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2012 (9) TMI 662 - AT - Income TaxPenalty u/s. 271(1)(c) - held that - the assessee s was well aware of the amendment to section 80P - assessee files its tax return only at ₹ 20.16 lakhs, i.e., at less than 1/3rd the income for which it pays advance-tax. - Clearly, some adjustments were made (to the book profit) either at the time of calculating and depositing advance-tax or while finalizing and filing the tax return. - a person can not take the advantage of its own wrong - penalty to be confirmed. The return of income, as it appears, was prepared merely by adopting the figure of net profit as per the profit & loss account without any adjustments. Why, even the simple exercise of examining the details of various expenses, furnished before the Assessing Officer during the course of assessment proceedings, and which would exhibit it to bear sums which are clearly not allowable; rather, do not even qualify as expenditure, was not undertaken. It is rather, as we see it, a case of gross negligence and dereliction of duty and by more than one person, and would thus qualify to be a conscious disregard of its obligations. - Benefit of section 273B not extended - penalty confirmed. Taxability of interest accruing on the non-performing asset (NPA) - whether non-recognizing interest income on NPAs by the assessee-bank following RBI guidelines, as a matter of accounting policy, would by itself constitute a valid ground for not recognizing the said income on the basis of its non-accrual; the adopted method of accounting being admittedly mercantile? - held that - even section 43D gives primacy to the bank s accounts, so that where interest stands credited to the profit and loss account for a particular year, the same is to be treated as its income for that year even where not received. - Decided against assessee. Accrual (or otherwise) of an income (or expenditure) is matter of fact, to be decided separately for each case, on the basis of the assessment of the obtaining facts and circumstances. The same cannot be stated as an accounting policy - which by its very nature is to be applied uniformly, except where it is stated in broad terms, bearing the necessary ingredients of the qualifying criterion, i.e., existence of a reasonable certainty as to ultimate realization at the time of raising the claim or even as at the end of the accounting period. The adopted accounting policy, i.e., recognizing income on NPA accounts only subject to realization, does not serve as a valid qualifying category as there could be other mitigating factors, making it reasonable to expect realization despite the account being a NPA. Where there is a difference in the provision (for bad and doubtful debts) in accounts and that allowable or allowed u/s. 36(1)(viia), the assessee shall tabulate a parallel provision statement u/s. 36(1)(viia), annexing it as a part of its computation of income with the return of income, each year, explaining the difference/s therein with reference to its accounts. The assessee s claim qua ₹ 19.23 lacs on the basis of non-receipt of interest income, thus, stands rightly rejected by the Revenue - against assessee. The assessee would only be entitled to a provision for bad and doubtful debts u/s. 36(1)(viia) qua its total advances, including interest debited to the borrower s account and, therefore, forming part of its asset base - The A.O. shall, however, while giving effect to this order, verify and allow the assessee s claim u/s. 36(1)(viia) as eligible under law, seeking the relevant, primary details from the assessee as deemed fit by him.
Issues Involved:
1. Leviability of penalty under section 271(1)(c) of the Income-tax Act, 1961 for assessment year 2007-2008. 2. Taxability of interest on non-performing assets (NPA) for assessment year 2008-2009. Detailed Analysis: I.T.A. No. 114/Lkw/2012 (A.Y. 2007-2008) Background Facts: The assessee, a cooperative bank, filed its return of income for the year 2007-2008, claiming deductions that were disallowed by the AO. The dispute centers around the penalty levied under section 271(1)(c) for these disallowances. The Arguments: - Assessee's Argument: The assessee claimed the deductions due to a genuine mistake and lack of professional tax advice. It argued that there was no intention to conceal income or furnish inaccurate particulars. - Revenue's Argument: The Revenue contended that ignorance of law is no excuse, especially for a bank. The deductions were clearly non-allowable, and the assessee failed to revise its return even after receiving notice. The onus to prove the bonafides of the claim was not discharged by the assessee. Findings: - The primary facts were undisputed, and the main issue was whether the incorrect claims were due to a bonafide mistake or a deliberate act. - The court emphasized that for penalty under section 271(1)(c) to be levied, the conditions stated therein must exist. The provision defines two scenarios (Explanation 1(A) and 1(B)) as constituting deemed concealment, which shifts the onus on the assessee to prove non-deliberateness or bonafides. - The court found that the assessee's claim lacked a reasonable explanation and was not a bonafide mistake. The deductions claimed (income-tax paid and reserve funds) did not qualify as business expenses and were clearly not allowable. - The court concluded that the assessee's actions constituted both concealment of particulars of income and furnishing inaccurate particulars thereof. The penalty under section 271(1)(c) was upheld. Conclusion: The levy of penalty under section 271(1)(c) was confirmed, and the appeal was dismissed. I.T.A. No. 115/Lkw/2012 (A.Y. 2008-09) The Respective Cases: - Revenue's Case: The interest on NPAs was brought to tax by disallowing the provision for bad and doubtful debts. The Revenue argued that the prudential norms issued by NABARD/RBI do not override the provisions of the Income-tax Act. - Assessee's Case: The assessee argued that the interest income on NPAs should not be recognized due to uncertainty in realizability, following the prudential norms. It cited the real income theory and relevant case law to support its claim. Findings: - The court acknowledged the real income theory, stating that income accrues based on commercial principles subject to the provisions of the Income-tax Act. - The court found that the prudential norms by NABARD/RBI do not automatically lead to non-recognition of income for tax purposes. The characterization of an account as NPA does not suffice to claim non-accrual of income. - The court emphasized that accrual of income is a matter of fact and must be assessed based on the specific circumstances of each case. The assessee's accounting policy of non-recognition of income on NPAs solely based on their classification was not acceptable. - The court noted that the assessee had actually recognized the interest income in its books and made a provision for bad and doubtful debts, which was allowable under section 36(1)(viia). Conclusion: The court rejected the assessee's claim of non-recognition of interest income on NPAs and upheld the Revenue's disallowance. The appeal was dismissed. Final Judgment: Both appeals by the assessee were dismissed. The penalty under section 271(1)(c) for the assessment year 2007-2008 was upheld, and the disallowance of interest on NPAs for the assessment year 2008-2009 was confirmed.
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