DISTRICT CO- OPERATIVE BANK LTD.,DEHRADUN vs. DCIT, DEHRADUN

Brief facts of the case are that assessee is a cooperative bank engaged in the business of banking. For impugned assessment year it furnished its return of income showing Nil Income. In the return of income it claimed deduction u/s 80 P of the Income Tax act of Rs 3,36,68,582/-. The assessee company was eligible for deduction u/s 80 P up to AY 2006-07 but due to amendment wef 1-4-2007 subsection 4 was introduced u/s 80 P of the act which restricted the deduction only to Primary Agricultural Credit society and Primary cooperative Agricultural and Rural Development bank, therefore apparently assessee was not eligible for deduction u/s 80 P of the act for impugned assessment year. Hence, AO issued show cause notice on 3.11.2009 to the assessee for disallowance of deduction u/s 80 P and in turn assessee withdrew the claim of the deduction u/s 80 P and furnished revised statement of income. Thereafter AO passed assessment order u/s 143(3) of the act at income of Rs 3,36,68,580/- on 24.11.2009.

While passing assessment order AO initiated penalty proceedings u/s 271(1) (c) of the act. In response to the penalty notice assessee submitted before AO that :- a. The Deduction was available to the assessee up to A Y 2006-07 and therefore this year assessee was under impression about the availability of this deduction but on coming to know about the correct position of law it withdrew the deduction claimed. Therefore there was a bona fide error on part o the assessee for which penalty may not be levied. b. Penalty proceedings have been initiated validly as there is no finding or satisfaction has been recorded in order of section 143(3) that whether assessee furnished inaccurate particulars of income or concealed the income. c. Submitted the numerous case laws relating to the issue of penalty.

However AO rejecting the explanation of the assessee levied penalty u/s 271(1) (c) of Rs. 15449290/- . Against this order Assessee preferred appeal before CIT (A) who in turn confirmed the penalty holding that:- a) The claim of the assessee is erroneous and not in accordance with law. b) There is no bona fide of the assessee in making wrong claim and when confronted to withdraw the same.

Before Us the Ld AR has submitted that :-

Ld DR vehemently contested that the penalty is rightly levied by AO and confirmed by CIT (A). He submitted that because the case of the assessee was selected in scrutiny the incorrect claim of the assessee was detected and then assessee withdrew it. He further submitted that from AY 2007-08, assessee was aware about the non availability of claim and therefore claim of the assessee was false which was withdrawn as soon as caught by AO. Therefore this claim was not bona fide and penalty deserves to be upheld. 07. We have carefully considered the rival submissions and also the relevant orders of lower authorities. We have found that this is not a fit case for levying penalty as in this case neither the assessee has concealed the particulars of income nor has furnished inaccurate particulars of income. This is simply a case of bonafide mistake which has occurred due to change of law applicable in this year. After giving our thoughtful consideration to the facts of this case vis-a-vis the legal position narrated above, we are of the considered opinion that when a wrong claim is made under some bonafide mistake, that cannot be a ground for imposition of penalty u/s 271(1)(c) of the Act. The assessee has been making similar claim and the same were being allowed in earlier assessment years. Due to change in law, this claim was not allowed and the assessee also corrected its mistake by withdrawing the claim, therefore it is not a case of willful wrong claim. More importantly we were invited to the assessment order dated 30.8.2010 for AY 2008-09 in which on identical facts assessee claimed the deduction and later on pointing out the error of unavailable claim of deduction u/s 80 P withdrew same by filing revised return of income. In that case after issue of show cause notice and pursuing the reply of the assessee, AO himself dropped the penalty proceedings u/s 271 (1) (c) of the act vide his order dated 29.03.2011. In the office note in that order submitted before us it was categorically mentioned by the AO at serial no 3 that “The explanation offered by the assessee is found to be bonafide and in view of the decision of honorable supreme court in civil appeal no 2463 of 2010 arising out of SLP © no 27161 of 2008 in the case of CIT, Ahmedabad V Reliance Petroprodcuts Pvt Limited penalty proceedings are hereby dropped.” The only difference we could visualize between the facts of AY 2008-09 and 2007-08 is that in AY 2007-08, assessee withdrew its claim by filing a letter and in AY 2008-09 it withdrew by filing a revised return. We are of the view that this difference cannot make the assessee liable for payment of penalty. It is highly unusual that in one year explanation of assessee is found by AO bonafide and another year it is not. We also do not agree with contention of revenue that had this case not been selected for scrutiny, the wrong claim would not have been detected. We are aware that it is prerogative of revenue about which case to be scrutinized and assessee does not have any say in that. Therefore, this oft repeated argument of revenue deserves to be rejected. Further Honorable Rajasthan High court Jodhpur bench in CIT Udaipur V M/s Chittorgarh Kendriya Sahakari Bank Limited in D.B. Income Tax Appeal No NO.77/2013 where in Honorable high court has dismissed the appeal of the revenue against the order of ITAT deleting penalty where the assessee claimed deduction u/s 80P of the act for AY 2007-08 and withdrew the same on pointed out by AO by filing revised return of income. Honorable High court held that “In our view, the submissions of the Revenue fall short of making out a substantial question of law worth consideration.

Therefore, respectfully following the decision of Honourable Rajasthan High court and also the fact that AO himself has accepted the explanation offered by assessee as bonafide for subsequent year on identical facts, we delete the impugned penalty of Rs 1,54,49,290/- u/s 271(1) (c) and reverse the order of CIT (A).