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Dy. C.I.T., Range-1, Lucknow Versus M/s Aryavart Gramin Bank

Penalty u/s 271(1)(c) - deduction on account of provision for bad and doubtful debts as per RBI guidelines - CIT(A) deleted the penalty - Held that:- Allowability of deduction u/s 36(1)(vii) and 36(1)(viia) of the Act in respect of provision for bad and doubtful debts as per RBI Guidelines was debatable issue when the return of income was filed by the assessee and therefore, the disallowance is all right but it cannot be considered as concealment of income or furnishing of inaccurate particulars .....

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gainst the order passed by learned CIT(A)-I, Lucknow dated 02/02/2015 for the assessment year 2010-11. 2. The grounds raised by the Revenue are as under: 1. The learned CIT(A) has erred in law and on facts of the case in deleting the penalty of ₹ 7,50,00,000/- ignoring the fact that if the assessee s case was not selected for scrutiny, its claim of the deduction, which was not in accordance with law, would have got allowed. 3. Learned D. R. of the Revenue supported the penalty order. He al .....

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the rival submissions. We find that the issue in dispute was decided by learned CIT(A) as per para 4.1 to 4.4 of his order, which are reproduced below for the sake of ready reference:- 4.1 I have also perused the documents and judgments relied upon by the appellant. It is noted that the provision for NPAs of ₹ 12.23 crore was made as per the RBI guidelines in respect of debts which had become bad and doubtful. The provision for NPAs was checked and verified by the auditors before finalizin .....

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7; 12.23 crore debited in the profit and loss account cannot be claimed as deduction as it was claiming separate deduction of ₹ 107.49 crore on account of provision for bad and doubtful debts u/s 36(1)(viia) of the Act. 4.2 There has been a lot of litigation in respect of deduction allowable under the provision for bad and doubtful debts as per sections 36(1)(vii) and 36(1)(viia) of the Act. In fact in two cases the matter has travelled up to the Hon'ble Supreme Court which are as unde .....

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Some of the decisions in this regard are as under: a. TEDCO Investment & Financial Services Pvt. Ltd. v. DCIT, 87 ITD 298 (Del.) b. CIT v. Nainital Bank Ltd., 309 ITR 335 (Uttranchal) c. CIT v. The Lord Krishna Bank Ltd. 55 DTR 277 (Ker.) It is also found that up to AY 2005-06 by virtue of first proviso to clause (a) of section 36(1)(viia) the appellant bank, being a scheduled bank was allowed to claim deduction in respect of any provision made by it for any assets classified by the RBI as .....

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g the provision for NPAs of ₹ 12,23 crore as deduction on basis of the RBI guidelines and the provision for bad and doubtful debts of ₹ 107.49 crore as deduction separately u/s 36(1)(viia) of the Act has occurred inadvertently due to wrong interpretation of the statute. It is also seen that when the mistake came to notice of the appellant it revised all the returns voluntarily and withdrew the deduction claimed by it on account of the provision for NPAs made in various assessment yea .....

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e assessed income remained a loss even after disallowance of deduction is also reasonable. It is also noted that the explanation offered by the appellant is bona-fide and all the facts relating to the deduction claimed were duly disclosed in the return as well as before the AO. Since the explanation offered by the appellant regarding claim of the deduction was substantiated and can be considered bona-fide and , acceptable penalty u/s 271(1)(c) cannot be imposed by the AO. Reliance is placed on t .....

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in every case where particulars of income are inaccurate, penalty must follow. What has been laid down is that qualitative difference between criminal liability under section 276C and penalty under section 271(1)(c) had to be kept in mind and approach adopted, to the trial of a criminal case need not be adopted while considering the levy of penalty. Even so, the concept of penalty has not undergone change by virtue of the said judgment. Penalty is imposed only when there is some element of deli .....

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s false. The Tribunal has stated in specific terms that the assessee has placed all the materials before the Revenue authorities and a conclusion has arisen against which the assessee has not gone in appeal. It does not mean that the assessee has concealed particulars of the income. Raving found so, that the explanation given by the assessee is bona-fide, the Tribunal has rightly set aside the penalty order." (d) CIT v. Reliance Petroproducts Pvt. Ltd., (2010) 322 ITR 158 (SC) "We have .....

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ing the penalty under section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. ……………………………………………………………………&h .....

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lty under section 271(1)(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature." (e) Income Tax Officer v. Sanjeev Mishra, (2010) 38DTR 26 "Variation between the claim made by the assessee under s.10B vis-a-vis the claim allowed in the assessment, occurred solely owing to bona .....

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der section 271(1)(c), even if claim made by him is unsustainable in law, provided that he either substantiates explanation offered by him or explanation, even if not substantiated, is found to be bona-fide." Reliance is also placed on the judgment of the Hon'ble Supreme Court in the case of Price Waterhouse Coopers (P) Ltd. v. CIT, 348 ITR 306 in which it was held that the imposition of penalty for an inadvertent and bona-fide error is not justified. 4.4 In view of the above, it is hel .....

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has been a lot of litigation in respect of deduction allowable for provision for bad and doubtful debts as per RBI Guidelines under section 36(1)(vii) and 36(1)(viia) of the Act. This is also noted by learned CIT(A) that in two cases, the matter has travelled up to Hon'ble Supreme Court i. E. in the case of Southern Technologies Ltd. v. JCIT, 320 ITR 577 and Catholic Syrian Bank Ltd. v.CIT, 343 ITR 270. In this regard, this was the argument of Learned D. R. of the Revenue that even after the .....

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the assessee for revising the return was only 1 month and a few days and in our considered opinion, this much time is not sufficient to hold that the failure of the assessee to file revised return of income during this short period should be viewed adversely. It should be accepted in the facts of the present case that the allowability of deduction u/s 36(1)(vii) and 36(1)(viia) of the Act in respect of provision for bad and doubtful debts as per RBI Guidelines was debatable issue when the return .....

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nue has also placed reliance on a judgment of Hon'ble Delhi High Court in the case of CIT vs. NG Technologies Ltd. [2015] 370 ITR 7 (Delhi). In that case, the assessee filed the return of income on 30/11/2006 declaring a loss of ₹ 189.44 lac and the assessee claimed business loss amounting to ₹ 123.07 lac on account of sale of fixed assets. In course of assessment proceedings, the assessee filed revised return of income on 08/03/2008 declaring a total income of ₹ 33.63 lac .....

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