TaxTMI 
TaxTMI 
2013 (11) TMI 320
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....tends 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 has not found that all the facts relating to the income and material to the co....
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....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 assessee has been barred from transacting banking business, benefit under section 5(b) is not ....
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....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 Representative and gone through the assessment order and the judicial decisions cited. Section 80P primarily refers to a cooperative society. Section 8....
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....sessed 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 (A). Ld Counsel also relied on the provisions of section 176(3A) of the Act in this regard. Further, Ld Counsel relied on various jurisdictional High Cour....
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....l 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 income of the assessee of Rs. 97,75,14,603/- against Rs. NIL income returned by the assessee. Assessee claimed a sum of Rs. 91,58,59,221/- as revised deduction u/s 80P of the Act. He also informed after giving....
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....e 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 the Banking Regulation Act, 1949 are no longer applicable to the Society as on 31st March, 2005. 8.1. The above factual position has been pointed out by the Auditors in the notes on Accounts vide point no.1, wherein....
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....s 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 assessee us/ 80P in the return of income as the assessee's license was cancelled by the RBI in the previous year relevant to the AY 2004-05. Hence, the assessee could not do banking business as it was not a State Cooperative Bank as held ....
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....ee 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 banking license to the assessee thereby making assessee as a non-banking entity; (ii) binding judgment which goes against the assessee making banking activities; (iii) advise of the statutory auditors who had adequate reservations against the ....
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....se 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 stated that there is no concealment or deemed concealment of income and no furnishing of inaccurate particulars in this case. Therefore, the provisions of section 271(1)(c) are not properly invoked by the AO in levying the penalty of Rs. 11,31,0....
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....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 the said order of the ITAT is required to be reversed. He was also critical of the „comments of the statutory auditors' discussed above and also the „decisions of the directors' of the assessee-society in this regard. Referring to the or....
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.... 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 banking activities. Consequently, the said income is ineligible for the claim of deduction. In this regard, Ld DR mentioned that assessee was expressly prevented by the Apex Court vide its judgment dated 29.10.2003 treating the assessee is a non-ba....
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....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 Reliance Petroproducts (supra) is filed separately in a tabular form to this write up, the same may be considered accordingly. Further as directed in the last hearing, I am filing herewith a detailed chart explaining the computation of the income on which....
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....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 carrying on the banking business. RBI also directed the assessee in May 2004 (AY 2005-06) to sale the investment and to refund the deposits. After the said binding judgments and after cancellation of the Banking License, assessee earned income by way of interest, profits on sale....
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....urnishing 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's judgment in the case of Reliance Petroproducts Ltd (supra), which is relevant for the proposition that the mere unsustainability of a claim made in the return should not attract the penal provision. Therefore, we need to examine if the submissions of the assessee are va....
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.... 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 entitled to be one. We, therefore, do not accept this submission." 31. Thus, the Supreme Court's directions are unambiguous that the assessee is prevented from doing any banking activities in any State of India. On the issue of deposits and larger volume of the banking business, Supreme C....
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....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 to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that the such explanation is bona fide and that all the facts relating to ....
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....ovisions 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) had not considered the effect ad relevance of section 276C. Object behind enactment of section 271(1)(c), read with the Explanations thereto, indicates that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful concealment is not an essential ing....
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....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 contents of the binding Judgment of the Supreme Court in assessee's own case and traced that the assessee is not on the side of the law when it undertook the banking activities. Hon'ble Supreme Court „directed the RBI to forthwith revoke the banking license granted„. Further, we discussed the scope of the provisions of Explanati....
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....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 thing to see is whether conditions for levy of penalty are satisfied or not. Merely because income is varied does not absolve the appellant of its liability if other conditions are satisfied for levy of penalty. Therefore, this ground of appeal is dismissed. 13.3 Ground III: The AO erred in applying the decision of Delhi High Court in the case of CIT vs. Zoom C....
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....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 balance sheet, in order to minimize disclosure, the assessee took the "smart route" of directly crediting the receipt in the capital accounts of partners to evade tax; and (iv) The fact that a substantial question of law on the merits was admitted by High Court does not mean penalty is not leviable. 37. From the Explanation 1 above, it refers to a couple of independent groups ....
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.... 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 whether the income is to be brought to tax as business income or not. The issue is whether the incomes arising out of investment is eligible for deduction under section 80P(2)(a)(i) as of banking business. Therefore, we are of the opinion that provisions of section 176(3)A does not help the case of assessee." 39. (vi) Incorrect explanation of the assessee -Assessee's Arguments on the....