TMI Blog2017 (8) TMI 1248X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the said explanation has not been finally accepted and disallowance of claim of deduction u/s 80P has been sustained by the Coordinate Bench and the assessee has not filed any further appeal, however the same cannot be a basis for levy of penalty which calls for strict interpretation as we have held above. Thus respectfully following the decision of the Hon’ble Supreme Court in case of Reliance Petroproducts [2010 (3) TMI 80 - SUPREME COURT] saying mere making of a claim which is not sustainable in law, by itself, does not amount to furnishing of inaccurate particulars of income, the fact that necessary disclosure has been made in the return of income in respect of claim of deduction under section 80P, the assessee has offered the necessary explanation and the basis in support of the said claim establishing its bonafide and the said explanation has not been found totally devoid of any basis, mere disallowance of claim of deduction u/s 80P of the Act cannot form the basis for levy of penalty for furnishing inaccurate particulars of income. We accordingly confirm the order of ld CIT(A) deleting the levy of penalty and the ground taken by the Revenue is hereby dismissed. - Deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted the said penalty and against the said order, the Revenue is presently in appeal before us. 4. Before we refer to the contentions of both the parties, it would be relevant to refer to the findings of the ld. CIT(A) which are under challenge before us. The same are reproduced as under: 4. I have considered submissions of the appellant and have also gone through the penalty order. The penalty has been levied by the AO on the ground that as per section 80P(4) the deduction was allowable to the bank only on the activities carried out within a Taluk or tehsil . The appellant bank on the other hand was carrying out its activities through many branches, quite a few of which were located in urban areas.The disallowance made by the AO has been confirmed by Hon ble ITAT as well. The disallowance of the claim u/s 80P was treated by the AO as furnishing of inaccurate particulars of income and accordingly, penalty was levied. The AO has basically relied on the facts mentioned in the assessment order, observing that the pleas of the assessee have been elaborately discussed and rebutted in the assessment order. 4.1 It is noticed that the appellant is a regional bank engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particulars of income. 6. Per contra, the ld. AR has submitted that in the appeal before the CIT(A)-I, the respondent had submitted that the initiation of penalty and levy thereof is not automatic, and merely because the claim of the respondent was rejected, it does not establish concealment/furnishing of inaccurate details on the part of the respondent. The CIT(A) after considering the submissions of the respondent and various judicial pronouncements, appreciated the respondent s plea and deleted the penalty for the subject assessment year. 7. It was further submitted that the respondent is a primary co-operative, agriculture and rural development Bank. The audited accounts of the respondent were submitted along with its return of income. The income of the respondent was already disclosed in the return, but the claim u/s 80P was disallowed and sustained by the Tribunal. The AO has imposed penalty only and only for the difference of opinion and disallowance of claim u/s 80P, which is by no means, concealment or furnishing of inaccurate particulars. 8. It was further submitted that the respondent bank is covered under the definition of Primary co-operative agriculture and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns are not covered by the terms agricultural and rural development activities . The respondent humbly submits that the above contention of the AO is absolutely erroneous as these loans are given to villagers and purely used for rural development activities. In the explanation (b) above it is clearly mentioned that the rural development bank means, a bank whose major activity relates to providing of long term credit for agricultural and rural development activities. The respondent bank squarely satisfies the conditions laid in explanation (b) above and thus is entitled to deduction u/s 80P. 12. It was submitted that though the above plea/explanation was not appreciated by the Hon ble ITAT and the respondent s claim for deduction u/s 80P was disallowed, however the same cannot be the basis for levy of penalty u/s 271(1)(c) for concealment and furnishing of inaccurate particulars of income. 13. It was submitted that the expressions has concealed the particulars of income and has furnished inaccurate particular of income have not been defined either in section 271(1)(c)or elsewhere in the Act. These two circumstances are not identical in details although they may leave the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curate particulars of such income. The burden shifts to the assessee only if he fails to officer any explanation for the undisclosed income or offers explanation which is found to be false by the assessing authority. Reliance was further placed on decision of Shivlal Tak vs. CIT (251 ITR 373 (Raj.) wherein it was held that while the expression failure to return the total assessed income as not arising on account of any fraud or wilful negligence on the part of assessee does not find place but cl. (b) R/w proviso (ii) makes it abundantly clear that where difference in the assessed income and returned income is not arising on account of any gross or wilful negligence on the part of assessee, still no penalty is leviable. The statute has clearly drawn distinction between furnishing a deliberate, false explanation by the assessee and an explanation, which may not be false but is not accepted because assessee was not able to substantiate it. While there is no relaxation in the rigour of Explanation in raising presumption against the assessee in the former case, in the later class of cases, the statute itself relaxes its rigour by directing that wherein respect of any amount, added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of penal provisions require a strict interpretation and it is to be seen whether the instant case falls within four corners of the said provisions. If the answer to the same is in affirmative, the penalty would be leviable and otherwise not. 17. The Hon ble Supreme Court in case of Reliance Petroproducts (supra) has laid down the necessary legal proposition wherein it was held as under: We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster s Dictionary, the word inaccurate has been defined as: not accurate, not exact or correct; not according to trust; erroneous; as an inaccurate statement, copy or transcript. We have already seen the meaning of the word particulars in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its return were found to be incorre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the appellant shows that it had claimed deduction u/s 80P while filing the return. 19. The next issue which arise for consideration is where such a claim of deduction was disallowed by the AO and such disallowance was finally sustained by the Tribunal, in absence of any further appeal, would that, by itself, render the matter liable for penalty u/s 271(1)(c) of the Act. The Hon ble Supreme Court has held in case of Reliance Petroproducts as noted above that mere making a claim which is not found sustainable in law will not amount to furnishing of inaccurate particulars of income. We accordingly confirm the following findings of the ld CIT(A) as under: A perusal of the computation of total income filed by the appellant shows that it had claimed deduction u/s 80P while filing the return. This claim was disallowed by the AO and the disallowance was sustained in the appeal as well. However, merely making a claim which is not found to be admissible does not amount to concealment of income or furnishing of inaccurate particulars of income. Although it has been mentioned in the penalty order that the appellant has furnished inaccurate particulars of income, it has not been e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion u/s 80P as submitted by the assessee bank and as noted by the Coordinate Bench in ITA No. 940/JP/2011 order dated 31.10.2011 in the context of quantum proceedings is as under:- 2.3 In response to query raised by the AO, the assessee filed the following explanation before the AO. 4. In Query No.5 your honour mentioned the definition of explanation (b) to Section 80P(4) is correct and our bank fulfill both the conditions of this explanation. Your honour said that our head office located at Sardar patel Marg, Jaipur which is capital city of Rajasthan is correct, as it is necessary to run and fulfill the object clause of the bank, the head office of the bank is located at Jaipur. In respect of 10 urban branches, and 24 semi urban branches, we already submit in Point no. 1 that only three urban branches of our bank located at Tehsil headquarters which comes under the definition of Taluk and mainly doing agriculture and rural based advances. It is no doubt that our client bank made 100% advances for rural development but it made more than 80% advances for rural development. We also clear that all the advances made by our bank for long term finance, not short term, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The relevant findings of ld CIT(A) in his order dated 11.05.2010 are as under: The appellant is a cooperative society doing banking business and has shown income of ₹ 188380400/- on which deduction u/s 80P has been claimed. The man business is accepting the deposits from the public, Govt. and corporate bodies and others, and making advances to its customers. It was claimed that the appellant is covered by explanation to sub section (4) of section 80P inserted w.e.f. 1.4.2007. To verify the claim of appellant the AO collected details of branch wise and category wise advances, income and categorization of branches into rural/urban and semi urban. The details of branches operating at Taluk level were collected. Reference was made u/s 144A to the addl. CIT. After receiving directions u/s 144A the AO rejected the claim of appellant by making observation that the appellant bank does not fall within the scope of explanation (b) to section 80P(4). The AO has also quoted budget speech of Hon ble F.M. which indicates legislative intent. The AO though rejected the claim of deduction u/s 80P but allowed alternate claim of deduction u/s 36(1) (viia) and allowed ₹ 47163425/-. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses or agriculture operations or for other connected purposes. The other objective is to grant loans and advances to Artisans, small entrepreneurs and persons of small means engaged in trade, commerce or industries or other productive activities within the notified area in relation to the Regional Rural Bank. As per the annual report of the bank the notified area is Jaipur, Dausa, Nagaur, Jodhpur, Jaisalmer and Barmer districts. The bank has 9 urban branches, 24 semi urban branches, 175 rural branches. Thus out of total 209 branches 175 branches are in rural area. As on 31.03.2007 the loans and advances outstanding are ₹ 5710245000/-. This includes crops advances of ₹ 2710802000/-, agricultural advances of ₹ 538958000/-, Arat agriculture of ₹ 432398000/-. Thus, agriculture advances of ₹ 3682158000/- constitutes more than 60% of the total advances. From area wise advances, one can see that the rural advances are of ₹ 40465737000/- and semi urban advances are only ₹ 3470893000/-. These urban areas basically rural areas but subsequently covered under the municipal limit. The urban areas are Amer, Jaisinghpur, Kher, Bhakrota, Harmada, Jhotwara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit for agricultural and rural development activities. 2.9 The CBDT issued Circular no. 319 dated 11-01-1982. The circular which is available at 133 ITR 165 (St.) is reproduced as under:- A question has arisen whether Regional Rural Banks (to which the provisions of the Regional Rural Banks Act, 1976, apply) can be treated as Co-operative Societies for the purpose of Section 80P of the Income Tax Act, 1961. 2. There is a specific provision, namely, Section 22 in that Act ,which is to the following effect:- For the purpose of the Income Tax Act, 1961, or any other enactment for the time being in force relating to only tax on income, profits or gains, a Regional Rural Bank, shall be deemed to be a Cooperative Society. 3. Therefore, the provisions of Section 80P of Income Tax Act, 1961 will also be applicable in respect of Regional Rural Banks. In this view deductions admissible u/s 80P(2)(a)(i) have to be allowed in making income tax assessments of these banks. 4. This may be brought to the notice of all officers working in your charge. 2.10 Before, we proceed further, it will be useful to reproduce Circular No. 6/2010 dated 20-09- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional Rural Bank shall be deemed to be a cooperative society. 2.12 Hence, the CBDT vide Circular no. 319 clarified that deduction u/s 80P(2)(a)(i) is to be allowed to Regional Rural Bank (RRB) by considering such banks as cooperative societies. The deduction u/s 80P(2)(a)(i) is in respect of profit or gains or business attributable to the business of the baking or providing credit facilities to its members. By insertion of Section 80P(4), deduction is permissible to primary cooperative agricultural and Rural Development Banks. The definition of Primary Cooperative Agricultural and Rural Development Bank has been defined in explanation (b) to Section 80P(4) of the Act. The area of operation should be confined to Taluk and the principal object is to provide advances for agriculture and rural development activities. The word Taluq is not defined in the Income Tax Act. As per law Lexicon (1997 addition), by P Ramanatha Aiyar, the word Taluq is applied to the sub-division of the district used in Western South India as the Taluq is in Upper India. Taluq is also defined in U.P. Act, 1999 in which the word Taluq means any local area for which a Taluq local board is establishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the principal object of such concern is to provide long term credit for Agricultural Rural Development activities and the operation is confined to a Taluq. Thus requirement of explanation (b) of Section 80P(4) is not satisfied. 26. It shows that the explanation offered by the assessee bank though not accepted finally but at the same time, has not been found devoid of any basis. It is not a case that the language of the amended statute was held so clear that the assessee was not eligible for claim of deduction on prima facie reading of the amended statute. The language involved in the statute involves interpretation and even the CBDT has admitted the same in its circular no. 6/2010 dated 20.09.2010 and has therefore, vide the said circular, has clarified that regional rural bank, such as the assessee in the present case, will not be eligible for deduction under section 80P from assessment year 2007-08. The assessee thus has some reasonable basis for claim of deduction u/s 80P of the Act even after the amendment by the Finance Act, 2006 and it has thus established its bonafide of such claim in its return of income. It is also a fact that the said explanation has not been finall ..... X X X X Extracts X X X X X X X X Extracts X X X X
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