2012 (6) TMI 441 - AT - Income Tax

Penalty - penalty proceedings under s. 271(1)(c) of the Act were initiated and notice under s. 274 r/w s. 271 of the Act was issued to the assessee for furnishing inaccurate particulars of loss - AO categorically stated in the penalty order that The assessee has not discharged its onus that the wrong/inadmissible expenses is a bona fide mistake rather than done intentionally Held that - in the case of Reliance Petroproducts (P) Ltd. 2010 (3) TMI 80 - SUPREME COURT 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. appeal is dismissed

Summary

Issues Involved:
1. Legitimacy of penalty under Section 271(1)(c) for furnishing inaccurate particulars of income.
2. Applicability of Section 36(1)(viia) for deduction of provision for non-performing assets (NPA).
3. Bona fide belief and intention behind the claim of deduction.

Issue-wise Detailed Analysis:

1. Legitimacy of penalty under Section 271(1)(c) for furnishing inaccurate particulars of income:
The Revenue appealed against the CIT(A)'s order canceling a penalty of Rs. 22 lacs imposed under Section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 2006-07. The assessee had filed a return declaring a loss, which was later assessed at a reduced loss by the AO. The AO initiated penalty proceedings for furnishing inaccurate particulars of income due to a disallowed provision for NPA. The CIT(A) canceled the penalty, observing that the entire income of the assessee was deductible under Section 80P, and thus, no tax was sought to be evaded. The CIT(A) cited the Supreme Court's ruling in CIT v. Reliance Petroproducts (P) Ltd., which held that making a claim not sustainable in law does not amount to furnishing inaccurate particulars.

2. Applicability of Section 36(1)(viia) for deduction of provision for non-performing assets (NPA):
The assessee claimed a deduction for NPA provisions as per RBI guidelines, which was disallowed by the AO. The CIT(A) noted that Section 36(1)(viia) explicitly excludes primary co-operative agricultural and rural development banks from claiming such deductions. Despite this, the CIT(A) found that the assessee's claim was made under a bona fide belief and was not a deliberate attempt to evade tax. The provision for NPA was integral to the banking business and was checked by auditors before finalizing the balance sheet. The CIT(A) concluded that the claim was a bona fide mistake rather than an intentional act of furnishing inaccurate particulars.

3. Bona fide belief and intention behind the claim of deduction:
The CIT(A) and the Tribunal both considered the assessee's claim as a bona fide mistake. The Tribunal noted that the assessee made the NPA provision as per RBI guidelines, and the auditors verified it. The Tribunal referred to the Supreme Court's decision in Reliance Petroproducts (P) Ltd., which stated that merely making an incorrect claim does not amount to furnishing inaccurate particulars. The Tribunal also referenced cases like CIT v. Shahabad Coop. Sugar Mills Ltd. and CIT v. Manibhai & Bros., where courts held that wrong claims made under a bona fide belief do not attract penalties under Section 271(1)(c).

Conclusion:
The Tribunal upheld the CIT(A)'s decision, concluding that the assessee's claim, though incorrect, was made under a bona fide belief and did not amount to furnishing inaccurate particulars of income. The appeal by the Revenue was dismissed, reinforcing that a mere incorrect claim in law does not attract penalty under Section 271(1)(c).