2015 (8) TMI 846 - AT - Income Tax

Penalty u/s 271(1)(c) - deduction on account of provision for bad and doubtful debts as per RBI guidelines - CIT(A) deleted the penalty - Held that - Allowability of deduction u/s 36(1)(vii) and 36(1)(viia) of the Act in respect of provision for bad and doubtful debts as per RBI Guidelines was debatable issue when the return of income was filed by the assessee and therefore, the disallowance is all right but it cannot be considered as concealment of income or furnishing of inaccurate particulars of income and therefore, penalty is not justified. See Southern Technologies Ltd. v. JCIT, 2010 (1) TMI 5 - SUPREME COURT OF INDIA and Catholic Syrian Bank Ltd. v.CIT, 2012 (2) TMI 262 - SUPREME COURT OF INDIA - Decided against revenue

Issues Involved:
1. Deletion of penalty imposed under section 271(1)(c) of the Income-tax Act.
2. Interpretation of provisions related to the deduction for bad and doubtful debts under sections 36(1)(vii) and 36(1)(viia) of the Income-tax Act.
3. Applicability of the RBI guidelines in determining the provision for NPAs.
4. Relevance of judgments from various courts, including the Supreme Court, in similar cases.
5. Timeliness and impact of filing a revised return of income.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Imposed Under Section 271(1)(c):
The primary issue in the appeal was whether the penalty of Rs. 7,50,00,000/- imposed under section 271(1)(c) for furnishing inaccurate particulars of income should be deleted. The learned CIT(A) deleted the penalty, noting that the assessee's claim for deduction was made inadvertently based on RBI guidelines and was not a deliberate attempt to evade taxes. The CIT(A) relied on various judicial precedents to support this view, emphasizing that a wrong claim made under a bona fide belief does not warrant penalty under section 271(1)(c).

2. Interpretation of Provisions Related to Deduction for Bad and Doubtful Debts:
The CIT(A) noted that there has been extensive litigation regarding the deduction allowable under sections 36(1)(vii) and 36(1)(viia) of the Income-tax Act. The provision for NPAs was made as per RBI guidelines and was checked and verified by auditors. The CIT(A) observed that the mistake in claiming the provision for NPAs as a deduction was inadvertent and due to a wrong interpretation of the statute. The CIT(A) referred to several cases, including Southern Technologies Ltd. v. JCIT and Catholic Syrian Bank Ltd. v. CIT, where the matter had reached the Supreme Court, indicating the complexity and debatable nature of the issue.

3. Applicability of RBI Guidelines in Determining Provision for NPAs:
The CIT(A) acknowledged that there were conflicting judicial decisions regarding the overriding effect of RBI guidelines over the Income-tax Act. While the Hon'ble Madras High Court held that RBI directions cannot override the Income-tax Act, other decisions, such as those in TEDCO Investment & Financial Services Pvt. Ltd. v. DCIT and CIT v. Nainital Bank Ltd., suggested otherwise. The CIT(A) considered the appellant's reliance on RBI guidelines as bona fide and the resulting mistake as inadvertent.

4. Relevance of Judgments from Various Courts:
The CIT(A) and the Tribunal referred to multiple judicial precedents to conclude that a bona fide mistake does not attract penalty under section 271(1)(c). Key judgments cited include CIT v. Shahabad Co-op. Sugar Mills Ltd., CIT v. Sidhartha Enterprises, CIT v. Hindustan Computers Ltd., and CIT v. Reliance Petroproducts Pvt. Ltd. These cases collectively established that making a wrong claim under a bona fide belief does not equate to furnishing inaccurate particulars of income or concealment of income.

5. Timeliness and Impact of Filing a Revised Return of Income:
The Revenue argued that the assessee should have revised its return of income following the Supreme Court's judgment in Catholic Syrian Bank Ltd. The Tribunal, however, held that the short period available for filing the revised return (one month and a few days) was insufficient to draw an adverse inference against the assessee. The Tribunal noted that the allowability of the deduction for bad and doubtful debts was a debatable issue and the failure to file a revised return in such a short time should not be viewed adversely.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the penalty, emphasizing that the assessee's claim was made under a bona fide belief based on RBI guidelines and the complex, debatable nature of the provisions under sections 36(1)(vii) and 36(1)(viia). The Tribunal also found that the short period available for filing a revised return post the Supreme Court judgment did not justify an adverse inference. Consequently, the appeal of the Revenue was dismissed.

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