AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2013 (11) TMI 320
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....alse or not bona fide. The appellant therefore contends that the provision of section 271(1)(c) were not at all attracted. Ground no.II The CIT (A) misdirected himself in the fact and circumstances of the case and in holding that the assessee has failed to prove that its explanation is bona fide. The CIT (A) failed to appreciate that,- i) The assessee was entitled to deduction u/s 80P(2)(a)(i) in respect of income from providing credit facilities to members. ii) In respect of his other income from investments etc he was entitled to such deduction by virtue of the deeming provision of section 176 (3A). The assessee, therefore contends that its claims for deduction were bona fide, within the frame work of law and therefore the CIT (A)'s observation to the contrary was perverse and does not flow from the fact of the case. Ground No.III The Ld CIT (A) has erred in fact and in law, in not accepting the assessee's submissions that,- a) The assessee has not concealed any income. b) The assessee has not submitted any inaccurate particulars of income. c) AO has filed to establish that the assessee has furnished inaccurate particulars of income. d) AO h....
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.... claim of deduction under section 80P(2)(a)(i) of the Act. The assessee explained before the Assessing Officer that banking business was carried on special circumstances i.e. in the process of winding up the Bank. The Bank which carried banking business till 29.10.2003 cannot be suddenly said to be not carrying banking business on 30.10.2003. The business is to be carried on for some time for the sake of closure of the said banking activity. The nature of business i.e. banking, cannot change by mere cancellation of license by the RBI. The process of closing down or liquidating of business is natural to any de-licensed organization. The bank cannot stop making income which will continue to come by way of interest on investment already made or interest on loan/advances already given and outstanding as on the date of cancellation of the license. The assessee further submitted that the RBI cancelled the license and only denied the assessee from transacting business as mentioned under section 5(b) of the B.R. Act. The assessee was not barred from doing any form of business activities as mentioned in section.6 of the B.R. Act. AO rejected the said submissions of the assessee. Since the a....
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.... relatable to the credit facilities amounting to Rs. 1,26,03,473/-. Appellate Proceedings on Disallowance of Claim of Deduction 7. During the first appellate proceedings, it was contended that the assessee was a cooperative bank carrying on its banking activities in accordance with a validly granted license which was in operation and the activities were carried on validly pursuant to the license issued by the RBI and as such the assessee was entitled to exemption under section 80P(2)(a)(i). It was further contended that the assessee being a cooperative society is also involved in providing credit facilities to its members. Therefore, the claim is allowable on either of the activity i.e. banking or providing credit facilities. It was further submitted that the assessee is a cooperative society involved in either of the two activities, income from other sources are also exempted following the decision of the Hon'ble Supreme Court in the case of CIT vs. Karnataka State Cooperative Apex Bank, 251 ITR 194. Considering the submissions of the assessee, the CIT gave relief by holding as under: "3.9. I have carefully considered the submissions of the learned Authorized Representati....
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....ssee and revenue are contesting the issue on the directions of the CIT in this regard. Thus, after giving effect to the order of the CIT(A), the assessed income modified worked out to Rs 36,29,58,998/-. Proceedings before the Tribunal 10. During the appellate proceedings before the Tribunal on the merits of denial of claim of deduction u/s 80P(2)(a) of the Act, the Revenue contended that the impugned receipts tabulated in the subsequent paragraphs cannot be considered as income from banking business and relied on the judgment of the Hon'ble Supreme Court in the case of Totgars Cooperative Sales Society Ltd. Vs. ITO (322 ITR 283) (SC). It is the submission of the Revenue that since the assessee is a cooperative society, the income from the so called banking activities cannot be allowed as a deduction without there being any banking business. 11. On the other hand, Shri Arun Sathe & Aarti Sathe, Ld Counsels for the assessee submitted that even though the license was cancelled, as it is in the process of winding up and the income earned on the sale of investment should be considered as income arising in the course of banking business, not as capital gains as held by the CIT (....
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....n'ble Supreme Court in the case of Totgars Cooperative Sales Society Ltd (supra). Tribunal explained the provisions of section 176(3A) of the Act and held that the said provisions will not be of any help to the assessee. In the result, the Tribunal dismissed the appeal of the assessee on merits vide its order dated 30.11.2011. At the end of the second appellate proceedings, the total income modified worked out to Rs. 46,37,41,577/-, which is the subject matter of penalty u/s 271(1)(c) of the Act. The break-up of the said income is as follows:- Banking Income Rs. 10,07,82,579/- LTCG as per order giving effect of CIT (A)'s order dated 2.12.2008 Rs. 30,94,03,456/- STCG as per order giving effect of CIT (A)'s order dated 2.12.2008 Rs. 5,33,56,510/- Income from other sources as per order giving effect of CIT (A)'s order dated 2.12.2008 Rs. 1,99,023/- Revised Total Income Rs. 46,37,41,577/- Penalty Proceedings u/s 271(1)(c) of the Act: 15. Subsequent to the said order of the Tribunal, AO issued show cause notice on 5.7.2012 and provided various issues to the assessee. To state briefly, AO informed the assessee about the determination of the assessed in....
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.... to the fact the accounts are prepared on going concern basis in spite of the fact that during the last year society, which was functioning as an Apex Bank since 1996, has got its banking license cancelled by the Reserve Bank of India from 30.10.2003 in compliance with the judgment of the Hon'ble Supreme Court of India. This also has the effect of putting an end to the principle of objects for which the society was formed. The Reserve Bank of India has precluded the society from disbursing or passing funds or incurring liability or entering into compromise or arrangements to sell, transfer or otherwise dispose of any of its properties or assets except to the extent and in the manner provided by specific directives to be given by the Reserve Bank of India to the society from time to time. Attention is also drawn to the fact that the accounts are prepared without considering the various norms for Asset Classification and Income Recognition prescribed by the Reserve Bank of India under the Banking Regulation Act, 1949 as the management of the society is of the opinion that in view of the fact that the Banking License is cancelled by the Reserve Bank of India, the provisions of t....
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...., AO asserted that the assessee is not a banking company and the income earned from such activity will not qualify for deduction u/s 80P(2)(a)(i) of the Act. Referring to the Wanchoo Committee recommendations on the amendments made in section 271(1)(c) by Taxation Law (Amendment) Act, 1975, the AO imported relevant lines mentioning that "the appropriate penal provisions form a necessary compliment to this approach of voluntary compliance of taxation laws". Relevant parts read as under: "As the no. of tax payers increases, the tax administration has of necessity to rely more and more on voluntary compliance of tax laws by the assessee. Appropriate penal provisions form a necessary compliment to this approach as they impel compliance with the tax laws by imposing additional monetary burden on those who happen to go astry either inadvertently or by design." 19. Finally, as discussed in para 14 and 15 of the penalty order, AO imposed the penalty @ 100% amounting to Rs. 11,31,04,414/- on the total concealed income of Rs. 46,37,41,577/-. The relevant paras 14 and 15 read as under: "14. In this case, the facts mentioned above clearly does not support the claim made by the assesse....
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.... the CIT (A) - Penalty proceedings u/s 271(1)(c) of the Act: 21. During the proceedings before the CIT (A), assessee submitted that the assessee is not a defaulter qua the discloser of the details in the return and its annexures. Assessee argued that the AO has not discharged his onus that the particulars disclosed are inaccurate and relied on the judgment of the Hon'ble Supreme Court in the case of CIT vs. Reliance Petro Products Ltd (supra), which is relevant for the proposition that the penalty cannot be levied even when the claim made by the AO is unsustainable. Regarding the applicability of the Delhi High Court's judgment in the case of CIT vs. Zoom Communications Pvt. Ltd. (supra), assessee mentioned that the facts of the case are distinguishable. In the impugned order, CIT (A) discussed the provisions of section 271(1)(c) and relied heavily on the comments of the C.A.'s, which in a way is against making the claim of deduction u/s 80P(2)(a)(i) of the Act. The said comments are given vide in Col. No. 8(a) of Form No.3CD enclosed to the return of income. CIT (A) discussed the assessee's attitude of claiming the deduction u/s 80P(2)(a)(i) despite (i) the cancellation of bank....
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....e of the assessee on the provisions of section 176(3A) of the Act and relied on the finding of the Tribunal vide para 28 of the order of the ITAT (supra), wherein it was held that these provisions have no application to the facts of the case as per the Tribunal. CIT (A) also dealt with the issue of debatability of the impugned additions and held that considering the binding judgments cited above, assessee is precluded from conducting the banking activities and when they are still done and earned the impugned income, the same is not qualified to be the banking income within the meaning of section 80P(2) of the Act. In that sense, there is no debate on the non-banking nature of the impugned income and the CIT (A) concluded by stating that to the extent of addition confirmed by the Tribunal i.e., Rs. 46.37 Crs, there is no debate exists on this issue. Accordingly, CIT (A) confirmed the penalty of Rs. 11,31,04,414/-. Aggrieved with the same, assessee filed the present appeal before the Tribunal with the above referred grounds. Before the Tribunal 22. During the proceedings before us, Ld Counsel for the assessee narrated the above mentioned details and the facts of the case and st....
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....art of the submissions in quantum proceedings vide the contents of paragraph 29 of the order of the Tribunal. 24. Expanding and elaborating the above summarized arguments, Ld AR mentioned that, despite the judgment of the Hon'ble Supreme Court in the assessee's case on the dispute relating to cancellation of cited notification of the State Government and the license of Banking by the RBI, it is not in the hands of the assessee to not to earn the aforesaid banking income as the assessee is in the process of winding up the banking business activity. Further, he mentioned that the assessee is otherwise entitled for deduction u/s 80P(2)(a)(i) of the Act, which is evident from the decision of the AO / ITAT, wherein the interest earning from credit facilities offered to the members was held sustainable. Similarly, AO should have appreciated the claim of deduction in respect of the banking linked income receipts too instead of denying the deduction and levying the penalty u/s 271(1)(c) of the Act. Ld Counsel also stated that the order of the ITAT on the merits of the denial of deduction in respect of banking income, is not correct and therefore, the reliance placed by the CIT (A) on th....
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....of CIT vs. Nalin P Shah (HUF) vide Income Tax Appeal (LOD) No.49 of 2013 in support of his claim. Another judgment of the Hon'ble Delhi High Court in the case of Shervani Hospitalities Ltd vs. CIT [2013] 89 DTR (Del) 169, which is relevant for the proposition that "mere making an unsustainable claim does not invite penalty when assessee furnished full particulars in the return itself and the claim enjoys debatability". Judgment of the Delhi High Court in the case of CIT vs. Jakson Ltd vide ITA No.48/2013 and 49/2013 is also relevant for the identical proposition. 25. Per contra, Ld DR relied heavily on the penalty order of the AO, decision of the Tribunal relating to related quantum appeal on merits, the impugned order of the CIT (A) and stated that this is a case where the assessee deliberately made a claim of deduction knowing conclusively that the same is unsustainable in law as the assessee is prevented from doing the banking activities by none other than Apex Court of India. When the income claimed as deduction u/s 80P(2) of the Act, is not eligible to be called banking related income as the assessee no longer a banker, the impugned income shall not be termed as income from....
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.... admissible was well known to the appellant as it was advised about the same by its auditors, tax consultants etc after the cancellation of the banking license given by RBI was confirmed by the Hon'ble Supreme Court, but still the assessee completely in disregard or defiance of the same still went ahead of claiming the said deduction in its return of income filed; which to my considered opinion does tantamount to furnishing of inaccurate particulars as also held by the Hon'ble Delhi High Court in the case of Zoom Communications (supra). Or in other words, in this case there was definitely conscious breach of law by the appellant inasmuch as its wrong claim u/s 80P(2) is concerned, which as discussed above is duly proved by the Revenue. Therefore, in this case although mensrea is not required to be proved in 271(l)(c) penalty ( Dharmendra Textiles 306 ITR 277) being a civil liability still from the facts on record it appears that it is proved beyond doubt as the AR has not explained on what basis the appellant claimed a patently wrong claim knowing it fully well way before its filing of the return of income that it is not eligible for the same. 7.1.1. The reliance of the AR on Re....
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.... Ltd (supra) and the order of the ITAT in the case of Supreme Industries Pvt. Ltd (supra). Decision of the Tribunal: 28. We have heard both the parties and perused the orders of the Revenue Authorities and the Tribunal. We have also examined the cited judgments by the Ld Representatives of both the parties and the written submissions. 29. Undisputed facts & summary of the proceedings: The undisputed facts relevant to the issue include that the assessee was originally registered under Multi State Cooperative Societies Act, 1984 on 10.10.1994. Subsequently, it obtained the status of State Cooperative Bank vide Notification dated 30.12.1995. On 22.3.1996, RBI granted license under Banking Regulation Act, 1949 for undertaking the banking business and commenced the banking activities. But, M/s Maharashtra State Cooperative Bank challenged the said notification dated 30.12.1995 and the litigation travelled to the High Court of Bombay and then to Supreme Court and the said notification was quashed and such quashing has become final at Supreme Court vide its judgment dated 29.10.2003. Further, on 30.10.2003, RBI cancelled the banking license and prohibited the assessee from carryi....
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....ome is earned continue to be the banking related income and consequently, it is entitled for deduction u/s 80P(2) of the Act. In the process, the assessee relied not only on the provisions of section 176(3) of the Act but also on the principles relating to disclosure and furnishing of particulars in the Return as well as on various favorable judgments. Assessee submitted for not levying the penalty u/s 272(1)(c) of the Act. Eventually, AO rejected the explanation of the assessee vide the Explanation 1 to section 271(1)(c) and mentioned that the assessee made the unsustainable claim of deduction knowing very well that the assessee is barred from doing the banking business and also knowing that the provisions of section 176(3) does not apply to its case. AO distinguished the Supreme Court's judgment in the case of Reliance Petroproducts Ltd (supra) and relied heavily on the Delhi High Court's judgment in the case of Zoom Communications P Ltd (supra). Finally, he levied the penalty of Rs. 11,31,04,414/-. In summary, the case of the assessee is that the penalty is not leviable in the case considering the disclosure of accurate particulars in the return of income and also the apex court....
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....bank in the state of Goa. Thus, it is held that the banking license could not have been issued for the State of Goa". Before the Hon'ble Supreme Court, appellant prayed for allowing the assessee to do restrictive banking activities in the State of Maharashtra. It was submitted that at this stage, the Supreme Court should not strike down the Notification or the grant of license. Assessee cited the flowing as the reasons, namely (i) large deposits are already collected by the assessee in state of Maharashtra, which is the source for interest income one of the types of receipts under consideration; and (ii) carried on extensive business already in the State. In response, Honble Supreme Court held as follows,- "Appellants have all along been aware that their status was under challenge in a Court of law. Thereafter, the High court struck down the Notification. Now the appellants know fully well that that was the law. Merely because on obtaining a stay from this court they continued to operate would not be circumstance which can be taken into consideration by this Court. The appellants cannot be allowed to continue to operate as a State cooperative Bank when in law they are not ent....
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....ars have been concealed". The provisions of Explanation 1 to section 271(1)(c) of the Act apply. The said provisions were explained in the reported decision of the Tribunal in the case of M/s. Supreme Industries Ltd (supra) and the contents of para 8 are relevant. Considering its relevance here, the contents of para 8 to 10 of the said order of the Tribunal are reproduced here which reads as under,- "8. In matters relating to the provisions of section 271(1)(c), the wilfulness of the assessee in concealing the income or in furnishing of inaccurate particulars, is not essential. Relevant provisions of said section and the Explanation 1 are important and they read as under. "271(1) If the assessing officer or the commissioner (Appeals) or the commissioner in the course of any proceedings under this Act, is satisfied that any person-- (a)... (b)... (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, (d).. he may direct that such person shall pay by way of penalty,-- Explanation1.- where in respect of any facts material to the computation of the total income of any person under this Act,- (A) such person fails t....
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....has disapproved the judgment in the case of Dilip N Shroff (161 Taxmann 218) (SC) too. The gist of the said judgment in the case of Dharamendra Textiles Processors (supra) and relevant paragraphs are as under. "Absence of specific reference to mens rea in provisions of penalties is not a case of casus omisus. In fact, the provisions with expression „liable to pay penalty', by no stretch of imagination, be said that the adjudicating authority has even a discretion to levy less than what is legally ad statutorily leviable (para 12). It is a well-settled principles, in law, that the Court cannot read anything into a statutory provision or a stipulated condition which is plain and unambiguous. A statute is a determinative factor of the legislative intent (para 13). It is significance to note that the conceptual and contextual difference between section 271(1)(c) and section 276C was lost sight of in Dilip N Shroff's case (para 24) The explanations appended to section 271(1)(c) entirely indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars of income while filing return. The judgment in Dilip N Shroff's case (supra....
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....nking license and continuing to undertake any business activities despite the ban imposed by the Supreme Court. Further, we have also examined other decisions cited by the Ld AR i.e., in the case of CIT vs. Nalin P. Shah (HUF) (supra); Shervani Hospitalities Ltd vs. CIT (supra) and other precedents and we find that these decisions are distinguishable from the angle of deliberately making a claim knowingly well in advance that the claim is unsustainable in law. It amounts not only to the breach of law but it amounts to a conscious breach of law together with an attitude of disregard to the express provisions of the Act contumaciously. We have also examined the judgment of the Hon'ble Delhi High Court in the case of Zoom Communications Pvt Ltd (supra) and find that the provisions of Explanation-1 come into effect to the facts of this case where it is a conscious breach of law inasmuch as it is a wrong claim u/s 80P(2)(a)(i) of the Act. The penalty should be levied in a case where the assessee acted against the express provisions of law and made deliberate claims knowing fully well that the claim is unsustainable in law. 35. (iv) CIT(A) Conclusions: We have so far discussed the con....
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....n U.0.I vs. Dharmendra Textiles Processor 291 ITR 519.... 12.3 The appellant relied on Reliance Petro Products P. Ltd. 322 ITR 158. This case has already been distinguished in para 9.3 above. 13. .... 13.1.1 The appellant claims that he is carrying on two independent lines of business both entitled for deduction u/s. 80P(2)(a)(i). As discussed above, just because the AO allowed deduction in respect of credit facilities provided to its members, as held above, the assessee is not entitled to deduction u/s.80P(2)(a)(i) in respect of income from banking business even if business was forced to discontinue. 13.1.2 The appellant claims that since the business is discontinued, provisions of sec.176(3A) apply and therefore, income from banking even after discontinuance assumes the character income from banking. The Hon'ble ITAT has clearly held vide para 28 of its order (supra) that assessee's income from banking is not entitled to deduction notwithstanding section 176(3A). Therefore, this ground of appeal is dismissed. 13.2 .... 13.2.1 This contention of the appellant is not acceptable for the reason that income may be varied by appellate authorities but the important thi....
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....Ld CIT(A) highlighted the blatant attitude of the assessee and for this he relied on the rejected advise of the CAs and the binding the judgment of Hon'ble Supreme Court in the assessee's own case. In effect, decision of the CIT(A) is in tube with the decisions of the Delhi Bench of the Tribunal (i) in the case of Shyam Behari vs. Asst. Commissioner of Income Tax reported in 43 SOT 129 and (ii) ACIT vs. Khanna & Annadhanam [2011] 142 TTJ 1, which considered following assessee's arguments i.e., (i) there was a disclosure of the facts in the computation & balance sheet; (ii) the opinion of 3 tax experts had been taken; (iii) the issue was debatable & (iv) the assessee's appeal on the merits had been admitted by the High Court and rejected the same. Finally, the Tribunal held as follows: (i) section 271(1)(c) imposes "strict civil liability"; (ii) the fact that the legal opinion were not furnished during the assessment proceedings (but were furnished only during the CIT (A) penalty proceedings) indicates that the assessee realized the ineffectiveness of these opinions and still ventured into making the non-allowable claim; (iii) though there was disclosure in the computation and balan....
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.... are as under:- "176(3)A. Where any business is discontinued in any year, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance". 29. There is no doubt on provisions of section 176 are applicable to a discontinued business and Sub-section 3A provides for taxing the sums received after discontinuance as income of the year of the receipt. In our opinion reliance placed on the above provision is misplaced as the assessee has not discontinued the business. During the year the assessee is in the business and has offered income from interest on advances to the members as business income only. Therefore, the question of considering the discontinuation of business does not arise. What happened in the assessee's case is only cancellation of license to do the banking business, but the assessee is not prevented in doing any other business by the cooperative society. Only the activity of banking was prohibited. Even otherwise, the issue is not wh....
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....the assessee are comparable to the facts of this present case and therefore, they are distinguishable on facts. As such, finality on penalty proceedings are not only assessee-specific but also addition/disallowance-specific and are finalized after considering the facts of each case and such disallowance/additions. Therefore, the revenue fairly did not levy penalty in respect of the interest income from credit facility offered to the members. Therefore, the assessee's argumentative ground no. 2, 3, 4 and 5 of the appeal with its sub grounds are unsustainable in principle. 41. Further, on the experts' (Statutory Auditors) advise: It is reported fact that the management of the society knows that the income earned does not qualify the „banking income' and so is the A.B. Mansinghka & Co., Auditors of the assessee. In a way, it is the case, where the assessee has not adopted the advise of the experts and proceeded to claim deduction u/s 80P(2) of the Act. Normally, the case is other way around and they issue certificates advising the claim of deduction and relevant cases are cited above. But in this case, Auditors advised that the impugned income is ineligible to be classified a....
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....nt of the Apex Court and the legal advice of its statutory and tax auditors. Wrong deduction claimed against taxable income; knowing fully well that it is not eligible for such deduction during the relevant assessment year. SC judgment, cancellation of banking license by RBI, reports of statutory auditors and tax auditors. Or in other words such blatant disregard of statutory provisions can never be a case where two views are possible. No information given in ROI was found The entire claim of deduction u/s 80P(2) is an incorrect pr inaccurate. Conditions u/s 271(1)(c) must exist before the penalty is levied( para-8). Details supplied in the ROI are not accurate (para-9) Up-to the authorities to accept its claim in ROI or not. Merely because assessee claimed the expenditure; which claim was not accepted or was not acceptable to the incorrect information. The verification and authentication of the return filed proved to be false. Here the basic information for its ineligibility of deduction u/s 80P(2) is based on cancellation of banking license based on the decision of the Hon'ble Apex Court which was known....