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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI RAM LAL NEGI, JM
O R D E R Per Shamim Yahya, A. M.:
This appeal by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) -2, Mumbai dated 28.01.2015 and pertains to assessment year 2008-09.
The grounds of appeal read as under:
1) In the facts and circumstances of the case and in law, the Assessing Officer erred in levying Penalty u/s271(l)(c) of Rs.86,35,247/-by overlooking the fact that quantum appeal of the Appellant is partly decided by the order of the IT AT in favour of the Appellant for same year. 2) The learned Commissioner of Income Tax(A) erred in confirming the above penalty by overlooking the order of the ITAT.
Brief facts in this case which have led to the levy of penalty u/s.271(1)(c) in this case are as under:
During the course of assessment proceedings, the Assessing Officer observed that the assessee has claimed deduction of Rs. 3,79,05,255/- on account of provision for bad and doubtful debts, allowable u/s. 36 of the Act. The AO further observed that the said claim has been made by the assessee in the computation of income. Although the assessee has not specified the sub-section/clause of the Act under which it has claimed the deduction. The AO was of the opinion that provisions of Sec. 36(1)(viia) of the Act squarely apply. The AO further observed that u/s. 36(1 Xvii) of the Act, deduction is allowed in respect of bad debts actually written off during the year. However, in the case of banking companies in particular scheduled bank, clause (viia) Section 36(1) applies where there can be two deductions, (1) on account of provision for bad debts and (2) on account of bad debts actually written off. In any case, the deduction to such assessee cannot exceed the bad debts actually written off in the books of account The AO further observed that since the assessee has claimed the deduction in its Computation of income and has not debited by way of provision to its profit and loss account, the assessee was asked to justify its claim. Vide letter dt 19.11.2010, the assessee explained that it has made a provision towards standard asset reserve at Rs. 1.25 crores by debiting the same in " P&L account. This was done as per prudential norms prescribed by Reserve Bank of India, However, the AO observed that the provision so debited has, been added back by the assessee in its computation of income.
In these facts, the assessing officer made a disallowance of the sum of Rs.3,79,05,255/- by observing that assessee cannot be allowed to deduction since it had failed to provide the same in their accounts. Subsequently, the ld. Commissioner of Income Tax (Appeals) confirmed the addition.
Upon the assessee's appeal the ITAT granted part relief for a sum of Rs.1.25 crores. The ITAT in the order has concluded as under:
We have considered the rival submissions and perused the orders of the lower authorities and the material evidence brought on record in the form of paper book. The computation of income is exhibited at page-44 and a perusal of this computation show that the assessee has added back standard asset reserve amounting to Rs.1.25 crores to its income. We further find in the same computation of income, the assessee has deducted provision for bad and doubtnil debts allowable u/s. 36(viia) at Rs.3,79,05,255/-. However, a perusal of the statement of accounts of the assessee show that although the assessee has created a provision of Rs.1.25 crores in its books of account but has not created any provision of Rs.3.79 crores. Considering the provisions of Sec. 36(vii) and (viia), no doubt in the case of a banking company, a scheduled bank as in the case of the assessee two deductions are allowed to the assessee, first being provision for bad and doubtful debts at the rate of 7.5% not exceeding 10% of rural debt and second provision for bad and doubtful debt actually written off during the year. The actual provision written off during the year as found from the statement of account is only Rs.1.25 crores, although the same has been added back while computing the income as the assessee wanted to claim Rs.3.79 crores. In our considerate view and in all fairness to the assessee, since the assessee has actually written of Rs.1.25 crores in its books, we direct the A.O. to allow the claim for the provisions of bad and doubtful debts to the extent of Rs.1.25 crores only.
In these facts, the penalty u/s. 271(1)(c) of the Act was levied and confirmed by the ld. Commissioner of Income Tax (Appeals).
7. Against the above order, the assessee is in appeal before us.
We have heard both the counsel and perused the records. The learned counsel of the assessee submitted that addition in this case has solely been made as the amount claimed was not debited in their accounts. He submitted that this cannot be a reason for levy of penalty u/s. 271(1)(c) and submitted that the amount claimed by the assessee was based upon RBI Prudential norms. He submitted that disallowance of the claim of the assessee cannot lead to levy of penalty. In this regard, he placed reliance upon decision of this tribunal in the case of Vasai Vikas Sahakari Bank Ltd. vs. ACIT (in vide order dated 22.03.2018).
The learned departmental representative, on the other hand, supported the order's of authorities below. He submitted that the Hon’ble Supreme Court decision in the case of Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 (SC) is not applicable in this case. He submitted that assessee has not substantiated the amount claimed. Hence, he pleaded that the penalty should be sustained in this case.
Upon careful consideration, we find that the addition in this case has solely been sustained on the ground that assessee has not debited the amount of claim in its accounts. It has only claimed the same in the computation of income. These facts are born out of records. The assessing officer in his order has also made the addition only on account of the lack of provision made in the books of accounts. The ITAT order above clearly delineates the method of provisioning made by the assessee but it has disallowed the portion other than 1.25 crores also only on the ground that the amount has not been debited to the profit and loss account and has only been claimed to computation of income.
In these circumstances, in our considered opinion, the assessee cannot be held to have committed any contumacious conduct so as to warrant levy of penalty. The ratio from the Hon’ble Apex Court decision in the case of Reliance Petroproducts (P.) Ltd. (supra) is clearly applicable. In similar facts this tribunal in the case of Vasai Vikas Sahakari Bank Ltd. (supra) the ITAT has deleted similar addition by holding as under: 4. We have heard the rival contention of both the parties. We find that the assessee has merely failed to provide the provision in bad debt and doubtful debt though the provision is made as per RBI guidelines in the earlier was excess. The assessee has directly claimed the deduction in computation of income instead of providing same in the books for debting in the P & L account as per the provisions of the Act. Therefore, the assessee had neither concealed nor filed any inaccurate particulars of income. the assessee has duly disclosed the facts of income in its return of income filed before the department. Therefore, we are of the view that the issue in controversy is covered by the decision of Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 (SC) Petroproduct (supra) wherein it is held that a mere making claim which is not sustainable in law will not amount to furnishing inaccurate particulars regarding the income of the assessee. such claim made in return cannot amount to inaccurate particular and no penalty u/s. 271(1)(c) can be imposed.
In our considered opinion, the above decision is fully applicable on the facts of the case. The case that assessee has not substantiated the method is clearly rebutted in light of the factual details as above and the same is clearly brought by the ITAT order in assessee's own case. The addition is solely on the basis that the amount has not been debited in accounts but only claimed through computation of income. Hence, there is no furnishing of inaccurate particulars of income nor there is any concealment. Hence, in our considered opinion, in the background of aforesaid discussion and precedent, the assessee cannot be visited with the rigour of penalty u//s. 271(1)(c) of the Act. Hence, we set aside the order's of authorities below and delete the levy of penalty.
In the result, this appeal by the assessee stands allowed.
Order pronounced in the open court on 14.06.2018