THE TAMILNADU CIRCLE POSTAL COOPERATIVE BANK LTD. (1031),,CHENNAI vs. ACIT, NCC-12(1),, CHENNAI

This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 13, Chennai, dated 21.08.2019 relevant to the assessment year 2008-09 challenging levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 [“Act” in short].

The assessee, a Co-operative Bank has filed its return of income for the assessment year 2008-09 on 30.09.2008 admitting an income of ₹.2,48,81,820/-. The return was processed under section 143(1) of the Act. Notice under section 148 of the Act was issued on 12.10.2011 and served on the assessee on 13.10.2011 after recording the following reason: “It is seen from tile computation statement that tile total income was arrived at after allowing deduction u/s 36(l)(viia) @ 7.5% to tile tune of Rs.20,17,446/-. The assessee- Bank is a Co-Operative Society having employees as its members. It does not have rural branches and hence the advances fall in the nature of urban advances. So the provision under u/s 36(i)(viia) does not applicable to the assessee- Bank ". Notice under section 143(2) of the Act was issued for calling details in support of the deduction claimed under section 36(1)(viia) of the Act. After examining the details furnished by the assessee, the Assessing Officer has observed that the assessee has made provision for Bad & Doubtful Debts only of ₹.95,66,814/- and claimed deduction of ₹.20,17,446/- under section 36(1)(viia) at 7.5 % of gross total income which is not in accordance with the provisions of the Act and accordingly, the Assessing Officer disallowed the claim of ₹. 20,17,466/- and added back to the total income. On appeal, the ld. CIT(A) confirmed the disallowance made by the Assessing Officer. Consequent upon the confirmation of the disallowance, the Assessing Officer initiated penalty proceedings by issuing notice under section 271(1)(c) of the Act and levied penalty of ₹.6,11,292/-. On appeal, the ld. CIT(A) confirmed the penalty levied under section 271(1)(c) of the Act.

On being aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that the findings given in the assessment proceedings cannot constitute conclusive evidence for the purpose of levying penalty. It was further submission that the claim made by the assessee was found to be incorrect could not amount to furnishing of inaccurate particulars or concealment of income and relied on the decision in the case of CIT v. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC) and prayed for deleting the penalty levied under section 271(1)(c) of the Act.

On the other hand, the ld. DR strongly supported the orders of authorities below.

We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including the case law relied upon by the assessee. In the assessment order, the Assessing Officer has observed that the claim of deduction of ₹.20,17,446/- under section 36(1)(viia) of the Act is not in accordance with the provisions of the Act and not found to be correct. Accordingly, the claim of deduction was disallowed and brought to tax, which was confirmed by the ld. CIT(A). In the penalty proceedings, the Assessing Officer has observed that there is a direct attempt to hide income, warranting penalty under the provisions laid out as per section 271(1)(c) of the Act and levied penalty. On appeal against penalty order, the ld. CIT(A) confirmed the penalty levied under section 271(1)(c) of the Act. On perusal of the penalty order, there was no finding of fact of hidden income that was unearthed by the Department, thereby penalty was levied. It is an admitted fact that the merely making a claim, which is not sustainable in law, by itself, will not amount to furnishing of inaccurate particulars of income. By relying upon the decision of the Hon’ble Supreme Court in the case of CIT v. Reliance Petroproducts P. Ltd. (supra), in the case of CIT v. Cholamandalam Investment & Finance Co. Ltd. 364 ITR 680, the Hon’ble Jurisdictional High Court has observed as under: “8. In order to invoke the penalty proceedings under Section 271(1)(c) of the Act, the Revenue should prove that the claim made was not sustainable in law and if the assessee had made a concealment of the particular income. The Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt., Ltd., (SC), reported in [2010] 322 ITR 158, pointed out that in order to expose the assessee to penalty, the Revenue should show that there was contumacious conduct on the part of the assessee in suppressing the income in the return. Further, it was pointed out that in order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By referring to the decisions in the case of Dilip N.Shroff vs. Joint CIT reported in [2007] 291 ITR 519 (SC), and in the case of Union of India vs. Dharmendra Textiles Processors reported in [2008] 306 ITR 277 (SC), the Hon'ble Supreme Court pointed out that the explanation must be preceded by a finding as to how and in what manner the assessee had furnished the particulars of his income and to impose penalty, element of mens rea was essential. Explaining the term "conceal" and "inaccurate", the said decision overruled the decision in the case of Dilip N.Shroff vs. Joint CIT, (supra), as regards the mens rea to be an essential ingredient in the levy of penalty. The Hon'ble Supreme Court held, the words "inaccurate particulars" mean "not accurate", "not exact or correct", "not according to truth" and "erroneous", that the mere making of a claim, which is not sustainable in law, by itself, would not amount to furnishing inaccurate particulars regarding the income of the assessee and that such a claim made in the return cannot amount to furnishing inaccurate particulars. Further, the Hon'ble Supreme Court held as follows:- 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, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the legislature".

The ld. DR could not controvert the judgement of the Hon’ble Supreme Court in the case of CIT v. Reliance Petroproducts P. Ltd. (supra). Respectfully following the judgement of the Hon’ble Supreme Court wherein, it was held that making an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars and the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. Cholamandalam Investment & Finance Co. Ltd. (supra), wherein, it was held that mere making of a claim, which is not sustainable in law, by itself, would not amount to furnishing of inaccurate particulars regarding the income of the assessee and that such a claim made in the return cannot amount to furnishing inaccurate particulars, we set aside the orders of authorities below and delete the penalty levied under section 271(1)(c) of the Act.

In the result, the appeal filed by the assessee is allowed. Order pronounced on 03rd August, 2022 at Chennai.