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TMI Blog2012 (6) TMI 441X X X X Extracts X X X X X X X X Extracts X X X X ..... he provision for NPA (non-performing assets) was made as per the RBI guidelines in respect of debts which had become sub-standard/bad and doubtful. It was also submitted by the assessee before the AO that the NPA was checked and verified by the auditors before finalizing the balance sheet. The entire income of the society was exempt under s. 80P of the Act, as the assessee is engaged in the business of providing credit facilities to its members. It was also submitted before the AO that though the provision for NPA was made and claimed as per RBI guidelines, the same may be added to the income as non-allowable expenditure. In the assessment proceedings, the AO made the disallowance of Rs. 70,66,207 and initiated penalty proceedings for furnishing inaccurate particulars of income. The AO imposed penalty of Rs. 22 lacs being 100 per cent of tax sought to be evaded after considering the submissions of the assessee as made during the course of assessment proceedings. 3. On appeal, the CIT(A) cancelled the penalty, observing as under : "6.1 The appellant has contended that the claim of provision in the P&L a/c had no bearing on the income of the assessee as the entire income of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iminal but a civil liability, albeit a strict liability and such liability being civil in nature, mens rea is not essential. The Explanation appended to s. 271(1)(c) indicates strict liability for giving inaccurate particulars while filing the return. However, the Hon'ble Courts have further held that a distinction and a false claim of deduction. Now it is only to be seen whether it was a bona fide mistake leading to wrong claim of deduction or not. The appellant has contended that the provision for NPA was made as per the RBI guidelines in respect of debts which had become substandard/bad and doubtful. The NPA provision was checked and verified by the auditors before finalizing the balance sheet. It is thus, seen that the non-performing assets (NPAs) are classified and quantified as per the guidelines of RBI by the banks in respect of cases where recovery becomes difficult. Hence, the provision for NPA is integral part of the business of banking wherein such provision more or less corresponds to the bad debts. The auditor has checked this aspect and finalized the balance sheet after claiming the deduction of provision for NPA in the P&L a/c. It is also a matter of record that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dment of the legislature. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars." In the light of rationale laid down in the above judgment by the Hon'ble Supreme Court, the appellant cannot be held to have furnished inaccurate particulars of income in respect of claim of deduction of provision for NPA. Considering the above discussed factual and legal position, it is held that there was no case of furnishing of inaccurate particulars of income by the appellant. The penalty order passed by the AO levying penalty of Rs. 22,00,000 is therefore, cancelled. The ground Nos. 1 and 4 of the appeal are general in nature and covered in the above decision." 4. Before us, Shri Tarsem Lal, the learned Departmental Representative submitted that the learned CIT(A) has not correctly appreciated the order of the AO because the penalty has been based on the addition of Rs. 70,66,207 made by the AO on account of NPA provisions, which has, not been an allowable expenditure. He further submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had furnished incorrect claim and not furnished inaccurate particulars and no penalty is leviable in view of the judgment of the Hon'ble Supreme Court in the case of CIT v. Reliance Petroproducts (P.) Ltd. [2010] 189 Taxman 322. Shri Tarsem Lal, the learned Departmental Representative also relied on the decision of the Hon'ble Delhi High Court in the case of CIT v. Escorts Finance Ltd. [2010] 328 ITR 44/[2009] 183 Taxman 453 wherein the Hon'ble High Court held (headnotes) as under : "(ii) That the assessee had nowhere pleaded that the return was filed claiming benefit of s. 35D of the Act on the basis of the opinion of the chartered accountants. Merely because information was available in the tax audit report that would not absolve the assessee. Even if there was no concealment of income or furnishing of inaccurate particulars, but on the basis thereof the claim which was made was ex facie bogus, it could attract penalty provision. It was not a case where two opinions about the applicability of s. 35D were possible. Therefore, it could not be a case of a bona fide error on the part of the assessee. The relief under s. 35D of the Act was confined only to an existin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence, the provision for NPA is integral part of the business of banking wherein such provision more or less corresponds to the bad debts. In the instant case, the auditors have checked this aspect and finalized the balance sheet after claiming the deduction of provision for NPA in the P&L a/c. It is also true that the assessee, being a cooperative bank is eligible to claim deduction of its entire income from the business of banking under s. 80P of the Act. Keeping in view the above facts it could be safely held that there was not a deliberate attempt to claim deduction of provision for NPA. In our view, the claim made by the assessee was bona fide though under the wrong interpretation of the provisions of s. 36(iiia) of the Act. In our considered view, mere making of this claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. While taking such view, we are fortified by the decision of the Hon'ble Supreme Court in the case of Reliance Petroproducts (P) Ltd. (supra) wherein the Hon'ble Supreme Court held that by no stretch of imagination, making an incorrect claim in law cannot tantamoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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