THE WARDHA DISTRICT CENTRAL CO-OP. BANK LTD.,WARDHA vs. DCIT/ACIT CIRCLE-3, NAGPUR

The assessee has raised following grounds:–

While perusing the material available on record, we find that this is a case where the learned CIT(A) upheld the penalty levied under section 271(1)(c) of the Income Tax Act, 1961 ("the Act") to the tune of ` 68 lakh on account of disallowance of provision for bad and doubtful debts pertaining to rural Branches of the Bank which are considered to be allowable under section 36(1)(viia) of the Act. The core issue that we need to adjudicate in this appeal is, whether or not the penalty imposed under section 271(1)(c) of the Act was justified on account of disallowances of certain claims made during the course of assessment proceedings and more specifically in this case where the assessee is a District Central Co–operative Bank and the claim is pertaining to the deduction claimed by the assessee under section 36(1)(viia) of the Act. Before us, the learned Authorised Representative for the assessee submitted that the assessee had itself suo–moto claimed certain deduction in view of the provisions of section 36(1)(viia) of the Act which, according to the assessee Bank is a legitimate claim. She vehemently argued that where the disallowance of an incorrect claim is made, no penalty is leviable, particularly when the issue emanates from interpretation of facts as to whether a particular Branch is Rural or Urban. In this regard, we find that the said issue is squarely covered by the judgment of the Hon’ble Supreme Court in CIT v/s Reliance Petroproducts Pvt. Ltd., [2010] 322 ITR 158 (SC), wherein the Hon’ble Supreme Court held that –

Keeping in view the overall facts and circumstances of the case and the arguments put forth by the learned A.R. for the assessee and the learned Departmental Representative, it emerges that the penalty imposed in this case is emanating from the disallowances made during the assessment proceedings pertaining to claim of deductions under section 36(1)(viia) of the Act. The jurisprudence on penalty vis-à-vis disallowance has already been settled in the landmark Judgment of Supreme Court in Reliance Petroproducts Pvt. Ltd. (supra), wherein it has been categorically held by the Hon’ble Supreme Court that no penalty can be levied on mere disallowance particularly when the explanation is bona fide. Consequently, penalty of ` 68 lakh levied by the Assessing Officer and confirmed by the learned CIT(A) is hereby directed to be deleted. Accordingly, the impugned order passed by the learned CIT(A) is hereby set aside by allowing the grounds of appeal raised by the assessee.

In the result, assessee’s appeal stands allowed.