2018 (6) TMI 610 - AT - Income Tax

Initiation of penalty u/s. 271(1)(c) - assessee had deliberately claimed a deduction under the head Investment Depreciation Reserve without routing the same through the P & L account - Held that - Assessee is a co-operative bank which held various government securities - the assessee in the return of income has claimed deduction on account of depreciation in value of the securities - thus the claim of deduction by the assessee cannot be said to be a subject matter of levy of penalty u/s. 271(1)(c), just because assessee has accepted the quantum disallowance - assessee has duly disclosed all the necessary materials - just because assessee has not routed the same through profit and loss account does not by itself said to be a contumacious conduct warranting levy of penalty u/s. 271(1)(c) - hence, the assessee cannot be held to be guilty of either concealment of income of furnishing of inaccurate particulars of income - Decided in favor of assessee.

Summary

Issues Involved:
1. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the assessee's claim for deduction under the head "Investment Depreciation Reserve."

Detailed Analysis:

Issue 1: Deletion of Penalty Levied Under Section 271(1)(c)

Background:
- The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which deleted the penalty imposed under Section 271(1)(c) for the assessment year 2007-08.
- The penalty was levied due to the assessee's claim of a deduction of ?8,21,77,045/- towards "Investment Depreciation Reserve" without routing it through the Profit & Loss (P&L) account.

Findings:
- The CIT(A) concluded that the assessee's mistake was bona fide and did not amount to concealment or furnishing of inaccurate particulars of income.
- The CIT(A) relied on several judicial precedents, including CIT vs. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 (SC), which held that an incorrect claim in the return of income does not amount to furnishing inaccurate particulars of income.
- The CIT(A) noted that the assessee had disclosed all necessary facts and was under a bona fide belief that the deduction was allowable.

Conclusion:
- The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee's conduct did not warrant the levy of penalty under Section 271(1)(c).
- The Tribunal referenced similar cases, including ITAT Mumbai's decision in Vasai Vikas Sahakari Bank Ltd., where penalties were deleted under similar circumstances.

Issue 2: Validity of the Assessee's Claim for Deduction Under "Investment Depreciation Reserve"

Background:
- The assessee, a cooperative bank, claimed a deduction of ?8,21,77,045/- towards "Investment Depreciation Reserve" based on a Reserve Bank of India (RBI) circular issued on 13-07-2005.
- The Assessing Officer (AO) disallowed the claim, arguing that it was not routed through the P&L account and was, therefore, not allowable.

Findings:
- The assessee had previously added back the amounts in the computation of income for the respective years, as they were not allowable at the time.
- The assessee relied on the Supreme Court's decision in United Commercial Bank Vs. CIT, which held that not making proper entries in the P&L account could not be a ground for not assessing real income.
- The CIT(A) allowed the claim to the extent of ?82.17 lacs towards amortization of premium, which the assessee accepted without further appeal.

Conclusion:
- The Tribunal found that the AO's distinction between claims under Section 37 and depreciation on investment was incorrect.
- The Tribunal noted that the market value of the securities was ?67.74 crores against the purchase price of ?85.36 crores, resulting in a depreciation of ?17.62 crores. The assessee claimed only ?8.21 crores, which was well within this depreciation.
- The Tribunal concluded that the claim was bona fide and did not constitute a contumacious conduct warranting penalty.

Summary:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the penalty levied under Section 271(1)(c). The Tribunal found that the assessee's claim for deduction under "Investment Depreciation Reserve" was made in good faith, with all necessary facts disclosed, and did not amount to concealment or furnishing of inaccurate particulars of income. The decision was supported by relevant case laws and judicial precedents.