SHRI MAHALAXMI CO-OP. BANK LTD.,,KOLHAPUR vs. ASSISTANT COMMISSIONER OF INCOME-TAX,,

The assessee has raised the following ground of appeal:- 1. On the facts and in the circumstances of the case and in law the Learned Assessing Officer has erred in confirming the penalty u/s 271(1)(c) for sum of Rs.33,24,510/- by disregarding appellant’s contention that appellant has made bonafide claim of provision, required to be made u/s 36(1)(viia) of the Income Tax Act, 1961, and the disallowance of such claim is highly debatable issue and therefore no penalty is leviable.

The issue raised in the present appeal is against levy of penalty under section 271(1)(c) of the Act.

Briefly, in the facts of the case, the assessee had furnished return of income declaring total income of ₹ 1,17,59,060/-. The case of assessee was picked up for scrutiny. The Assessing Officer noted that the assessee had claimed deduction of ₹ 58 lakhs in the Profit and Loss Account for provision for bad and doubtful debts for rural branches. However, as per computation of income, the assessee had claimed deduction at ₹ 1,65,58,930/- under section 36(1)(viia) of the Act for provision for bad and doubtful debts for rural branches. The Assessing Officer noted that the assessee had claimed excess deduction in the computation of income as compared to the Profit and Loss Account at ₹ 1,07,58,930/-. The assessee was show caused as to why this excess deduction in computation of income should not be disallowed. After noting down the provisions of the Act and CBDT’s Instruction No.17/2008, dated 26.11.2008, the Assessing Officer held that the assessee was entitled to claim the deduction on account of provision for bad and doubtful debts only to the extent of amount actually created in the books of account i.e. ₹ 58 lakhs. Consequently, excess sum of ₹ 1,07,58,930/- was disallowed and added back in the hands of assessee. The Assessing Officer also initiated penalty proceedings under section 271(1)(c) of the Act.

The second issue which was raised during the course of assessment proceedings was the disallowance to be made on account of accrued interest on Non Performing Assets (NPAs). The Assessing Officer was of the view that the income not recognized by assessee following RBI guidelines would not cover the position under the Income Tax Act and held that the said income was

The CIT(A) upheld levy of penalty on the additions made on account of disallowance for provision of bad and doubtful debts, rejecting the plea of assessee that whether the said deduction is to be allowed or not was a debatable issue. In respect of second issue of disallowance made for non inclusion of interest accrued on NPAs, the CIT(A) noted that the Tribunal had allowed the claim of assessee and directed the Assessing Officer to delete the aforesaid addition. Consequently, the levy of penalty in respect of said addition was not called for and the Assessing Officer was directed to delete the same.

The assessee is in appeal against penalty levied under section 271(1)(c) of the Act with regard to disallowance on account of provision made for bad and doubtful debts.

The learned Authorized Representative for the assessee in this regard pointed out that the issue on merits was not allowed by the Tribunal. However,

The learned Departmental Representative for the Revenue placed reliance on the orders of authorities below.

We have heard the rival contentions and perused the record. The limited issue which arises in the present appeal is against levy of penalty for concealment of income under section 271(1)(c) of the Act. The perusal of assessment order while finalizing the addition in the hands of assessee reflects that the Assessing Officer has failed to come to a finding as to which limb of section 271(1)(c) of the Act has not been fulfilled. The Assessing Officer only records satisfaction that penalty proceedings under section 271(1)(c) of the Act are to be initiated. In the absence of Assessing Officer coming to proper satisfaction of which limb has not been fulfilled, the order passed by Assessing Officer levying penalty again without coming to any conclusion as to which limb of section 271(1)(c) of the Act is applicable, suffers from infirmity in view of the ratio laid down by the Hon’ble Bombay High Court in CIT Vs. Shri Samson Perinchery in Income Tax Appeal No.1154 of 2014 with other Income Tax Appeals Nos.953 of 2014, 1097 of 2014 and 1226 of 2014, judgment dated 05.01.2017.

Now, coming to the linked issue that the addition in the present case has been made on account of disallowance of provision made for bad and doubtful debts, wherein in the Profit and Loss Account provision was made at a lesser figure, whereas in the Income & Expenditure Account, it was claimed at higher figure. The said issue admittedly, has been decided by the Tribunal against assessee and hence the penalty. However, the assessee is in appeal before the Hon’ble Bombay High Court and the question of law on the said issue has been admitted. The assessee has furnished interim orders of the Hon’ble Bombay High Court, wherein the said question of law has been admitted both for assessment year 2008-09 and also for the year under appeal i.e. assessment year 2010-11.

Another issue which was raised by Assessing Officer and penalty was also levied by him was the addition on account of accrued interest on NPAs. The said issue has been decided in favour of assessee but the Revenue has filed an appeal before the Hon’ble Bombay High Court and the question of law raised by Revenue has been admitted.

In such scenario, where substantial question of law has been admitted, the issue which has been raised, can the imposition of penalty be justified? In this regard, we find support from the ratio laid down by the Hon’ble Bombay High Court in CIT Vs. M/s. Nayan Builders and Developers (supra), wherein it was observed that against the decision of Tribunal, assessee’s appeal in quantum proceedings had been admitted and substantial question of law has been framed therein, then there was no justification on imposition of penalty for concealment and the appeal of assessee was allowed.

Further, the Hon’ble Bombay High Court in another decision in CIT Vs. M/s. Advaita Estate Development Pvt. Ltd. (supra) on similar issue had held that proposition of question of law against deletion of penalty must under section 271(1)(c) of the Act by the Tribunal does not arose and hence, appeal of Revenue was dismissed, following earlier decision in the case of CIT Vs. M/s. Nayan Builders & Developers (supra).

Applying the said proposition to the issue before us, we hold that since the issue on merits though decided against assessee but where the Hon’ble Bombay High Court has admitted substantial question of law on the issue, then,

In the result, appeal of assessee is allowed.