduction u/s 36(1)(viia) of the act had to be restricted to that amount only. Since the language of the statue is clear and is not capable of any other interpretation we are satisfied that no substantial 7

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question of law arises in this appeal." We are in respectful agreement with the aforesaid view expressed by the Punjab and Haryana high court. 5.11 From the above it can thus be inferred that the view taken by the appellant was not a frivolous contention or an interpretation arrived at by the appellant itself without any basis or without any precedence for the same. It is also not the case that facts material to the claim were suppressed or that these were not furnished or that the facts were found to be incorrect. It has not been disputed that from the very beginning the appellant has contended that the claim of deduction is made even though no equivalent provision has been made in the books of accounts for the year. The above facts may be seen In the light of the decision of the Supreme Court in the case of CIT v / s Reliance Petroproducts (P) Ltd. 322 ITR 158 wherein the Court has held as under: "A glance of provision of section 271 (l)(c ) would s:.lggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The instant case was not the case of concealment of the income. That was not the case of the revenue either. It was an admitted position in the instant case that no information given in the return was found to be incorrect or inaccurate. It was not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima' facie, the 8

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assessee could not be held guilty of furnishing inaccurate particulars. The revenue argued that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. Such cannot be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case IS strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars. [Para 7......... Merely because the assessee had claimed the expenditure which claim was not accepted or was not acceptable to the revenue that by itself would not attract the penalty under section 271(1)(c)." 5.12 Same view has been taken by the ITAT Indore wherein on similar facts regarding the claim of deduction ix] s 36(1)(viia) cancellation of penalty was upheld in the case of ACIT v / s Indore Premier Cooperative Bank in ITA No. 71/2015 dated 06.10.2015. 5.13 In view of the above discussion the levy of penalty u/s 271(1)(c) on the first issue that is the claim of deduction u/s 36(1)(viia) of The Act cannot be upheld. The penalty levied on the amount of Rs. 361925521 / - is therefore directed to be deleted.

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u/s 36(1)(viia) of the Act. The assessee made the claim relying on said judgment, however by no cannon it is proved that the assessee furnished inaccurate particulars of income or concealed the particulars of income. We, therefore, restrain ourselves in making any interference in the finding of the Ld. CIT(A), deleting the penalty levied u/s 271(1)(c) of the Act for the disallowance of deduction u/s 36(1)(viia) of the Act of Rs.36,19,25,521/-. 10. In the result, appeal of the Revenue is dismissed.

Now we take assessee’s appeal in ITA No.95/Ind/2016 The assessee has raised following grounds of appeal: 1. The Ld. CIT(A) has erred in confirming the penalty on account of disallowance of depreciation claimed at Rs.23,83,676/-. 2. The Ld. CIT(A) has not looked into the fact that the depreciation has already been directed to be allowed after verification by the Ld. CIT(A) in the quantum order and as such no penalty should have been sustained on this ground. 3.The Levy of penalty maintained by the Ld. CIT(A) is unjustified and hence be deleted.

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disallow depreciation on only those items which are delivered on 31.03.2008 and allow depreciation on all other items which are delivered and installed earlier, after due verification. This ground of appeal is therefore partly allowed.

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Sd/- Sd/- (KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore; �दनांक Dated : 04 / 05/2018 ctàxÄ? P.S/.�न.स. Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order Private Secretary/DDO, Indore