THE AHMEDABAD DISTRICT CO.OP. BANK LTD.,AHMEDABAD V. THE DY. CIT, CIRCLE-2(1)(1), AHMEDABAD

ITA 1108/AHD/2024

AI Insights

The case involves The Ahmedabad District Co-Operative Bank Ltd., which appealed against a penalty imposed by the Deputy Commissioner of Income Tax under section 270A for allegedly under-reporting income by claiming a deduction for Health and Education Cess. The penalty was initially set at Rs. 34,98,290 but was later reduced to Rs. 8,74,573 by the Commissioner of Income-tax (Appeals), who found the disallowance of the deduction justified but not at the rate of 200% applicable to 'misreporting' cases. The Tribunal's decision to delete the penalty was based on the assessee's full disclosure and the bona fide nature of the tax deduction claim, which was supported by judicial precedents existing at the time of the return filing.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126012 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2020-2021
• Other Referred Cases: CIT v. K. Srinivasan [(1972) 83 ITR 346 (SC)], Sesa Goa Ltd. v. JCIT [(2020) 117 taxmann.com 96 (Bom)], Chambal Fertilizers & Chemicals Ltd. v. JCIT [D.B. Income Tax Appeal No. 52/2018, decided on 31.07.2018 (Raj HC)], CIT v. Yahoo India (P.) Ltd. [(2013) 33 taxmann.com 332 (Bom)]
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B.P. SRIVASTAVA
• Assessee Lawyers: SANJAY R. SHAH
• Keywords: Retrospective amendment; Business expenditure
• Section: 143(3); 139(1); 37(1)

Judgement Text

" आयकर अपीलीय अिधकरण, अहमदा बा द \u0012ा यपीठ “ए“, अहमदा बा द । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD सु\u0018ी सुिच\u001aा का \u001bले, \u0012ा ियक सद एवं \u0018ी मकरंद वसंत महा देवकर, लेखा सद क े सम\"। ] ] BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं /ITA No.1108/Ahd/2024 िनधा \u0010रण वष\u0010 /Assessment Year : 2020-21 The Ahmedabad District Co- Operative Bank Ltd. Opp. RBI, Ashram Road Ahmedabad – 380 009 बनाम/ v/s. The Dy.Commissioner of Income Tax Circle-2(1)(1) Ahmedabad – 380 015 \u0014थायी लेखा सं./PAN: AAAAT 1067 D अपीलाथ%/ (Appellant) &' यथ%/ (Respondent) Assessee by : Shri Sanjay R. Shah, AR Revenue by : Shri B.P. Srivastava, Sr.DR सुनवाई की तारीख/Date of Hearing : 22/04/2025 घोषणा की तारीख /Date of Pronouncement: 24/04/2025 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM: This appeal by the assessee is directed against the order passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [“CIT(A)”], dated 28.03.2024, arising from the penalty order passed by the Assessing Officer under section 270A of the Income Tax Act, 1961 (“the Act”), for the Assessment Year (AY)2020–21. Facts of the Case: 2. The assessee is a Co-operative bank registered under the Gujarat Co- operative Societies Act, 1961 and governed by the Banking Regulation Act, ITA No.1108/Ahd/2024 The Ahmedabad District Co-op. Bank Ltd. vs. The DCIT Cir.2(1)(1) Asst. Year : 2020-21 2 1949, filed its return of income for the Assessment Year 2020–21 on 31.12.2020, declaring a total income of Rs.37,24,48,290/- under section 139(1) of the Act. The case of the assessee was selected for scrutiny under section 143(3) of the Act through Computer Assisted Scrutiny Selection (CASS), primarily to examine following: - High liabilities as compared to low income/receipts, - Sale consideration reported in ITR being less than sale consideration reported in SFT, - Deduction from total income under Chapter VI-A, - Non-compliance with Income Computation and Disclosure Standards. 3. During the course of assessment proceedings, it was noticed that the assessee had claimed deduction of Rs.50,05,571/- towards payment of Health and Education Cess. The Assessing Officer, after issuing a show-cause notice, disallowed the said claim, treating it as not allowable in view of the decision of the Hon’ble Supreme Court in the case of CIT v. K. Srinivasan [(1972) 83 ITR 346 (SC)] and the retrospective amendment brought by the Finance Act, 2022, inserting Explanation 3 to section 40(a)(ii) of the Act. Consequently, penalty proceedings under section 270A of the Actwere initiated, and penalty of Rs.34,98,290/- was levied on account of alleged under-reporting of income. In appeal before the CIT(A), the assessee contended that the claim was made based on judicial pronouncements prevailing at the time of filing return, the amendment by Finance Act, 2022 had retrospective effect and no mala fide could be attributed to the assessee and the procedure for surrendering the claim under section 155(18) of the Act was notified only after the assessment was completed. ITA No.1108/Ahd/2024 The Ahmedabad District Co-op. Bank Ltd. vs. The DCIT Cir.2(1)(1) Asst. Year : 2020-21 3 4. The CIT(A), after considering the submissions during the appellate proceedings, partly allowed the appeal. He held that though the disallowance of the education cess was justified, the penalty could not be levied at the rate of 200% applicable to cases of \"misreporting.\" He restricted the penalty to 50% of the tax on the under-reported income, thereby confirming penalty to the extent of Rs.8,74,573/- and granting partial relief of Rs.26,23,717/- to the assessee. 5. Aggrieved by the partial sustenance of penalty, the assessee is in appeal before us with following grounds: 1. The learned Commissioner of Income-tax (Appeals) [CIT(A)] erred in law and facts of the case by sustaining penalty to the extent of Rs.8,74,573/- levied under section 270A of the Act by the learned Assessing Officer on account of claim of education cess of Rs.50,05,571/-, pursuant to retrospective amendment enacted vide Finance Act, 2022. It is submitted that it be so held now and penalty u/s.270A of the Act as confirmed by the learned CIT(A) be deleted. 2. The learned CIT(A) grossly erred in not considering the fact that the very notification which specified the procedure to surrender the impugned claim of education cess was effective from 01.10.2022 whereas the impugned assessment order disallowing the impugned claim was passed on 25.09.2022. Nevertheless, the appellant surrendered the claim during the assessments proceedings itself and hence penalty u/s.270A is not leviable at all and the same may be deleted. 3. The learned CIT(A) failed to appreciate the fact that the impugned claim of deduction of Health and Education Cess by the Appellant was based on the prevailing judicial pronouncement at the time of filing the return of income u/s. 139(1) of the Act, the same cannot be construed as under reporting of income owing to any subsequent amendments in law and thus, penalty u/s.270A of the Act cannot be levied. 4. Without prejudice to the above, the learned CIT(A) failed to appreciate the fact that Section 155(18) of the Act specifically provides that the claim for deduction of surcharge or cess shall not be deemed to be under-reported income for the purposes of sub-section (3) of section 270A of the Act if an application is made to the Assessing Officer in the prescribed form. However, as the form itself was not notified at the time of passing of order u/s.143(3) of the Act, the provisions of section 155(18) cannot be applied to levy the penalty u/s.270A of the Act. ITA No.1108/Ahd/2024 The Ahmedabad District Co-op. Bank Ltd. vs. The DCIT Cir.2(1)(1) Asst. Year : 2020-21 4 5. The appellant reserves the right to add/alter or remove any of the above grounds of appeal. 6. During the course of hearing before us, the learned Authorized Representative (“AR”) of the assessee submitted the timeline of the events and stated that the assessee had claimed the said deduction under section 37(1) of the Act, and that the provisions of section 40(a)(ii), as they stood at the time did not explicitly disallow deduction of cess. In support, reliance was placed on judicial precedents namely, Sesa Goa Ltd. v. JCIT [(2020) 117 taxmann.com 96 (Bom)] and Chambal Fertilizers & Chemicals Ltd. v. JCIT [D.B. Income Tax Appeal No. 52/2018, decided on 31.07.2018 (Raj HC)], wherein the respective Hon’ble High Courts had held that education cess is an allowable business expenditure. It was contended that the subsequent insertion of Explanation 3 to section 40(a)(ii) of the Act by the Finance Act, 2022, with retrospective effect from 01.04.2005, merely clarified the legal position and could not be invoked for levy of penalty on a claim made bona fide and supported by judicial rulings. The AR further pointed out that the deduction was voluntarily surrendered during assessment proceedings, vide letter dated 15.09.2022, in view of the said retrospective amendment. However, due to the procedural limitation, the assessee could not file an application under section 155(18) of the Act read with Rule 132, as the notification prescribing the form and process was issued only on 28.09.2022, effective from 01.10.2022, whereas the assessment was completed on 25.09.2022. 6.1. The learned AR specifically pointed out the protection under section 270A(6)(a) of the Act, which stipulates that no penalty shall be levied under ITA No.1108/Ahd/2024 The Ahmedabad District Co-op. Bank Ltd. vs. The DCIT Cir.2(1)(1) Asst. Year : 2020-21 5 section 270A if the assessee offers an explanation, and the Assessing Officer is satisfied that the explanation is bona fide, and all material facts have been disclosed. It was submitted that the assessee had made a full and true disclosure of the deduction claimed, and there was no concealment or suppression of material facts. It was urged that the impugned addition arose due to a bona fide claim based on a debatable legal issue, which was later nullified by retrospective amendment, and therefore, no penalty can be levied for mere disallowance of a bona fide claim. 6.2. Alternatively, it was submitted that the penalty levied by the Assessing Officer @ 200% was not sustainable in view of section 270A(7) of the Act, and that the learned CIT(A) rightly restricted it to 50% by treating the case as one of under-reporting and not misreporting. However, even such reduced penalty, it was urged, ought to be deleted on account of the assessee’s conduct being fully compliant with the law as understood at the relevant time. 6.3. The learned AR placed reliance on the judgement of the Hon’ble Bombay High Court in CIT v. Yahoo India (P.) Ltd. [(2013) 33 taxmann.com 332 (Bom)] where it was held that penalty cannot be imposed where the claim is based on a bona fide legal interpretation and all facts are disclosed. 7. The learned Departmental Representative (DR) relied on the order of CIT(A) and stated that the CIT(A) has given relief to the assessee and also argued that assessee could have availed section 155(18) option before penalty was levied. ITA No.1108/Ahd/2024 The Ahmedabad District Co-op. Bank Ltd. vs. The DCIT Cir.2(1)(1) Asst. Year : 2020-21 6 8. We have carefully considered the rival submissions, perused the material available on record, and examined the statutory provisions and judicial precedents cited before us. The penalty in the present case has been levied under section 270A of the Act. Applicable statutory framework governing penalty under Section 270A is summarized as follows – Section 270A(1): The Assessing Officer may, during the course of any proceedings under this Act, direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income. Section 270A(2)(a): A person shall be considered to have under-reported his income if the income assessed is greater than the income determined in the return processed under section 143(1)(a). Section 270A(6)(a): The under-reported income shall not include the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered. Section 270A(7): In case of under-reporting (not misreporting), penalty shall be fifty percent of the amount of tax payable on such under-reported income. Section 270A(9): In cases of misreporting of income, penalty shall be two hundred percent of the amount of tax payable on under-reported income. 8.1. In the instant case, the penalty has been levied for disallowance of the deduction of Rs.50,05,571/- claimed towards Health and Education Cess. The claim was made in the return filed on 31.12.2020. The disallowance was based on the insertion of Explanation 3 to section 40(a)(ii) by the Finance Act, 2022, ITA No.1108/Ahd/2024 The Ahmedabad District Co-op. Bank Ltd. vs. The DCIT Cir.2(1)(1) Asst. Year : 2020-21 7 with retrospective effect from 01.04.2005. It is undisputed that the assessee voluntarily surrendered the deduction during the course of assessment proceedings, after the enactment of the Finance Act, 2022, vide submission dated 15.09.2022. The return was originally filed based on prevailing judicial pronouncements which allowed such deduction. Full and true disclosure of the claim was made in the return and the same was informed to the Assessing Officer during the course of assessment proceedings. 8.2. The learned DR contended that after the Notification issued under Rule 132, the assessee could have applied for re-computation under section 155(18) of the Act, which would have immunized the assessee from levy of penalty. Since the assessee did not avail the option post-notification, it was argued that penalty proceedings were validly continued. 8.3. We find no merit in this argument for the following reasons: - The assessment order under section 143(3) r.w.s. 144B was passed on 25.09.2022, before the notification of Rule 132 on 28.09.2022. Thus, on the date of finalization of assessment, there was no prescribed mechanism under Rule 132 to make an application under section 155(18). Consequently, the assessee could not have filed the prescribed form at that stage. - The issuance of Notification No. 111/2022 dated 28.09.2022, prescribing Rule 132, enabled the filing of such application only prospectively from 01.10.2022. The assessee’s case had already culminated in assessment on 25.09.2022, thereby rendering the remedy under section 155(18) practically unavailable to the assessee. - Further, section 155(18) contemplates re-computation of total income by the Assessing Officer suo motu upon such application being filed. It does not automatically provide for withdrawal or waiver of penalty ITA No.1108/Ahd/2024 The Ahmedabad District Co-op. Bank Ltd. vs. The DCIT Cir.2(1)(1) Asst. Year : 2020-21 8 proceedings already initiated and concluded on or before availability of such procedural remedy. - Moreover, it is trite law that a procedural opportunity which was not available on the date of an adverse action (i.e., disallowance and initiation of penalty) cannot be cited against the assessee. The maxim \"Lex non cogit ad impossibilia\" (the law does not compel a person to do that which he cannot possibly perform) squarely applies to the assessee’s situation. - Thus, we hold that the assessee cannot be faulted for not availing the benefit of section 155(18) once the assessment was already finalized and penalty proceedings initiated. The subsequent availability of procedural remedy cannot retrospectively cure the defect or justify the imposition of penalty. 8.4. In any case, applying the mandate of section 270A(6)(a), we find merit in the contention of the AR for the reasons that - The claim for deduction was made based on existing legal interpretation available at the time of filing return. - Judicial pronouncements clearly supported such a view. - There is no allegation of concealment, falsification, or suppression of facts. - The assessee voluntarily surrendered the claim immediately upon being made aware of the retrospective amendment. - The facts were fully disclosed by the assessee during the course of assessment proceedings. 8.5. It is relevant to note that both the Assessing Officer and the CIT(A) accepted that the case does not involve “misreporting” under section 270A(9) of the Act. Accordingly, penalty was restricted to 50% of tax on under- reported income. However, once it is found that the claim was bona fide and ITA No.1108/Ahd/2024 The Ahmedabad District Co-op. Bank Ltd. vs. The DCIT Cir.2(1)(1) Asst. Year : 2020-21 9 all facts were disclosed, even such penalty under section 270A(1) read with section 270A(2)(a) of the Act becomes unsustainable in law. 8.6. In our opinion, mere making of a claim based on a bona fide interpretation of law, subsequently found unsustainable by retrospective amendment, does not attract penalty under the Act. This position is fortified by the Hon’ble Bombay High Court in case of Yahoo India (P.) Ltd. (supra), wherein it was reiterated that where a claim is made transparently and based on legal interpretation, even if not accepted, it does not amount to furnishing inaccurate particulars or under-reporting. Thus, relying on the principles laid down therein, we hold that the assessee’s claim towards deduction of cess, made prior to the retrospective amendment and disclosed in full, cannot trigger penalty under section 270A of the Act. 8.7. In view of the foregoing discussion, the appeal of the assessee is allowed and the penalty levied under section 270A and sustained by the CIT(A) is directed to be deleted. 9. In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 24 April, 2025 at Ahmedabad. Sd/- Sd/- (SUCHITRA KAMBLE) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER अहमदाबाद/Ahmedabad, िदनांक/Dated 24 /04/2025 टी.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS आदेश की #ितिलिप अ$ेिषत/Copy of the Order forwarded to : ITA No.1108/Ahd/2024 The Ahmedabad District Co-op. Bank Ltd. vs. The DCIT Cir.2(1)(1) Asst. Year : 2020-21 10 1. अपीलाथ% / The Appellant 2. #&थ% / The Respondent. 3. संबंिधत आयकर आयु' / Concerned CIT 4. आयकर आयु' ) अपील ( / The CIT(A)-(NFAC), Delhi 5. िवभागीय #ितिनिध , आयकर अपीलीय अिधकरण , राजोकट/DR,ITAT, Ahmedabad, 6. गाड\u0010 फाईल / Guard file. आदेशानुसार/ BY ORDER, स&ािपत #ित //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण, ITAT, Ahmedabad 1. Date of dictation (word processed by Hon’ble AM in his laptop) : 23.4.2025 2. Date on which the typed draft is placed before the Dictating Member. : 23.4.2025 3. Date on which the approved draft comes to the Sr.P.S./P.S : 4. Date on which the fair order is placed before the Dictating Member for pronouncement. : 5. Date on which fair order placed before Other Member : 6. Date on which the fair order comes back to the Sr.P.S./P.S. : 24.4.25 7. Date on which the file goes to the Bench Clerk. : 24.4.25 8. Date on which the file goes to the Head Clerk. : 9. The date on which the file goes to the Assistant Registrar for signature on the order. : 10. Date of Despatch of the Order : "