THE KANGRA CENTRAL COOPERATIVE BANK LIMITED,DHARAMSHALA V. DEPUTY COMMISSIONER OF INCOME TAX, PALAMPUR

ITA 804/CHANDI/2023

AI Insights

The case involves The Kangra Central Cooperative Bank Ltd., which appealed against the penalties imposed for alleged concealment of income and furnishing of inaccurate particulars under section 271(1)(c) of the Income Tax Act. The penalties were related to disallowances made during the assessment years 2012-13 and 2013-14 concerning provisions made for standard assets. The Tribunal examined whether the provisions made were in accordance with the Banking Regulation Act and the Income Tax Act, particularly section 36(1)(viia), which allows deductions for provisions made for bad and doubtful debts. The Tribunal considered various precedents and the specifics of the case, ultimately deciding in favor of the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 36598 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Other Referred Cases: Bharuch Dist. Central Co-op. Bank Ltd. Vs. ITO, Chennai Benches in case of Bharat Overseas Bank Ltd. Vs. ITO, DCIT Vs. The Nawansahar Central Co-operative Bank Ltd., Model Co-operative Bank Vs. DCIT, Vikramaditya Nagarik Sahakari Bank Vs. ACIT, Ujjain, ACIT vs. M/s Jila SahakariKendriya Bank, Hamirpur District Co-operative Bank Ltd. Vs CIT, CIT vs Reliance Petro Products Private Ltd., Pricewaterhouse Coopers (P) Ltd. Vs. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RANJIT KAUR
• Assessee Lawyers: ASHWANI KUMAR; C.A
• Keywords: Bad and doubtful debts; Wrong claim; Initiation of penalty proceedings
• Section: 143(3); 250; 271(1)(c); 274; 14A

Judgement Text

"आयकर अपील\tय अ\u000bधकरण,च\u000fडीगढ़ \u0013यायपीठ “बी बी बी बी” , च\u000fडीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH HEARING THROUGH: PHYSICAL MODE \u0017ी राजपाल यादव, , , , उपा\u001cय\u001d एवं \u0017ी व!म #संह यादव, , , , लेखा सद(य BEFORE: SHRI. RAJPAL YADAV, VP & SHRI. VIKRAM SINGH YADAV, AM आयकर अपील सं./ ITA No. 804 & 805/Chd/2023 \u000eनधा\u0012रण वष\u0012 / Assessment Year : 2012-13 & 2013-14 The Kangra Central Cooperative Bank Ltd. Civil Lines, Dharamshala District Kangra बनाम The DCIT Circle, Palampur \u0018थायी लेखा सं./PAN NO: AAAJT0749B अपीलाथ\u001c/Appellant \u001d\u001eयथ\u001c/Respondent \u000eनधा\u0012\u001fरती क! ओर से/Assessee by : Shri Ashwani Kumar, C.A राज\u0018व क! ओर से/ Revenue by : Dr. Ranjit Kaur, Addl. CIT, Sr. DR सुनवाई क! तार&ख/Date of Hearing : 12/11/2024 उदघोषणा क! तार&ख/Date of Pronouncement : 28.01.2025 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : These are two appeals filed by the Assessee against the respective orders of the Ld. CIT(A)/NFAC, Delhi each dt. 26/10/2023 pertaining to Assessment Year 2012- 13 & 2013-14 challenging the sustenance of levy of penalty u/s 271(1)(c) of the Act. 2. Since the common issues are involved in the both the above appeals, they were heard together and are being disposed off by this consolidated order. 2 3. With the consent of both the parties, the case of the Assessee in ITA No. 804/Chd/2023 was taken as a lead case wherein assessee has taken the following grounds of appeal: 1. “That the order dated 26.10.2023 passed u/s 250 of the Act by the Ld. Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi is against law and facts on the file in as much as he was not justified to uphold the action of the Ld. Assessing Officer in levying a penalty of Rs. 66,38,400/- for alleged concealment of income by furnishing inaccurate particulars of income, without considering the facts and circumstances of the case and the legal position in as much as no such penalty was exigible in the facts & circumstances of the case. 2. That the order dated 26.10.2023 passed u/s 250 of the Act by the Ld. Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi is against law and facts on the file in as much as he was not justified to uphold the action of the Ld. Assessing Officer in levying a penalty of Rs. 66,38,400/- without specifying the limb of Section 271(1)(c) of the Act under which penalty proceedings had been initiated and penalty levied.” 4. Briefly the facts of the case are that the assessee is a cooperative bank registered under the Cooperative Society Act and covered under the category of “Non Scheduled Bank” as defined in the Banking Regulation Act. It filed its return of income declaring total income of Rs. 31,56,35,140/- which was selected for scrutiny and thereafter, the assessment was completed under section 143(3) dt. 05/03/2014 wherein the AO has, interalia, made a disallowance of provision made towards standard assets amounting to Rs. 2,21,28,000/- and separately, the penalty proceedings were initiated under section 271(1)(c) of the Act for concealment of income by furnishing inaccurate particulars of income by issuing a notice dt. 05/03/2014 under section 274 r.w.s 271 of the Act. 5. The assessee carried the matter in appeal before the Ld. CIT(A) who has confirmed the disallowance of the provisions made towards standard assets vide his order dt. 23/12/2015. Thereafter, a fresh show cause was issued to the assessee on 21/03/2017 calling for the explanation as to why penalty should not be imposed and thereafter considering the submissions made by the assessee 3 but not finding the same acceptable, the AO held that the assessee has deliberately furnished the inaccurate particulars of income and therefore he held that the assessee has committed a default by concealing income/ furnishing inaccurate particulars of income which render it liable for penalty under section 271(1)(c) and thereafter, the AO levied penalty @ 100% of tax sought to be evaded which amounts to Rs. 66,38,400/- which, on appeal, has been sustained by the Ld. CIT(A) and against the said findings, the assessee is in appeal before us. 6. During the course of hearing, the Ld. AR submitted that under the Banking Regulations Act, the Reserve Bank of India (RBI) has been empowered to issue directions to all the banks including the Non Scheduled Banks as to regulate the banking business in the public interest or in the interest of banking policy and as part of the same, RBI has prescribed “Income Recognition, Asset Classification,, Provisioning and other related” prudential norms and assessee has no option but to comply with the same and as part of said prudential norms, the assessee has made provision on both Performing Assets and Non Performing Assets and as far as the provisions on Non Performing Assets, the assessee has claimed the deduction under section 36(1)(viia) of the Act and as far as the provisions for Performing Assets is concerned, the same have been set off against the interest income of the assessee bank and net interest income has been offered to tax. It was accordingly submitted it is fairly incorrect on part of the AO to held that the assessee has made any such claim under section 36(1)(viia) of the Act and reference was drawn to para 7.1 of the impugned assessment order wherein the assessee bank was asked to explain as to “why the expenditure claimed on provision for NPA may not be disallowed and these are provisions only and not actual / quantified expenditure on account of bad debt written off”. It was further submitted that even as per the provision of Section 36(1)(viia) of the Act, the assessee is eligible to claim the expenses on provisioning of advances upto 4 specified limit and as per the same, the assessee has only claimed an amount of Rs. 13.13 Crores as against the eligibility of Rs. 206.34 Crores. 7. It was further submitted that the assessee had carried the matter in appeal before the Ld. CIT(A) who, following the decision of Ahmedabad Benches in case of Bharuch Dist. Central Co-op. Bank Ltd. Vs. ITO (2013) 36 taxmann.com 517 and Chennai Benches in case of Bharat Overseas Bank Ltd. Vs. ITO (2012) 26 taxmann.com 330, has affirmed the view taken by the AO. At the same time, it was submitted that there are decisions of other Coordinate Benches wherein the provisions for standard assets has been allowed and in this regard, reference was drawn to the decision of Amritsar Benches in case of DCIT Vs. The Nawansahar Central Co-operative Bank Ltd. (ITA No. 61/Asr/2017 dt. 03/01/2018), decision of Mumbai Benches in case of Model Co-operative Bank Vs. DCIT (ITA No. 5522/Mum/2017 dt. 24/07/2019), decision of Indore Benches in case of Vikramaditya Nagarik Sahakari Bank Vs. ACIT, Ujjain (ITA No. 36/Ind/2017 dt. 20/03/2018) and which has been followed in the subsequent decision of Indore Benches in case of ACIT vs. M/s Jila SahakariKendriya Bank (ITA No. 455/Ind/2018 dt. 28/04/2023). It was accordingly submitted that even though the assessee has not filed further appeal against the said decision of the Ld. CIT(A) in the quantum proceedings, the fact of the matter is that there are two views possible as can be seen from the decision of the various Benches of the Tribunal and in such circumstances, where two views are possible and which in a sense means the matter is debatable and in such a situation, the assessee cannot be subject to penal consequences under section 271(1)(c) of the Act. 8. It was further submitted that the AO while levying the penalty has merely stated that the assessee has furnishing inaccurate particulars of income. However how such particulars of income have been furnished incorrectly by the assessee has not been specified by the AO. It was submitted that the assessee has made proper disclosure regarding the provision created in respect of 5 Performing Assets and Non Performing Assets in his financial statements which are duly audited and it is only on the basis of such audited financial statements and disclosure made therein, the return of income has been filed and therefore, all particulars of the provision so made have been duly disclosed while filing the return of income and therefore it is not a case where the assessee has furnished any inaccurate particulars of his income by way of creating provision against the standard assets. It was submitted that creating a provision as duly disclosed and which is held not allowable by the AO is merely an opinion of the AO and the same can be a basis for making the addition in the quantum proceedings however, the same cannot be held as furnishing inaccurate particulars of income, and result in levy of penalty as so held by the AO and sustained by the ld CIT(A). It was submitted that the admission or rejection of a claim is a subjective exercise and whether a claim is accepted or rejected has nothing to do with furnishing of inaccurate particular of income. What is a correct claim and what is an incorrect claim is a matter of opinion. Raising a claim, even if it is ultimately found to be legally unacceptable, cannot amount to furnishing of inaccurate particulars of income. Mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding income of the assessee. 9. It was further submitted that the matter is squarely covered by the decision of Hon’ble Supreme Court in case of CIT vs Reliance Petro Products Private Ltd. 322 ITR 158 wherein it has been held that where the assessee has furnished all the details of the expenditure as well as income in its return of income which by themselves was not found to be incorrect, it is upto the authority to accept its income in the return and merely because the assessee has claimed expenditure which claim was not accepted, the same would not attract the provision of Section 271 (1)(c) of the Act. Further, reliance was placed on the decision of Hon’ble Supreme Court in case of Pricewaterhouse Coopers (P) Ltd. Vs. CIT reported in 348 ITR 306 wherein it was held that where 6 the assessee has claimed deduction of provision towards payment of gratuity in its return even though the tax audit report which was filed alongwith the return unequivocally stated that the provision for payment of gratuity was not allowable as deduction under section 40A(7), it was a bona fide and inadvertent error and not a case of intended concealment or furnishing of inaccurate particulars of income and therefore imposition of penalty under section 271(1)(c) was held not justified. It was accordingly submitted that penalty so levied and sustained by the Ld. CIT(A) be directed to be deleted. 10. Per contra, the Ld. DR has relied on the findings of the AO as well as that of the Ld. CIT(A) and our reference was drawn to the findings of the Ld. CIT(A) which are contained at para 5.2 to 5.6 of the impugned order and the contents thereof read as under: “5.2 I have carefully considered the relevant and material facts on record, in respect of this ground of appeal, as brought out in the penalty order, assessment order and submissions made during appeal proceedings. The appellant is a co- operative bank, During the assessment proceedings, AO has disallowed the deduction of provisions made for standard assets under section 36(1)(viia) with the fowling observations, - \"Further, the assessee has charged Rs. 11,11,18,000/- during the period under consideration as Provision on Non-Performing Assets. Besides, the assessee Bank has also charged Provision on Performing Assets (i.e. standard assets) amounting to Rs. 2,21,28,000/- (i.e. Rs. 870.56 Lakhs Rs. 649.28 Lakhs). Section 36(1)(viia) provides for the deduction in respect of any provision 'for Bad and Doubtful debts' amounting to Rs. 8,70,56,000/- made by the assessee Bank shows that the provision of Rs. 8,70,56,000/- includes provision of Rs. 2,21,28,000/- on the Performing Assets (designated by the assessee Bank as Standard Assets) i.e. the assets which are good, not bad and from which regular instalments of the principal/interest, as the case may be, are being received by the assessee Bank. This provision of Rs. 2,21,28,000/- has been set off against the interest income of the assessee Bank which is otherwise not allowable to the assessee simply for the reason that this provision is not on account of Non-Performing Assets which may be allowed u/s 36(1)(viia) rather it is on Performing assets from which regular return/income is being received by the assessee, as discussed above.\" 5.3 It is noted from the aforesaid observations that the claim of provision made on Performing assets amounting Rs. 2,21,28,000/-, was embedded by the appellant, in the overall claim of deduction made towards provision for Bad and Doubtful debts. Section 36(1)(viia) allows for deduction in respect of provision made for Bad and Doubtful debts, in computing income in the hands of certain Banks and specified financial intermediaries, subject to conditions specified therein. However, provisions made for Performing assets (i.e. assets which have 7 not turned \"Bad\" in as much as those continue to yield regular returns) are not a permissible deduction under section 36(1)(viia). This act of embedding the amount of provisions made for Performing/Standard assets (which is not a permissible deduction), in the overall claim of provisions made for Bad and Doubtful debts (which is an allowable deduction under section 36(1) (viia)), on part of the appellant, tantamounts to furnishing of inaccurate particulars of income within the meaning of section 271(1)(c) of the Act. In other words, this is not a case of merely making a wrong claim of deduction; rather an instance where inaccurate particulars have been furnished so as to claim an enhanced amount of deduction. On these facts, I am inclined to concur with the view of the AO that the appellant has furnished inaccurate particulars of income which was liable to be visited with penal action as per section 271(1(c). 5.4 On similar facts, Hon'ble High Court of Allahabad in the case of Hamirpur District Co-operative Bank Ltd. Vs CIT (2019) (103 taxmann.com 350) (Allahabad) has held that where Assessing Officer having noticed that assessee, a co- operative bank, had debited amount of advance tax paid under head other expenditure and it had also debited a certain amount in profit and loss account as loss from sale of or dealing with non-banking business even though it was not an expense but an appropriation of profit disallowed said amounts and included same in income of assessee and also imposed penalty upon it under section 271(1)(c), penalty was rightly imposed. SLP filed against the High Court order has been dismissed by Hon'ble Supreme Court in this case reported at (2020) (113 taxmann.com 447) (SC). 5.5 The various judicial precedents relied upon by the appellant, on the above issue, are of no avail as the facts of the instant case are distinguished, as elaborated in preceding paragraphs. 5.6 In view of the facts and circumstances of the case, and the prevailing position of law applicable on such facts, as discussed in the preceding paragraphs, I find that the penalty under section 271(1)(c) for furnishing inaccurate particulars of income has been correctly imposed by the AO and does not call for any interference. Accordingly, the penalty of Rs. 66,38,400/- imposed by the AO at the rate of 100 percent of tax sought to be evaded by reason of concealment of income is confirmed. This Ground of appeal is dismissed.” 11. We have heard the rival contentions and purused the material available on record. Firstly, on perusal of the penalty order, it is noted that the AO has referred to the order of the ld CIT(A) in the context of quantum proceedings and has held that since the ld CIT(A) has confirmed the disallowance, the assessee has furnished inaccurate particulars of income and he is satisfied that the assessee has committed default by concealing income/furnishing inaccurate particulars of income and rendered itself liable for levy of penalty under section 271(1)(c) of the Act. We therefore find that the AO has levied the penalty 8 merely basis confirmation of disallowance in the quantum proceedings. It is a settled legal proposition that the quantum and penalty proceedings are independent proceedings. Though the initiation of penalty proceedings happens during the course of assessment proceedings and has to be evident and emerges from the assessment order, however, before the penalty is fastened on the assessee, the AO has to record independent finding justifying the charge of furnishing of inaccurate particulars of income or for concealment of particulars of income. In the present case, we find that there is no independent and specific finding which has been recorded by the AO as to why he is of the belief that the charge of furnished inaccurate particulars of income can be fastened on the assessee and the reasons for arriving at such a finding. Given that penalty provisions have to be strictly construed and unless it is demonstrated that the case of the assessee falls within the four corners of provisions of section 271(1)(C), the penalty cannot be levied under the provisions of the Act and therefore, on this count itself, the penalty so levied deserve to be set-aside. 12. Further, from perusal of the assessment order wherein the AO has referred to the provision created by the assessee towards the standard assets amounting to Rs 2,21,28,000/- in its books of accounts and which has been set off against the interest income, it is noted that it is the AO who has held that such a provision is not on account of non-performing assets which may be allowed under section 36(1)(viia) of the Act and thereafter, after issuance of show-cause has made the subject disallowance holding that RBI directions have no relevance to the treatment of taxable income, that RBI Act and Income tax Act operates in different field and also under section 36(1)(viia), such a provision cannot be allowed. We therefore find that as far as disclosure of provision towards the standard assets in the books of accounts and basis thereof, in the return of income, there is an adequate disclosure on part of the assessee. Secondly, the assessee has not specifically make any such claim under Section 9 36(1)(viia) rather the AO while analyzing such a claim which has been made by way of setting off against the interest income, has held that such a claim is not allowable under section 36(1)(viia) of the Act. And such a claim in respect of which there is adequate disclosure in the return of income and which is held disallowable by the AO under section 36(1)(viia) in the quantum proceedings cannot lead to a situation where the charge of furnishing of inaccurate particulars of income can be fastened on the assessee without leading any positive evidence to the effect that there is wrong furnishing of information vis-à- vis the said claim while filing the return of income. 13. Further, 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 that where there is no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false, there would be no question of inviting the penalty under Section 271(1)(c) of the Act and 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 and the penalty was held not sustainable in the eyes of law. It would be useful to refer to the findings of the Hon’ble Supreme Court and the same read as under: “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 10 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 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.” 14. In light of aforesaid discussions and in the entirety of facts and circumstances of the case and respectfully following the decision supra, the levy of penalty u/s 271(1)(c) is hereby directed to be deleted. 15. In ITA No. 805/CHD/2023 pertaining to Assessment Year 2013-14, both the parties fairly submitted that the facts and circumstances of the case are exactly identical and similar contentions as raised aforesaid in ITA No. 804/CHD/2023 may be considered. In light of submissions made by both the parties, our findings and directions contained in ITA No. 804/CHD/2023 shall apply mutatis mutandis to this matter and the penalty so levied is hereby directed to be deleted. 16. In the result, both the appeals of the assessee are allowed. Order pronounced in the open Court on 28.01.2025. Sd/- Sd/- राजपाल यादव व!म #संह यादव (RAJPAL YADAV) (VIKRAM SINGH YADAV) उपा\u001cय\u001d/VICE PRESIDENT लेखा सद(य/ ACCOUNTANT MEMBER AG 11 आदेश क! \u001d\u000eत,ल-प अ.े-षत/ Copy of the order forwarded to : 1. अपीलाथ\u001c/ The Appellant 2. \u001d\u001eयथ\u001c/ The Respondent 3. आयकर आयु/त/ CIT 4. -वभागीय \u001d\u000eत\u000eन2ध, आयकर अपील&य आ2धकरण, च4डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड\u0012 फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar "