TaxTMI 
TaxTMI 
2024 (10) TMI 1840
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....e Ld. CIT(A) has failed to recognize the fact that penalties levied for FEMA violations are different from the penalties levied under section 46 of the Banking Regulation Act. v. The Ld. CIT(A) has erred in holding that the provisions of the section 115JB are not applicable to the assessee. vi. The decision of the Ld. CIT(A) is opposed to the provisions of the 'Explanation 3' of the Section 115JB of the Income Tax Act, 1961, which was inserted by Finance Act, 2012. vii. The Ld. CIT(A) has failed to consider the effect of the amendment brought by the Finance Act, 2012, to the Section 115JB of the Act and therefore failed to follow the directions issued by the Hon'ble ITAT. viii. The Ld. CIT(A) has failed to appreciate that provisions of the Section 115JB of the Income Tax Act, 1961, cover all the companies to which the second proviso to sub-section (1) of section 129 of the Companies Act, 2013 is applicable, with liberty to prepare its profit and loss account in accordance with Schedule III of the Companies Act, 2013. or in accordance with its Regulatory Act. ix. The Ld. CIT(A) has failed to take cognizance of the Section 11 o....
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....y for infringement of RBI guidelines amounting to Rs.3,00,10,000/- and claimed as allowable expenditure u/s 37(1) of the Act. The auditor has certified in Form No.3CD report that it is covered under the explanation of section 37(1) of the Act being the penalty for non-compliance with RBI instructions under Banking Regulation Act, 1949. In this regard, a notice u/s 142(1) of the Act dated 03.08.2016 was issued to the assessee and the assessee replied vide dated 21.11.2016 and 01.12.2016. The assessee submitted that the penalty imposed by RBI as per FEMA guidelines for non-compliance of certain guidelines, however, this penalty does not cover by explanation to section 37(1) of the Act. The AO observed that the penalty for violation of FEMA guidelines of RBI and non-compliance of Banking Regulation Act, 1949 is not compensatory in nature and it is not for any contractual obligation. It is a violation of law. Hence, it is covered under explanation of section 37(1) of the Act and he relied on the following judgement of Hon'ble High Court of Karnataka in the case of CIT Vs. Syndicate Bank reported in 261 ITR 528 and decision of ITAT Bangalore in the case of Vijaya Bank in ITA Nos.578....
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.... to be incidental to any business. V. The decisions of this Court in Piara Singh (supra) and Dr. T.A. Quereshi (supra) do not lay down correct law in light of the decision of this Court in Haji Aziz (supra) and the insertion of Explanation 1 to Section 37. The Assessing Officer in his assessment order in para 15.2 has clearly mentioned that the penalty is for violation of FEMA Guidelines of RBI and Non-compliance of Banking Regulation Act, 1949. It is further not for any contractual obligation but for the violation of law and hence, covered by explanation to section 37(1) of Act. From the above it is clear that a penalty is a proceeding in rem, and therefore the same will not be allowed as business expenditure and it fits to the facts of present case. 2. For the grounds of appeal from 5 to 9 the following is submitted: Section 115JB of the Income Tax Act, 1961 states as below: 115JB. Special provision for payment of tax by certain companies. (1)Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under thi....
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.... act also deems what is "Corresponding New Bank" in Section 11 of the Act. It is reproduced below: "11. Corresponding new bank deemed to be an Indian company .- For the purposes of the Income-tax Act, 1961 (43 of 1961), every corresponding new bank shall be deemed to be an Indian company and a company in which the public are substantially interested." As per the above deeming definition, the appellant "Canara Bank" which is the "Corresponding New Bank" is a Company and a Company in which public are substantially interested and hence will be applicable to the Section 115JB of the Income Tax Act. The second line of the of the Section 115JB has the words "being a company". Canara Bank being a deemed company for the purpose of Income Tax Act, as per the definition of Section 11 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, squarely falls under the section 115JB. Also, section 115JB(2)(b) specifically states that a company not involved in banking has to specifically prepare its financial statements as per the Act which is governing it. Here also "being a company" mentioned in clause (b) of the above section squarely ap....
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....elying on the judgement of Hon'ble Kerala High Court in the case of Catholic Syrian Bank and just it is a violation of routine works in nature and it is a compensatory in nature there is no punishable offence for violating the above provisions and the assessee has paid penalty to the RBI and the RBI has not taken any further action for violating as per the investigation made by the RBI. Therefore, the ld. CIT(A) order is correct. Further, in respect of applicability of MT provision to the banking company (the assessee), the ld. A.R. of the assessee strongly relied on the judgement of Union Bank of India the decision of coordinate bench of ITAT Mumbai in ITA No.424/Mum/2020 and 3740/Mum/2018 in the case of Union Bank of India Vs. DCIT, LTU of Mumbai and the issue has been settled down in favour of the assessee and the Hon'ble Tribunal has also considered the amendment made by the Finance Act, 2012 w.e.f. 1st April, 2013 and he also relied on the decision of assessee's own case of the coordinate bench of Tribunal in ITA Nos.391 & 392/Bang/2023 & ITA No.663/Bang/2023 for the AY 2019-20 order dated 22.12.2023, the Bench has decided the issue in ground No.4 in favour of the ....
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....r penalty which may extend to one lakh rupees for everyday, after the first day, during which the contravention or default continues. ]". 46. Penalties .- (1) ... (2) ...... (3) .......... [(4) If any other provision of this Act is contravened or if any default is made in- (i) complying with any requirement of this Act or of any order, rules or direction made or condition imposed thereunder; or (ii) ........... by any person, such person shall be punishable with fine which may extend to 2 [fifty thousand rupees or twice the amount involved in such contravention or default where such amount is quantifiable, whichever is more, and where a contravention or default is a continuing one, with a further fine which may extend to two thousand and five hundred rupees] for every day, during which the contravention or default continues ]. 5.1 From the order passed by the RBI dated 15.07.2013 it clearly says that there is no prima facie evidence of money laundering. The assessee has itself accepted before the AO that there were non-compliance of FEMA guidelines. The violation of FEMA guidelines and money laundering may be different and it....
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....or of erstwhile Oriental Bank of Commerce) (supra) is placed at page 35-37 of the PB. The Ld.AR further relied on decision of Hon'ble Delhi Tribunal in the case of Oriental Bank of Commerce v. ACIT reported in [2022] TIOL 331 ITAT-DEL. The Ld.AR submitted that, the provisions of section 115JB, as it stood prior to its amendment by virtue of Finance Act, 2012, would not be applicable to a banking company. He submitted that coordinate Bench of Delhi Tribunal considered this issue by observing as under :- "51. This issue is no longer res-judicata following judgments of the tribunals and the High Courts wherein it is categorically held that MAT provision u/s 115JB will not apply to a Banking Company: - Canara Bank vs JCIT, LTU in ITA No. 530/Bng/2010 & other dtd. 30.03.2016 = 2016-TIOL-1120-HC-P&H-IT - M/s. Canara Bank vs CIT(LTU) In ITA No. 305/Bang/2011 dtd. 18.06.2012 - Krung Thai Bank PCI vs Joint Director of Income Tax (ITAT) (Mumbai) in ITA No.3390/Mum/09 dtd. 30.09.2010 reported in (2010) 45 DTR 218 - Union Bank of India vs ACIT, LTU (ITAT) (Mumbai) in ITA Nos.4702 to 4706/Mum/2010 dtd. 30.06.2011 - Indian Bank v....
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....MAT) will not apply as the assessee is a Nationalized Bank under the Banking Company (Acquisition and Transfer of Undertaking) Act, 1980. 55. The provisions of section 115JB as amended by the Finance Act, 2012 w.e.f. 1.4.2013, inserting clause (a) and clause (b) in sub-section (2) to section 15JB are as under: "115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, [2012], is less than [eighteen and one-half per cent] of its book profit, [such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of incometax at the rate of [eighteen and one-half per cent]]. (2) [Every assessee,- (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part II of Sche....
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....tion 3 of the Companies Act. (iii) The second proviso to sub-section (1) of section 129 (earlier provision 211) of the Companies Act, 2013 is not applicable to the assessee. (iv) Under section 11 of the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1980 provides that "for the purposes of the Income-tax Act, 1961, every corresponding new bank shall be deemed to be Indian company and a company in which public is substantially interested". (v) It is settled principle of law where deeming fiction is created by the legislature it has to be confined to the purpose for which it is created. CIT, Panji vs Dempo Company Limited reported in (2016) 74 TAXMAN.com 15 (SC) = 2016-TIOL-164-SC-IT. Therefore, the Income-tax Act must recognize such banking company for the purpose section 115JB in order to make the provisions applicable. (vi) When the charging section and the computing provision together would constitute an integrated code. In case charging section does not apply then the computation section fails. CIT vs B C Shrinivas Setty 128 ITR 294 = 2002-TIOL-587-SC-IT- LB." 58. However, the plea of the assessee with respect to nona....