आयकर अपील य अ धकरण,च डीगढ़ यायपीठ “ए” , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH ी संजय गग , या यक सद य एवं ी !व"म $संह यादव, लेखा सद य BEFORE: SHRI. SANJAY GARG, JM & SHRI. VIKRAM SINGH YADAV, AM आयकर अपील सं./ ITA NO. 294/Chd/ 2020 नधा रण वष / Assessment Year : 2011-12 The ACIT Circle Shimla बनाम M/s H.P. State Co-operative Ltd. The Mall, Shimla थायी लेखा सं./PAN NO: AABFH7694E अपीलाथ /Appellant यथ /Respondent नधा रती क! ओर से/ Assessee by : Shri Sachin Doger, C.A राज व क! ओर से/ Revenue by : Shri Vivek Nangia, CIT DR स ु नवाई क! तार&ख/Date of Hearing : 15/12/2022 उदघोषणा क! तार&ख/Date of Pronouncement : 12/01/2023 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the Revenue against the order of Ld. CIT(A), Shimla, dated 20/02/2020 wherein the Revenue has taken the following grounds of appeal: 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that penalty u/s 271(1)(c) of the Act is not leviable on furnishing inaccurate particulars of income on claim of deduction u/s 80P(2)(d) of the Act, though the said deduction is not allowable under the Income Tax Act in the case of the assessee. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that penalty u/s 271(1)(c) of the Act is not leviable on furnishing inaccurate particulars of income on claim of deduction u/s 80P(2)(c) (ii) of the Act, though the said deduction is not allowable under the Income Tax Act in the case of the assessee. 3. It is prayed that the order of the Ld CIT(A) be set-aside and that of the A.O. restored. 4. The Appellant craves leave to add any other ground of appeal which may arise at the time of hearing. 2 2. Briefly, the facts of the case are that the original assessment in this case was completed under section 143(3) vide order dt. 16/12/2013 after making an addition of Rs. 50,000/- to the returned income. Thereafter, the assessment order passed by the AO was set aside by the Pr. CIT, Shimla under section 263 of the Act and the AO was directed to reassess the income, pursuant thereto, the reassessment proceedings were completed and order dt. 31/08/2016 was passed under section 143(3) r.w.s 263 of the Act wherein the AO held that the assessee had wrongly claimed deduction under section 80P(2)(d) of the Act on NABARD Bonds to the extent of Rs. 5,45,82,153/- and separately penalty proceedings under section 271(1)(c) were initiated for making wrong claim of deduction under section 80P(2)(d) of the Act. Thereafter, during the penalty proceedings, after considering the submissions of the assessee but not finding the said acceptable, the AO imposed the penalty @ 100% of tax sought to be evaded and penalty amounting to Rs. 1,68,81,330/- was levied on the assessee. 3. Against the said levy of penalty, the assessee moved in appeal before the Ld. CIT(A), Shimla who vide the impugned order has deleted the penalty against which the Revenue is now in appeal before us. 4. During the course of hearing, the Ld. CIT DR submitted that the Ld. CIT(A) has erred in deleting the penalty levied by the AO and has failed to consider the findings recorded by the AO while levying the penalty and in this regard, our reference was drawn to the explanation 1 to Section 271(1)(c) of the Act and also to the findings of the AO which are contained at para 8 of the penalty order which read as under: “8. I have considered the reply furnished by the assessee as well as the case laws relied upon, as mentioned above. The submissions of the assessee that there was no intentional default of furnishing inaccurate particulars or deliberate attempt to evade taxes as the claim was based on the decision of the professionally qualified Chartered Accountants under a bona fide belief, can't be accepted in the absence of any documentary evidence. Sufficient opportunity has been allowed to the assessee to furnish any documentary evidence earlier during the 3 course of assessment proceedings and now during the penalty proceedings in support of the arguments put forth by the assessee, but the assessee failed to do so. Also, such certification by the Chartered Accountant only proves that the accountant gave such certificate just to allow the assessee a huge deduction for which it was not eligible. But the assessee being a big concern with huge transactions, should have checked it independently, especially in view of the fact that its transaction with NABARD being huge & done since long, it should have enough knowledge about NABARD not being a co-operative society. Hence, the explanations filed by the assessee are rejected being not tenable. After carefully perusing the facts and material placed on record, I am of the considered view that the assessee has concealed its income and furnished inaccurate particulars of its income to the tune of Rs. 5,46,32,153/-. Therefore, penalty @ 100% of the tax sought to be evaded is imposed upon the assessee under section 271 (1)(c) of the income Tax Act, 1961 at Rs. 1,68,81,330.” 4.1 It was submitted by the ld CIT DR that it is a clear case where the assessee has consciously claimed deduction under section 80P(2)(d) of the Act which it was otherwise not eligible as the deduction under this section is eligible only for any income by way of interest or dividend derived by Cooperative Society from its investment with any other Cooperative Society whereas the assessee had derived interest on Bonds issued by NABARD which is not a Cooperative Society. It was submitted that the Ld. CIT(A) has failed to appreciate that it was a patent and wrong claim made by the assessee and accordingly the penalty has been rightly levied by the AO. He accordingly submitted that the order so passed by the Ld. CIT(A) be set aside and the order of the AO be sustained. 5. Per contra, the Ld. AR submitted that the original assessment was completed under section 143(3) wherein the claim of deduction under section 80P(2)(d) on interest accrued on NABARD Bonds was allowed by the AO. Thereafter, the Ld. Pr. CIT set aside the assessment order and directed the AO to reassess the income wherein the AO rejected the deduction claimed by the assessee bank under section 80P(2)(d) to the extent of Rs. 5,45,82,153/- and has also initiated the penalty proceedings under section 271(1)(c) of the Act. 5.1 It was submitted that the appellant deposited the entire tax demand and did not prefer any appeal against the reassessment order and thereafter vide 4 order dt. 28/02/2017, the AO imposed the penalty under section 271(1)(c) equal to 100% of tax imposed and while imposing the penalty, the AO ignored the facts and circumstances and bonafide believe of the assessee and has imposed the penalty mechanically. 6. It was submitted that against the penalty so imposed by the AO, the assessee moved in appeal before the Ld. CIT(A) who has rightly considered the submissions of the assessee and has deleted the penalty imposed under section 271(1)(c) of the Act. It was submitted that the Ld. CIT(A) has observed in his order that interest received for which deduction was claimed was duly disclosed by the assessee in its return of income and claim of deduction under section 80P(2)(d) was claimed on face of ITR. The Ld. CIT(A) further held that the claim of deduction was made on the basis of Audit Report in Column 26 of Form 3CD duly placed on record and given the fact of the case, the bonafide of the assessee cannot be doubted. It was further held by the Ld. CIT(A) that even the AO had allowed the deduction in original assessment proceedings. Further, it was held by the ld CIT(A) that merely making a claim in the return of income which is disallowed but does not involve any concealment of facts of income or any furnishing of inaccurate particulars of income will not invite the rigours of penalty under section 271(1)(c) of the Act. Further the Ld. CIT(A) has relied on the decision of Coordinate Chandigarh Benches in case of HYCRON Electronics Vs. ITO in ITA No. 326/Chd/2015. Supporting the findings of the Ld. CIT(A), it was submitted that the claim of deduction so made by the assessee is a bonafide belief which is reasonable and genuine and where there is a reasonable explanation, the penalty cannot be imposed as the same is not automatic in nature. Further, reliance was placed on the submissions made before the Ld. CIT(A) and the contents thereof reads as under: “1. The Ld A.O. has imposed Penalty u/s 271(1)(C) equal to 100% of tax involved. While doing so, AO has ignored the facts, circumstances and bonafide belief of the applicant bank and imposed the penalty mechanically. 5 2. Deduction u/s 80P(2)(d) was claimed under bonafide belief based on Tax Auditors Report (page 43 of paper book). No penalty can be imposed for acting on such legal advice. It is not unknown that income tax returns are filed through the experts in the Income tax laws and therefore the advice given by the learned auditors can be acted upon with bonafide belief to be correct. In view of several amendments taking place every year, where the assessee had acted upon the advice given by professional qualified person who is expert in his field, it cannot be said that the assessee has made a false claim. 3. Intendment of the Legislature is not to levy penalty u/s 271 (l)(c) of the Act in case of every non acceptance of claim made by the assessee in the return of income. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. 4. Mere disallowance of the deduction claimed u/s 80P(2)(d) could not be the sole basis for levying penalty under Section 271(l)(c) of the Act. 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 attract the penalty under Section 271(l)(c). 5. In the instant case, the claim of deduction u/s 80P(2)(d) was accepted in toto in initial assessment (Please refer to Original Assessment order u/s 143 (3) dated 16.12.2013 in page 38-39 of paper book), which was disallowed in reassessment proceedings initiated after invoking section 263 by Ld.CIT. This is a case of difference of opinion on same facts and it cannot be terms as furnishing of inaccurate particulars of income. Deduction was claimed on face of Income Tax Return filed by the assessee and was duly disclosed therein. Therefore, the imposition of penalty for so called concealment in this case is unjustified, arbitrary and ad-hoc in nature and needs to be deleted. 6. The Ld AO has not considered the various case laws submitted stating that they are distinguishable on facts, without going in the merits of each judgment. 7. As per Circular No. 204 the onus is upon the revenue to lead the evidence that the concealment was because of malafide intentions. New explanation Nos. 1, 2 and 3 as added to Sec. 271(1)(C) clearly states that Explanation, circumstances and mens-rea of the assessee has to be taken into consideration. In this case, we are to state that there was no mens-rea on part of assessee bank in claiming this deduction, because this deduction was claimed under bonafide belief based on opinion of Tax Auditors for the year under consideration based on his report in Form 3CD, clause 26 regarding "Section-wise details of deductions, if any, admissible under Chapter VIA." In which he has clearly stated that this deduction is admissible he had also quantified the deductable amount, (page 47 of paper book) We are to submit that making a claim which is rejected would not make the assessee bank liable under Section 271(1) (c) of the Act. It is again reiterated 6 that there was absolutely no concealment, nor were any inaccurate particular ever submitted by the assessee bank. Assessee has filed return of income voluntary and is always more than eager to co-operate with the Department. 8. In similar case of CIT V/s. M/s Abhishek Industries ttTA-378-2010) of 2017 the assessee claimed deduction for interest income u/s 80IA on advise the Chartered Accountants which was rejected by the department. Penalty was set aside by the High Court of Punjab & Haryana in this case. Complete case law is attached herewith for your ready reference and kind perusal at Case Laws Paper Book 1-4 9. In another similar case of deletion of penalty u/s 271(l)(c) for disallowing deduction u/s 36(l)(viia) M/s Haryana Financial Corporation, Vs. The DCIT, Circle, Chandigarh Income Tax Appellate Tribunal - Chandigarh has held that "..we find that the assessee before us had acting on the advise of his legal counsel, claimed the aforesaid deduction and in such circumstances, the claim of deduction made by the assessee cannot be said to be non bonafide. The disallowance of such claim by the authorities does not satisfy the conditions of furnishing of inaccurate particulars of income. The assessee is not liable to levy of penalty u/s 271(l)(c) of the Act once such a claim is rejected in the hands of the assessee. We hold so." "... view and following the aforesaid discussion, we find no force in this stand of the Assessing officer. It is clear that the assessee has furnished an explanation which is bonafide and no material facts have been found to be false. Mere non- acceptability of a claim in law does not justify invoking Explanation to section 271(l)(c) of the Act and, therefore, the Assessing officer / CIT(A) erred in levying the penalty based on the said Explanation " Complete case law is attached herewith for your ready reference and kind perusal at Case Law Paper Book 11-23 10. The Hon'ble Supreme Court in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC) has held "no penalty can be imposed where a proper disclosure is made but the disallowance has been made by the Assessing Officer. Return, which are not accurate, not exact or correct, not according to truth or erroneous. Court has observed in this case " there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(l)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.... It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either 7 of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. 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(l)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(l)(c). That is clearly not the intendment of the Legislature." In the instant case even the claim of deduction was accepted in toto in initial assessment. In fact we are to state that this is a case of difference of opinion on same facts and it cannot be terms as furnishing of inaccurate particulars of income. We are submitting the entire text of this case law for your ready reference and perusal. Complete case law is attached herewith for your ready reference and kind perusal at Case Law Paper Book 5-10 11. Ratio of other case laws is also in favour of appellant. a. In CIT vs. Hari Machine 311 ITR 285 (Del.) the assessee had claimed deduction while computing income. AO disallowed the same and levied penalty. The court held that penalty is not leviable since all relevant material had been disclosed and there was no allegation of fraud or negligence for invoking Explanation. b. In the case of CIT Vs Caplin Point Laboratories Ltd. reported in 293 ITR 524 Madras the assessee company considered interest income as business income and claimed deduction u/s. 80HHC and 801. Claim of assessee was not accepted and addition was made. It was held by Madras High Court that, it cannot be said that the assessee concealment particulars of income or furnished inaccurate particulars of income. c. In the case of CIT V/S. Phi Seeds India Ltd. reported in 301 ITR 13 Delhi the assessee earned interest which was taxable under the head "Income from other sources". Against this income, it claimed deduction of interest paid on Agricultural income. It was held by Delhi High Court that, even if the claim of deduction is found to be erroneous, no penalty for concealment of income could be imposed u/s. 271 (1) (C). It is attracted only in those instances where Assessee concealed the particulars of income or has furnished inaccurate particulars of such income with an intent to mislead the revenue. I.T. Act does not envisage or explicitly provide that in every case where return is not accepted as correct and assessment is framed at an income higher than that presented and offered for 8 taxation by an Assessee in the form of its return, in such cases. Penalty proceedings must be initiated. d. In the case of CIT V/s Nath Bros. Exim International Ltd. reported in 288 ITR 670 Delhi, the assessee claimed dividend income as business income and claimed deduction u/s.80HHC. The assessing officer disallowed the claim and levied penalty. It was held that the assessee disclosed all facts and therefore even though it had made erroneous claim which could not be justified in law, that by itself did not attract the penal provisions. e. In the case of Price Waterhouse Coopers Pvt Ltd (PWC) v/s. CIT reported in 348 ITR 306 S.C., it was held that filling inaccurate particulars of income. Company providing multidisciplinary consultancy services having more than 100 employees. Filing statement of particulars with return of income showing provision towards gratuity as not allowable but deduction claimed in return. In advertent "silly" mistake. Assessing officer also not noticing. Peculiar facts. Penalty not leviable. All the facts and circumstances of these case laws are similar to the case under your kind consideration. We are to state that the penalty for concealment was made in concluding paragraph 8 of penalty order (Page 13 of Paper Book) by Ld DCIT stating that: "The submissions of the assessee that there was no intentional default of furnishing inaccurate particulars or deliberate attempt to evade taxes as the claim was based on the decision of the professionally qualified Chartered Accountant under a bona fide belief can't be accepted in the absence of any documentary evidence." In this regard we are to submit that tax audit report was duly submitted before Id AO and it is part of record of ITD file. Please refer to page 43 to 50 of paper book. It was further stated in AO order "Also such certification by the Chartered Accountant only proves that the accountant gave such certificates just to allow the assessee a huge deduction which it was not eligible. But the assessee being a big concern with huge transactions, should have checked it independently, especially in view of the fact that its transaction with NABARD being huge and done since long, it should have enough knowledge about NABARD not being a co-operative society. Hence the explanations filed by the assessee are rejected being non tenable. In this regard, we are to state that assessee being a Govt. Bank, the auditors are appointed by the State Govt. Registrar of Co-operative Societies and as such is not appointed by the assessee and the assessee being a government undertaking had to adhere to the said advice. 9 There was more confusion with regard to taxability of Income on NABARD Bonds, as per guidelines of NABRAD on the issue such income on NABARD bonds was taxable under the head Capital Gains by way of capital gains and capital gain tax was to be payable at the time of sale of redemption of such investments. However, assessee was showing the interest on such bonds on accrual basis. Further we are to state that taxation laws in India is ever changing field and in view of several amendments taking place every year, assessee has no reason for not relying on the report of a professional qualified Chartered Accountant who is expert in his field. It is not unknown that income tax returns are filed through the experts in the Income tax laws and therefore the advice given by the learned counsel can be acted upon with bonafide belief to be correct. Similar views are duly held in case laws of CIT V/s. M/s Abhishek Industries (ITA-378-2010) of 2017 (Pages 14 of case laws paper book) M/s Haryana Financial Corporation, Vs. The DCIT, Circle, Chandigarh Income Tax Appellate Tribunal - ITAT Chandigarh (Pages 11-23 case law paper book) Further with all respect, we are to state that even the Income Tax Department has discussed the entire case on the acceptability of deduction u/s 80P(2)(d) being dependant on whether the NABARD is a cooperative society or not and has held that the deduction claimed by the assessee 80P(2)(d) on interest on NABARD bonds cannot be allowed because the NABARD cannot be considered as a society in terms of section 80P(2)(d). Section 263 was invoked on this line only and assessment u/s 143 (3) read with Section 263 was made on this line only (please refer to pages 9, 10, 13, 22, 24, 27, 28, 30 of paper book). However, we are to humbly suggest here that the all deductions under section 80P and its sub sections were withdrawn for all Co-operative bank by insertion of section 80P(4) by finance Act 2006 w.e.f. 01.04.2007. Therefore there was no merit in discussing the status of NABARD being a co-operative society or not for allowing deduction u/s 80P(2)(d). We are to submit here that even if the Income Tax Department can take a wrong line at multiple levels, the Chartered Accountants may also have done so, but bank has no option but to rely upon the advice of professional qualified Chartered Accountant who is expert in his field. Therefore the claim of deduction made by the assessee cannot be said to be non bonafide. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. In view of our discussion in paras hereinabove, in such cases where the assessee had made a bonafide claim and furnished complete particulars with regard to its claim, the disallowance of such a claim on difference of opinion and interpretation of law does not tantamount to furnishing of inaccurate particulars of income. The assessee is a Government Corporation, who acting on the legal advice of its counsel revised the return of income, can not be said to have concealed its income or furnished inaccurate particulars of income. We also want to draw your attention to Hon'ble Supreme Court's comments in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 where it has been 10 held that even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of provisions of the Act or where the breach flows from a bona fide belief that an offender is not liable to act in a manner prescribed by the statute. Therefore, your goodself is requested to consider the merits of our written submissions, case law judgments attached and delete the penalty levied u/s 271(l)(c) by the DCIT.” 7. We have heard the rival contentions and purused the material available on record. We find that the matter is squarely covered by the decision of the Hon’ble Supreme Court in case of Reliance Petroproducts Ltd (Supra) wherein it was held as under: “7. As against this, Learned Counsel appearing on behalf of the respondent pointed out that the language of Section 271(1)(c) had to be strictly construed, this being a taxing statute and more particularly the one providing for penalty. It was pointed out that unless the wording directly covered the assessee and the fact situation herein, there could not be any penalty under the Act. It was pointed out that there was no concealment or any inaccurate particulars regarding the income were submitted in the Return. Section 271(1)(c) is as under:- "271(1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person- (c) has concealed the particulars of his income or furnished inaccurate particulars of such income." A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the Learned Counsel for Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural 11 sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the Section 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The Learned Counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In Commissioner of Income Tax, Delhi Vs. Atul Mohan Bindal [2009(9) SCC 589], where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India Vs. Dharamendra Textile Processors [2008(13) SCC 369], as also, the decision in Union of India Vs.Rajasthan Spg. & Wvg. Mills [2009(13) SCC 448] and reiterated in para 13 that:- "13. It goes without saying that for applicability of Section 271(1)(c), conditions stated therein must exist." 8. Therefore, it is obvious that it must be shown that the conditions under Section 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the Return filed because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. In Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. [2007(6) SCC 329], this Court explained the terms "concealment of income" and "furnishing inaccurate particulars". The Court went on to 12 hold therein that in order to attract the penalty under Section 271(1)(c), mens rea was necessary, as according to the Court, the word "inaccurate" signified a deliberate act or omission on behalf of the assessee. It went on to hold that Clause (iii) of Section 271(1) provided for a discretionary jurisdiction upon the Assessing Authority, inasmuch as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was pointed out that the term "inaccurate particulars" was not defined anywhere in the Act and, therefore, it was held that furnishing of an assessment of the value of the property may not by itself be furnishing inaccurate particulars. It was further held that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held 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. The Court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. was upset. In Union of India Vs. Dharamendra Textile Processors (cited supra), after quoting from Section 271 extensively and also considering Section 271(1)(c), the Court came to the conclusion that since Section 271(1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing Return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of Section 271(1)(c) read with Explanations indicated with the said Section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, willful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under Section 276-C of the Act. The basic reason why decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) was overruled by this Court in Union of India Vs. Dharamendra Textile Processors (cited supra), was that according to this Court the effect and difference between Section 271(1)(c) and Section 276-C of the Act was lost sight of in case of Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra). 13 However, it must be pointed out that in Union of India Vs. Dharamendra Textile Processors (cited supra), no fault was found with the reasoning in the decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra), where the Court explained the meaning of the terms "conceal" and inaccurate". It was only the ultimate inference in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) to the effect that mens rea was an essential ingredient for the penalty under Section 271(1)(c) that the decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) was overruled. 9. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as:- "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript". We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars. 10. It was tried to be suggested that Section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the 14 falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. 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 Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature.” 8. Applying the aforesaid legal proposition so laid down by the Hon’ble Supreme Court in the instant case, we find that the assessee has claimed deduction in respect of interest accrued on NABARD Bonds u/s 80(P)(2)(d) in its return of income. There is clear disclosure on the face of the return of income giving appropriate disclosure regarding the nature and quantum of interest accrued on NABARD Bonds and the claim thereof under section 80(P)(2)(d) of the Act. The disclosure and claim in the return of income is supported further by the audited financial statements for the financial year ended 31/03/11 and the audit report issued by the auditors u/s 44AB of the Act certifying the nature and quantum of interest accrued on NABARD Bonds as well as the assessee’s eligibility of claim thereof under section 80(P)(2)(d) of the Act. 9. We further find that basis the said disclosure by the assessee in the return of income and related documentation available on record, the revisionary jurisdiction was invoked by the ld PCIT by issuing show-cause u/s 263 and 15 pursuant to directions of the ld PCIT, the AO has disallowed the claim of deduction under section 80(P)(2)(d) of the Act. In the show-cause notice, the ld PCIT has stated that “from the assessment records called by this office and on examining the same, I find that AO had allowed the claim of deduction under Chapter VIA of Rs 5,46,32,153/- u/s 80(P)(2)(d) of the Act without making enquiries or verification as to the admissibility of the deduction which should have been made particularly when the amount of deduction claimed is found to be interest from NABARD Bonds which is not eligible for deduction u/s 80P(2)(d) of the Act.” The revisionary jurisdiction has thus been invoked on account of lack of enquiry and verification on part of the AO. Similarly, while passing the revisionary order u/s 263, the ld PCIT has held that the Assessing officer has made a patent error of law while allowing the deduction u/s 80(P)(2)(d) of the Act and there is no dispute that the assessee has accounted for and credited its profit/loss account with the interest accrued on NABARD bonds to the extent of Rs 5,45,82,153/- pertaining to year under consideration and has claimed deduction of the same amount u/s 80(P)(2)(d) of the Act and the assessment order was accordingly held as erroneous in so far as prejudicial to the interest of the Revenue and the relevant findings read as under: “4. I have carefully considered the above submission of assessee and also gone through the facts & material available on record. There is no dispute regarding the fact that the assessee has accounted & credited its P&L Account with the interest accrued and received on NABARD Bonds to the extent of Rs. 5,45,82,153/- pertaining to the year under consideration and also claimed deduction of the same amount u/s 80P(2)(d) of the Act. The deduction under this section is eligible only for any income by way of interest or dividend derived by the Co-operative society from its investment with any other Co- operative society whereas the assessee has derived interest on NABARD Bonds which is not a Co-operative society. Hence, the AO having allowed deduction which was not admissible while completing the assessment, committed a patent error. Therefore, the 16 order passed by AO is erroneous and also prejudicial to the interest of revenue. Thus, provision of section 263 is squarely applicable - and attracted. Hence, there is no merit in the contention of assessee that provision of section 263 cannot be initiated. 4(ii)&(iii) Further, the contention of the assessee that as per the clause V of the document of NABARD, interest was not to be considered as income, hence not liable for TDS and assessee has mistakenly declared its income on accrual basis despite there being no sale of Bonds, therefore, there is no prejudice caused to the revenue. But this contention is also devoid of any merit for the simple reason that assessee has exercised its own option of declaring the interest earned on NABARD Bonds on accrual basis and consistently being following, this system of accounting for last many years. Once the same having been declared as income in the account of assessee, which is duly audited by the authorized Auditors and having been consciously considered and signed by the Board of Directors, it cannot be claimed now that the income declared is non-taxable as the same is going to be declared when it will earn Capital Gain. This is evidently a futile after thought stand taken now by assessee, particularly when its mistake of claiming inadmissible deduction is pointed out. Since the assessee has exhausted all means of carrying out either any rectification or revision of return of income, therefore, the assessee's contention cannot be accepted at this stage...............” “5. In view of the above facts , it is held that the action of the A.O. in allowing deduction u/s 80P(2)(d) as claimed by the assessee amounting to Rs. 5,45,82,153/- constituted a patent error of law. Since the action of the A.O. was not in accordance with the law, which resulted in a loss of legitimate revenue, the error was also 'prejudicial to the interest of revenue. The order passed by the A.O. on 16.12.2013 in the assessee's case for the A.Y. 2011-12 is therefore, set aside with the direction to the A.O. to reassess the income after disallowing the_ deduction u/s 80P(2)(d) amounting to Rs. 5,45,82,153/-'. A reasonable opportunity of being heard shall be granted to the assessee.” 17 10. Similar findings have been recorded by the AO in the set-aside proceedings while passing the order u/s 143(3) r/w 263 dated 31/08/2016 and the relevant findings of AO read as under: “6. The above submissions of the assessee have been carefully considered and verified with the documents/evidences furnished by the assessee. It is noticed that the assessee has accounted for and credited in its P&L Account, the interest accrued and received on NABARD Bonds to the extent of Rs. 5,45,82,153/- pertaining to the year under consideration and also claimed deduction of the same amount u/s 80P(2)(d) of the Act. The deduction under this section is eligible only for any income by way of interest or dividend derived by the Co-operative society from its investment with any other Co- operative society whereas the assessee has derived interest on NABARD Bonds which is not a Co-operative society. 6.1 Further, the contention of the assessee was that as per the clause V of the document of NABARD, interest was not to be considered as income, hence not liable for TDS and assessee has mistakenly declared its income on accrual basis despite there being no sale of Bonds. But this contention is also devoid of any merit for the simple reason that assessee has exercised its own option of declaring the interest earned on NABARD Bonds on accrual basis and consistently, being following this system of accounting for last many years. Once the same having been declared as income in the account of assessee, which is duly audited by the authorized Auditors and having been consciously considered and signed by the Board of Directors, it cannot be claimed now that the income declared is non-taxable as the same is going to be declared when it will earn Capital Gain. This is evidently a futile after thought stand taken now by assessee, particularly when its mistake of claiming inadmissible deduction has been pointed out to be explained by the assessee. 6.2 Regarding the claim of the assessee that NABARD has .been formed to fund all the co-operative societies and as such the same can be equated at par with the other co- operative societies and as such, if the said sum is treated as interest the same qualifies for deduction u/s 80P of the Income Tax Act, there is no merit in this contention of the 18 assessee and is 'liable to be rejected because mere funding to Co-operative Societies, will not change its fundamental character i.e. National Bank for Agriculture and Rural Development to a Co- operative Society. 6.3 Keeping in view the above facts, deduction claimed under section 80P(2)(d) on interest accrued and received on NABARD Bonds to the extent of Rs. 5,45,82,153/- is disallowed and added back to the income of the assessee. As the assessee is found to have made false claim of deduction of Rs. 5,47,82,153/- and thereby furnished inaccurate particulars, as such, penalty proceedings u/s 271(l)(c) are being initiated separately.” 11. Now, coming to the penalty order passed by the AO and the findings therein as referred by the ld CIT DR, we find that the AO has not accepted the assessee’s explanation that such a claim was made by it based on the decision of the professionally qualified Chartered Accountants who has certified the assessee’s eligibility for claim of deduction under section 80P(2)(d) of the Act. The reasoning adopted by the AO is that no documentary evidence has been submitted by the assessee in support of its explanation and secondly, the assessee should have independently verified about NABARD not being a co- operative society. In this regard, we find that the assessee has relied upon the audit report in Form 3CA read with Form 3CD which has been filed with the return of income. In the audit report, there is clear mention by the auditors that the assessee is eligible for deduction u/s 80P(2)(d) of the Act. Here, it is relevant to note that the audit report in Form 3CA read with Form 3CD has been issued as prescribed under section 44AB of the Act containing various prescribed particulars and information in relation to determination of taxable income in the hands of the assessee and is thus not just limited to verifying and certifying the assessee’s eligibility under section 80P(2)(d) of the Act. Basis the same audit report, the assessee has prepared its return of income and has claimed other 19 allowances/payments as certified by the auditors and which has been duly allowed by the Assessing officer. Therefore, where the auditors have certified the assessee’s eligibility for deduction u/s 80P(2)(d) of the Act, we find that no malafide can be attributed in assessee relying on auditor’s report/certification and professional judgment and not making any independent verification and basis thereof, making a claim of deduction in the return of income. Infact, all the AO has finally held that the explanations filed by the assessee are rejected being not tenable. Therefore, non-acceptability of the explanation as not tenable in law cannot be basis for levy of penalty u/s 271(1)(c) of the Act. 12. We therefore find that the AO has not recorded any adverse finding that any material fact or information regarding the claim of deduction u/s 80(P)(2)(d) in the return of income so furnished by the assessee has been found to be incorrect or inaccurate. The nature of bonds, its issuer and the quantum of interest accrual on such bonds and claim under section 80P(2)(d) has been adequately disclosed in the return of income. There is rather an affirmation by the AO that these facts are evident from the return of income and are not in dispute. The dispute is limited to whether NABARD as an entity, which has issued the subject bonds and which has been subscribed to by the assessee bank, qualifies as a co-operative society or not. The Assessing officer has referred to the findings of the ld PCIT in this regard wherein he has held that “the NABARD was established by Parliament through Act 61 of 1981 whereas co-operative society means a society registered or deemed to be registered under the Co- operative Societies Act, 1912 or any other law for time being in force in any state.” and accordingly held that NABARD doesn’t qualifies as a co-operative society and the assessee is not eligible for deduction under section 80P(2)(d) of the Act. We therefore find that the dispute is purely legal in nature and the assessee’s claim of deduction under section 80P(2)(d) of the Act has been 20 disallowed looking into the constitution of NABARD and the law as enacted by the Parliament. 13. We are therefore of the considered view that in the facts and the circumstances of the present case, mere making of claim of deduction under section 80(P)(2)(d) of the Act which is held to be not allowable by the Assessing officer as per law doesn’t amount to furnishing of inaccurate particulars of income and thus doesn’t attract the rigours of section 271(1)(c) of the Act. In light of aforesaid discussions, we upheld the order and the findings of the ld CIT(A) who has rightly deleted the penalty levied u/s 271(1)(c) of the Act. Ground no. 1 of the Revenue’s appeal is thus dismissed. 14. Regarding ground no. 2 of the Revenue’s appeal, we find that unlike claim of deduction u/s 80P(2)(d) of the Act where the penalty has been initiated while passing the assessment order, no penalty has been initiated by the AO while disallowing claim of deduction u/s 80P(2)(c)(ii) of the Act. Further, in the penalty order and the impugned order passed by the ld CIT(A), the whole discussion is regarding levy of penalty in respect of claim of deduction u/s 80P(2)(d) of the Act and there is no whisper regarding levy of penalty in respect of claim of deduction u/s 80P(2)(c)(ii) of the Act. In the result, ground no. 2 of the Revenue’s appeal is dismissed. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open Court on 12/01/2023 Sd/- Sd/- संजय गग !व"म $संह यादव (SANJAY GARG) ( VIKRAM SINGH YADAV) या यक सद य / JUDICIAL MEMBER लेखा सद य/ ACCOUNTANT MEMBER AG Date: 12/01/2023 21 आदेश क! त,ल-प अ.े-षत/ Copy of the order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent 3. आयकर आय ु /त/ CIT 4. आयकर आय ु /त (अपील)/ The CIT(A) 5. -वभागीय त न2ध, आयकर अपील&य आ2धकरण, च4डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड फाईल/ Guard File आदेशान ु सार/ By order, सहायक पंजीकार/ Assistant Registrar Draft dictated 02/01/2023 Sr. P.S 2 Draft first placed before author 02/01/2023 Sr. P.S 3 Approved draft comes to Sr. PS/PS 4 Final draft placed before author 5 Order signed and pronounced on 6 File sent to the Bench Clerk 7 Date on which file goes to the AR 8 Date on which file goes to the Head Clerk 9 Date of dispatch of order