2017 (8) TMI 1248 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee furnishing NIL income by claiming deduction u/s 80P which is not allowable to it as per IT law - furnishing of inaccurate particulars of income - Held that - The explanation offered by the assessee bank though not accepted finally but at the same time has not been found devoid of any basis. It is not a case that the language of the amended statute was held so clear that the assessee was not eligible for claim of deduction on prima facie reading of the amended statute. The language involved in the statute involves interpretation and even the CBDT has admitted the same in its circular no. 6/2010 dated 20.09.2010 and has therefore vide the said circular has clarified that regional rural bank such as the assessee in the present case will not be eligible for deduction under section 80P from assessment year 2007-08. The assessee thus has some reasonable basis for claim of deduction u/s 80P of the Act even after the amendment by the Finance Act 2006 and it has thus established its bonafide of such claim in its return of income. It is also a fact that the said explanation has not been finally accepted and disallowance of claim of deduction u/s 80P has been sustained by the Coordinate Bench and the assessee has not filed any further appeal however the same cannot be a basis for levy of penalty which calls for strict interpretation as we have held above. Thus respectfully following the decision of the Hon ble Supreme Court in case of Reliance Petroproducts 2010 (3) TMI 80 - SUPREME COURT saying mere making of a claim which is not sustainable in law by itself does not amount to furnishing of inaccurate particulars of income the fact that necessary disclosure has been made in the return of income in respect of claim of deduction under section 80P the assessee has offered the necessary explanation and the basis in support of the said claim establishing its bonafide and the said explanation has not been found totally devoid of any basis mere disallowance of claim of deduction u/s 80P of the Act cannot form the basis for levy of penalty for furnishing inaccurate particulars of income. We accordingly confirm the order of ld CIT(A) deleting the levy of penalty and the ground taken by the Revenue is hereby dismissed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Claim of deduction under Section 80P of the Income Tax Act, 1961.
3. Interpretation of the term "Primary Co-operative Agricultural and Rural Development Bank" under Section 80P(4).

Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c):
The primary issue was whether the CIT(A) was justified in deleting the penalty of ?4,20,00,000 imposed by the AO under Section 271(1)(c) for furnishing inaccurate particulars of income. The Revenue argued that the penalty was justified as the assessee furnished inaccurate particulars by claiming a deduction under Section 80P, which was not allowable. However, the CIT(A) and the Tribunal found that merely making a claim that is not sustainable does not amount to furnishing inaccurate particulars. The Tribunal cited the Supreme Court's decision in Reliance Petro Products Pvt. Ltd. (322 ITR 158), which held that mere disallowance of a claim does not justify a penalty for inaccurate particulars.

2. Claim of Deduction under Section 80P:
The assessee, a cooperative bank, claimed a deduction under Section 80P, which was disallowed by the AO and later sustained by the Tribunal. The CIT(A) initially allowed the claim, but the Tribunal reversed this decision. The Tribunal noted that the assessee provided all necessary details in its return, and the claim was disallowed based on interpretation rather than concealment or furnishing of inaccurate particulars. The Tribunal emphasized that the assessee's explanation was bona fide and not devoid of any basis, thus not warranting a penalty.

3. Interpretation of "Primary Co-operative Agricultural and Rural Development Bank":
The Tribunal examined whether the assessee qualified as a "Primary Co-operative Agricultural and Rural Development Bank" under Section 80P(4). The AO argued that the assessee did not meet the criteria as it operated in urban areas and provided various loans not directly related to agricultural and rural development. The assessee contended that its primary business was granting long-term credit for agricultural and rural development, and it operated mainly in rural areas. The Tribunal found that the assessee had a reasonable basis for its claim, supported by the Regional Rural Banks Act, 1976, and previous CBDT Circulars. The Tribunal concluded that the assessee's claim, though disallowed, was bona fide and did not justify a penalty under Section 271(1)(c).

Conclusion:
The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decision to delete the penalty. It emphasized that the disallowance of a claim does not automatically lead to a penalty for furnishing inaccurate particulars if the claim is made in good faith and with full disclosure. The Tribunal's decision was based on a strict interpretation of penal provisions and the bona fide nature of the assessee's claim.