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TMI Blog2010 (9) TMI 1142X X X X Extracts X X X X X X X X Extracts X X X X ..... issue raised in the present appeal is against levy of penalty u/s 271 (1)(c) of the Act amounting to ₹ 8,35,26,111/-. The brief facts of the case are that the assessee is State Financial Corporation. During the year under consideration a provision of bad and doubtful debts amounting to ₹ 23,01,41,589/- was made. The said amount was claimed as an allowable business expenditure under proviso to section 36(1)(viia) (c) of the Act. The Assessing Officer observed that as per scheme of the section, the expenditure was allowable only upto 5% of the total income, before deduction under this section and Chapter VI A of the Income Tax Act. The total income on verification of the books of account for the purpose of the aforesaid section was computed by Assessing Officer at ₹ 1,80,58,083/-. The computation of the said income is incorporated at page 6 of the assessment order. As per the Assessing Officer, the expenditure allowable u/s 36(1) (viia) (c) of the Act being 5% of the total income works to ₹ 9,02,904/-. The assessee had claimed expenditure of ₹ 2,33,728,300/- and hence excess claim of ₹ 23,28,25,396/- was disallowed by the Assessing Officer. The sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction on the advise and under a bonafide belief that the deduction was allowable. It was further stated that there was no conscious concealment of facts and the assessee had not furnished any inaccurate particulars of income. Further, the assessee claimed that it was not guilty of any fraud or gross and willful neglect in claiming the deduction. The assessee relied upon the various decisions for this proposition. Further, plea of the assessee was that any addition does not automatically lead to levy of penalty u/s 271 (1)(c) of the Act. Reliance was placed on the following cases: i) Union of India Others Vs. Dharmendra Textiles Processors and Others (2006) 306 ITR 277 (SC) ii) Brook Bond India Ltd Vs. CIT (1997) 225 ITR 798 (SC) iii) CIT Vs. SSP P. Ltd (2008) 302 ITR 43 (P H) 6. The assessee further contended that it was not covered under the Explanation 1A or 1B to section 271(1) of the Act. The deduction was claimed under a reasonable and bonafide belief that if the first limb of the proviso is considered, then deduction is allowable for Assessment Year 2004-05 and 2005-06. The explanation offered was claimed to be bonafdie as the same was based on the advise of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to ensure that wrong claim are not made in the return . The Assessing Officer further relied on the ratio laid down in Union of India Vs. Dharmendra Textiles Processors [306 ITR 277) (SC) for the proposition that there was an element of limit of strict liability on the assessee for concealment or for giving inaccurate particulars, while filing the return of income. It was further held by the Hon'ble Supreme Court that penalty u/s 271 (1)(c) of the Act was a civil liability and that willful concealment is an essential ingredient for attracting civil liability. The Assessing Officer held as under:- 8. Hence from the above discussion, it is clear that the assessee has furnished inaccurate particulars of income to the extent of ₹ 23,28,25,396/- i.e. excess deduction claimed which was not allowable for the Assessment Year 2005-06 as per the bare provisions of the proviso to section 36 (1)(viia) (c). The assessee has thus committed the default as contemplated by section 271 (1)(c) read with Explanations 1 4(a) in respect of the total amount of ₹ 23,28,25,396/- for which penalty as provided in section 271(1)(iii) is imposable ... 8. The Assessing Officer th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffered by the Appellant is not bonafide. The argument of the counsel that addition made does not automatically lead to penalty is correct. However, in the present case the Assessing Officer has proved that the explanation offered by the Appellant is false and the explanation is not bonafide. Hence the cases laws relied upon by the counsel do not help the Appellant. The addition made by the Assessing Officer is not on a debatable issue. Hence, the Jurisdictional High Court decision in CIT Jalandhar Vs. M/s Indersons Leather Pvt Ltd Jalandhar and the case of CIT Faridabad Vs. M/s SSP Ltd Faridabad do not help him. The Assessing Officer has rightly placed reliance on the Hon'ble Kerela High Court decision reported in 313 ITR 413 in which it is held that the assessee cannot escape from penalty by taking the plea of the wrong advice of the counsel. The Hon'ble High Court held that it was for the assessee to ensure that wrong claims are not made in the return. The Assessing Officer has also rightly placed reliance on the judgement in the case of Union of India Others Vs. Dharmendra Textiles Processors and Others reported in 306 ITR 277 (SC) in which the Hon'ble Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either starting from 1.4.2003 or 1.4.2004. He further submitted that once the deduction has been allowed in Assessment Year 2004-05, then the second consecutive year was Assessment Year 2005-06, but the said claim has been disallowed by the Tribunal. The learned AR for the assessee pleads that the claim of the assessee was bonafide and correct as the provision was made bonafidely because of the provisions of the said section. The material facts in connection with the said claim of deduction were made available with the Assessing Officer. The learned AR further drew our attention to the fact that in Assessment Year 2008-09, the assessee had written off the said sum as bad debts and the same were allowed pursuant to the revised return filed by the assessee. The copy of the return of income relating to Assessment Year 2008-09 is furnished at pages 21 23 of the paper book. The learned AR clarified that the Assessing Officer during the year had allowed the claim to the extent of ₹ 9,02,904/- and the balance claim was rejected. The learned AR for the assessee placed reliance on the ratio laid down by the Apex Court in CIT Vs. Reliance Petro Products Pvt Ltd 322 ITR 158 (SC) and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticulars of income. 12. We have heard the rival contentions and perused the records. Penalty for concealment is leviable u/s 271 (1)(c) of the Act in case any one of the two pre-conditions are satisfied. The pre-conditions for levy of penalty are either the assessee should have concealed the particulars of its income or in the alternative, the assessee should have furnished inaccurate particulars of income. Either of the two conditions needs to be fulfilled before levy of penalty u/s 271 (1)(c) of the Act. The provisions of the Act envisages an opportunity of hearing to be afforded to the assessee to prove its bonafides and where the assessee is able to prove the bonafides of his claim, with regard to the particulars of income furnished in the return of income, in such circumstances no penalty is leviable for concealment of income or for furnishing inaccurate particulars of income u/s 271 (1)(c) of the Act. The expressions concealment and inaccurate particulars u/s 271 (1)(c) of the Act has been deliberated upon in plethora of judgments by various Courts. The Hon'ble Supreme Court in Dharmendra Textiles Processors case (supra), observed that the penalty u/s 271 (1)(c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t amount to inaccurate particulars. (underlined supplied by us) 14. The Hon'ble Supreme Court in CIT, Ahemdabad Vs. Reliance Petroproducts Pvt Ltd (supra) further noted that in the facts of the case before it, there were no findings that any details supplied by the assessee in its return of income were not incorrect or erroneous or false nor any statement made or any details supplied was found to be factually incorrect. The Court thus held that merely because the assessee had claimed the expenditure, which was not accepted or was not acceptable to the Revenue, that by itself would not, attract penalty under section 271 (1)(c) of the Act. It was also laid down by the Court that the intendment of the Legislature is not to levy penalty u/s 271 (1)(c) of the Act in case of every non acceptance of claim made by the assessee in the return of income, 15. Similar ratio has been laid down by the Hon'ble Punjab Haryana High Court in CIT Vs. Shahbad Cooperative Sugar Mills Ltd [322 ITR 73 (P H)], wherein it has been observed that making wrong claim for deduction, does not amount to concealment or giving of inaccurate particulars within the meaning of section 271 (1)(c) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. 19. The proviso to section 36(1)(viia)(c) of the Act was introduced by Finance Act 2002, w.e.f. 1.4.2003 under which it was proposed to provide deduction of an amount not exceeding 10% of provision of bad and doubtful debts or losses to public financial institutions. Similar claim was made in Assessment Year 2004-05 and this year being consecutive, further claim was made. While introducing the said proviso to section 36(1)(viia)(c ) of the Act in the Finance Bill for 2002-03, the Finance Minister in its Budget Speech observed as under;- Presently, banks are allowed to deduct upto 5% of their total income against provisions made by them for bad and doubtful debts. In order to strengthen the financial position of banks, I propose to increase this allowance to 7.5% of the total income. Further, in my budget for the year 1999-2000, I had granted an option to banks to deduct upto 5% of their NPAs falling in the category of loss or doubtful assets as on the last day of the accounting year. I propose to enhance this optional deduction to 10% and also allow a similar option of deduction upto 10% of loss or doubtful assets to public financial institutions. 20. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve Assessment Years commencing on or after first day of April 2003 and ending before first April, 2005, deduction in respect of provision made for doubtful assets or losses, in accordance with the guidelines issued by Reserve Bank of India, shall be allowable of an amount not exceeding 10% of the amount of such assets shown in the books of account as on the last day of the previous year of the concerned institution. 23. Undoubtedly, the assessee before us is a State Financial Corporation and had claimed the deduction under the proviso to section 36(1)(viia)(c ) of the Act in Assessment Year 2004-05 for the first time. The Tribunal in ITA No.80/Chd/2009 vide order 30.3.3009 relating to Assessment Year 2004-05, held the assessee entitled to the claim of deduction under the aforesaid proviso and the issue was set aside to the file of Assessing officer to determine the deduction allowable to the assessee. The assessee claimed similar deduction in Assessment Year 2005-06. The contention of the assessee in this regard was that as per the first limb, the deduction for any of the two consecutive years is allowable which means that there are more than two blocks of consecutive Assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng before First day of April, 2005. From the bare reading of the provisions of the Act, we find that the disallowance in the hands of the assessee is purely on difference of opinion in interpretation of law. The assessee had furnished complete particulars in respect of the claim of deduction in the return of income and no discrepancy has been pointed out by the authorities below in this regard. The deduction was not allowed to the assessee holding that the same is not allowable for the period commencing from First day of April, 2005. The year under consideration is Assessment Year 2005- 06. However, the claim of the assessee in respect of deduction on account of provisions for bad and doubtful debts had been allowed under the substantive provisions of the section 36(1)(viia)(c) of the Act and not under the proviso to the said section. 25. The issue which arises before us that in view of the above said facts and circumstances whether the assessee is exigible to levy of penalty u/s 271(1)(c) of the Act. The assessee had made a claim under the provisions of Act which was ultimately found to be not acceptable and the same cannot be said to amount to furnishing inaccurate particulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing officer. The CIT(A) deleted the penalty u/s 271(1)(c) of the Act. relying on the ratio laid down by the Hon'ble Punjab Haryana High Court in CIT Vs. Ajaib Singh and Co. 253 ITR 630(P H), wherein it was held that no litigant should suffer on account of mistake committed by the counsel because the advise tendered by the counsel is accepted by the litigant, which is based on bonafide belief of being correct. The Tribunal confirmed the order of CIT(A). The Hon'ble High Court upholding the order of the Tribunal held that it is not unknown that income tax returns are filed through the experts in the Income tax laws and, therefore the advise given by the learned counsel can be acted upon with bonafide belief to be correct. The appeal was dismissed as there was no substantial question of law. 28. Similar ratio has been laid down by Hon'ble High Court of Gujarat in CIT Vs. West Inn Ltd. (supra) upholding the order of the Tribunal that in view of several amendments taking place every year, where the assessee had acted upon the advise given by CA, it cannot be said that the assessee has made a false claim. 29. Following the above said ratio, we find that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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