N.D.I.M.C. Bank Ltd.,, Nashik vs Assessee

N.D.I.M.C. Bank Ltd., ACIT, Central Circle-II, 1, Shivkamal Apartment, Nashik Canada Corner, Vs. Nashik-422005 (Appellant) (Respondent) PAN No. AAAAN1531A

Assessee By: Shri M.K. Kulkarni Revenue By: Shri D.S. Kothari

Date of hearing : 06-05-2015 Date of pronouncement : 15-05-2015

ORDER

PER VIKAS AWASTHY, JM:-

The appeal has been filed by the assessee against the order of

Commissioner of Income Tax (Appeals)-I, Nashik dated 18-06-2014 for

the assessment year 2010-11, confirming penalty of Rs.38,62,706/-

levied u/s. 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to

as "the Act").

2. The brief facts of the case as emanating from records are: The

assessee-appellant is a Co-operative Bank having branches in rural area.

The assessee filed its return of income for the assessment year 2010-11

on 28-09-2010 declaring total loss of Rs.3,65,60,799/-. During the

course of scrutiny assessment, the Assessing Officer observed that the 2 ITA No. 1458/PN/2014, A.Y. 2010-11

assessee has claimed provision for bad and doubtful debt u/s. 36(1)(viia)

to the tune of Rs.1,25,10,670/-. The Assessing Officer held that two

rural branches of the assessee at Niphad and Pimpalgaon Baswant in

respect of which provision has been created does not fall within the

ambit of the term "rural branch" as defined in Explanation (ia) to section

36(1)(viia). Therefore, the assessee is not eligible to claim benefit of

section 36(1)(viia) of the Act. Accordingly, disallowance of

Rs.1,25,10,670/- was made. Penalty proceedings u/s. 271(1)(c) r.w.s.

274 of the Act were also initiated for allegedly furnishing inaccurate

particulars of income. Despite service of notice the assessee did not

furnish any reasons/explanation for claiming deduction u/s. 36(1)(viia)

in penalty proceedings. The Income Tax Officer levied penalty of

Rs.38,62,706/- vide order dated 11-09-2013.

Aggrieved by the penalty order u/s. 271(1)(c), the assessee

preferred an appeal before the Commissioner of Income Tax (Appeals).

In appeal, the assessee explained that deduction u/s. 36(1)(viia) was

wrongly claimed by the Accountant. It was a bonafide mistake on his

part. The First Appellate Authority rejected the submissions of the

assessee and confirmed the penalty order. Now, the assessee has come

in second appeal before the Tribunal assailing the findings of the

Commissioner of Income Tax (Appeals).

3. Shri M.K. Kulkarni appearing on behalf of the assessee submitted

that the assessee is a Co-operative Society and is engaged in the banking

business. The assessee Co-operative Bank was required to create

provision for non-performing assets (NPA) in accordance with the

Reserve Bank of India guidelines. The Accountant of the bank wrongly

made provision for bad and doubtful debts u/s. 36(1)(viia). The mistake 3 ITA No. 1458/PN/2014, A.Y. 2010-11

that crept in at the initial stage could not be pointed out subsequently

due to oversight. The ld. AR submitted that the bank has suffered huge

losses and there was no deliberate intention on the part of Accountant or

any staff of the bank to claim undue advantage. The mistake is

bonafide. The ld. AR further submitted that the assessee had furnished

full and complete particulars, if at all any deduction is wrongly claimed it

does not amount to filing of inaccurate particulars. In order to support

his submissions the ld. AR placed reliance on the judgment of the

Hon'ble Supreme Court of India rendered in the case of CIT Vs. Reliance

Petroproducts (P) Ltd. reported in 322 ITR 158 (SC).

4. Shri D.S. Kothari representing the Department contended that the

explanation furnished by the assessee for wrongly claiming deduction

u/s. 36(1)(viia) is not acceptable. The assessee has furnished inaccurate

particulars of income, therefore, penalty u/s. 271(1((c) is leviable. The

ld. DR strongly supported the findings of Commissioner of Income Tax

(Appeals) and prayed for dismissing the appeal of the assessee.

5. We have heard the submissions made by the representatives of

rival sides and have perused the orders of the authorities below. It is an

undisputed fact that the assessee is a Co-operative Society carrying on

banking business. It is also not disputed that the assessee has suffered

huge losses in the impugned assessment year. The assessee has

claimed deduction u/s. 36(1)(viia) in return of income. The explanation

given by the assessee for making wrong claim in respect of its rural

branches is, that the Accountant who had prepared the accounts was

ignorant about the fact that the population of rural areas i.e. Niphad and

Pimpalgaon Baswant is more than ten thousand. Therefore, the 4 ITA No. 1458/PN/2014, A.Y. 2010-11

branches located at above two places do not fall within the ambit of the

term rural branches.

We are of the view, that the explanation furnished by the assessee

seems to be fairly justified. The assessee is a Cooperative Bank and the

employees/Accountant would not have gained by giving false or

inaccurate particulars. The bonafide mistake committed by the

Accountant at initial stage remained un-detected even during audit due

to oversight.

6. Be that as it may, the assessee had claimed wrong deduction

u/s. 36(1)(viia). It is not the case of Revenue that vital information was

concealed or not furnished by the assessee. The assessee had furnished

complete particulars without camouflaging any transaction. The Hon'ble

Supreme Court of India in the case of Reliance Petroproducts (P) Ltd.

(supra) has held; "By any stretch of imagination, making an incorrect

claim in law cannot tantamount to furnish inaccurate particulars". The

Hon'ble Apex Court further observed that merely because the assessee

had claimed deduction which has not been accepted by the Revenue,

penalty u/s. 271(1)(c) cannot be levied. Mere making of a claim which is

not sustainable in law, by itself, will not amount to furnishing of

inaccurate particulars regarding the income of the assessee.

7. In the present case it is evident that the assessee had made wrong

claim u/s. 36(1)(viia) with respect to two rural branches i.e. Niphad and

Pimpalgaon Baswant, without ascertaining whether the aforesaid two

branches fall within the definition of term "rural branches" or not. It is

not a case of concealment of income or furnishing of inaccurate

particulars. At the most it can be termed as reckless claim. For 5 ITA No. 1458/PN/2014, A.Y. 2010-11

invoking penal provisions for filing inaccurate particulars, deliberate act

or omission on behalf of the assessee should be made out.

In view of the facts of the case and the law laid down by the

Hon'ble Supreme Court of India, we are of the considered view that it is

not a case for levy of penalty u/s. 271(1)(c). Accordingly, we set aside

the impugned order and allow the appeal of the assessee.

Order pronounced on Friday, the 15th day of May, 2015

at Pune

Sd/- Sd/-

(R.K. PANDA) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Pune, Dated: 15th May, 2015 RK/PS

Copy to

1 Assessee 2 Department 3 The CIT(A)-I, Nashik 4 The CIT-I, Nashik 5 The DR, ITAT, "B" Bench, Pune. 6 Guard file.

//True Copy// By Order

Assistant Registrar, Income Tax Appellate Tribunal, Pune