Penalties should not be imposed for genuine errors or debatable claims: ITAT Pune

ACIT Vs RBL Bank Ltd. (ITAT Pune)
1. The recently, the Hon’ble Pune Income Tax Appellate Tribunal (ITAT) in ITA No.657/PUN/2024 examined the case of imposition of a penalty under Section 271(1)(c) of the Income-tax Act, 1961 (the Act). The key aspects of the decision are summarized as follows:
2. The Assessee had a long history of compliance with tax obligations and has never defaulted on tax payments. The Assessee had filed original return of income which was later on revised due to certain errors. In this regard, the Assessee had filed letter with the tax officer. The case of the assessee was selected for scrutiny. During assessment proceedings, the Assessee filed another revised return.
3. The tax officer completed the assessment proceedings and passed order making certain additions. In addition to above assessment order, the tax officer had also initiated penalty proceedings u/s 271(1)(c). The Assessee had preferred appeal before the CIT(A) whereas it was decided in favour of the revenue.
4. In view of this, the Assessee had filed appeal before the Hon’ble ITAT against above CIT(A) order and later decided to withdraw the same. Having noted this, the tax officer issued show cause notice and enquired why penalty should not be imposed u/s 271(1)(c) in relation to addition made in the assessment order and passed penalty order imposing penalty. Against this, the Assessee filed appeal before the CIT(A) and based on Assessee’s submissions, the CIT(A) deleted the penalty. Accordingly, the tax officer filed appeal before the Hon’ble ITAT.
5. Before Hon’ble ITAT, the Assessee argued that the nature of claims was debatable, and thus, penalties should not be levied on issues where multiple interpretations are possible.
6. The Hon’ble ITAT criticized the AO for not adequately considering the submissions made by the Assesee during the penalty proceedings. It emphasized that the tax officer must record reason for levy of penalty having regard to the explanations provided by the assessee before imposing penalties. The Hon’ble ITAT reiterated that the authority vested with discretion must exercise it judiciously. Ignoring the explanations tendered by the assessee can lead to a decision being vitiated by non-application of mind.
7. Conclusion – the Hon’ble ITAT ultimately upheld the CIT(A)’s decision to delete the penalty imposed. It concluded that the errors in question were minor and did not constitute the furnishing of inaccurate particulars of income. The ITAT emphasized that penalties should not be levied for bona fide mistakes and that the tax officer’s failure to consider the assessee’s explanations rendered the penalty proceedings invalid.
It would like to state that the above order of the Hon’ble ITAT reinforces the principle that penalties should not be imposed for genuine errors or debatable claims.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal filed by the Revenue is against the order of ld.Commissioner of Income Tax(Appeal)[NFAC], under section 250 of the Income Tax Act, 1961 dated 02.02.2024 for the Assessment Year 2014-15. The Revenue has raised the following grounds of appeal :
“1. On facts and circumstances of the case and in law the Id.CIT(A) erred in deleting the penalty of Rs.50,95,69,294/- levied by AO u/s 271 (l)(c) of the Act.
2. On facts and circumstances of the case and in law the Id.CIT(A) erred in not appreciating the fact that, though the assessee claimed that he had himself brought his claim to the notice of the AO even before the case was selected for scrutiny, however, as per records, notice u/s. 143(2) of the Act dated 08/09/2015 was issued to the assessee and was properly served to assessee on 16/09/2015. But assessee only filed its revised return of income on 16.03.2016. Further, in the assessment order, there is no mention that the assessee had informed the AO regarding the said discrepancy before the issue of notice u/s. 143(2) of the Act issued on 08/09/2015.
3. On facts and circumstances of the case and in law the ld.CIT(A) erred in not appreciating the fact that, even if it assessee informed the AO, the return was revised on 16.03.2016, only after the receipt of notice u/s. 143(2) dated 08/09/2015. Therefore, the assessee furnished inaccurate particulars of income. Hence, the penalty proceedings u/s.271(1)(c) of the Act initiated by the AO in the assessment order was valid.
4. The appellant craves leave to add, alter, amend and modify any of the above or all grounds raised at time of proceedings before the Hon’ble Tribunal which may please be granted.”
Submission of ld.AR:
2. The ld.AR for the assessee submitted a paper book. The Ld.AR explained the nature of additions. Ld.AR submitted that the issue whether a particular expenditure is Revenue or capital is debatable hence no penalty can be levied on an issue where two views are possible. Ld.AR submitted that elaborate submission was made before the AO during Penalty Proceedings and Assessment Proceedings, however AO failed to consider the submission filed by the Assessee in the Penalty Order. The AO has not rebutted any of the case laws relied by the assessee. AO has not recorded any satisfaction that assessee has filed inaccurate particulars.
2.1 The written submission filed by the Ld.AR is reproduced here as under :
“1. M/s RBL Bank Ltd. (‘the assessee’) is scheduled bank, originally incorporated in 1943 as a Regional Bank from Kolhapur. The Bank has been a regular tax payer since 1943 and has never defaulted in any liability till today. In the Bank’s history for over 80 years, there has never been an allegation of default in payment of taxes, or non co-operation with the tax authorities.
2. The present appeal relates to imposition of penalty u/s 271(l)(c) of the Act for the A.Y.2014-15, for alleged furnishing “inaccurate particulars of income”, in relation to the certain additions made in the course of assessment.
3. The appeal against the quantum proceedings have been withdrawn by the assessee, given that substantial part of the additions, made only results in deferment of tax liability.
A. FACTS
4. The facts leading to the subject appeal are explained in the following paragraphs.
5. The assessee is a listed company, maintaining its books of accounts as prescribed under the Companies Act read with the Banking Regulations Act. Its books of accounts are periodically audited by its Charted Accountants, and are subject to review by the representatives of the Reserve Bank of India. Extracts of published annual accounts of the Bank for the year ended 31 March 2014, are at Exhibit 1 of paperbook (at page 1 to 13). During the subject year, the assessee had achieved a turnover of over Rs.1,600 Crores,
6. The books of accounts have been subject to tax audit by independent chartered accounts, who had expressed their professional opinion in the report in relation to various claims made by the assessee in the return of income. Extracts of Tax Audit report of the Bank in From 3CD for the year ended 31 March 2014, is at Exhibit 2 of paperbook (at page 14)
7. The Bank initially filed its return of income for the A.Y. 2014-15 u/s 139(1) of the Income-tax Act, 1961 (‘the Act’) on 30.10.2014 declaring a total income of Rs. 66,28,12,940. The computation of income is at Exhibit 3 of paperbook (at page 15 to 19). The Petitioner states and submits that all the claims in relation to which penalty is being sought to be levied are part of the original return filed by the Bank.
8. The Assessee thereafter realized that there were certain errors in the original return filed, and hence filed a revised return on 30.01.2015. Revised computation income is at Exhibit 4 of paperbook (at page 20 to 26).
9. Immediately after filing the revised return of income, on 12.02.2015, the Assessee filed a letter with the jurisdictional Assessing Officer detailing the tax-treatment of premium paid by it to acquire the business of RBS. Copy of the letter is at Exhibit 5 of paper book (at page 27).
10. Subsequently, the return filed by the Respondent was selected for scrutiny through CASS vide issuance of notice dated 08.09.2015 u/s 143(3) of the Act. During the course of assessment proceedings, the Ld. Assessing Officer (‘the Ld. AO’) sought various clarifications from the assessee. The assessee duly responded to the queries raised and substantiated the claims made by it in the return of income. In the course of assessment, the assessee also filed a second revised return on 16.03.2016.
11. AO concluded the assessment vide order dated 15.12.2016 determining the income the Assessee at Rs.1,12,61,74,150, after making the following additions to the income returned by the assessee.
a. Premium paid for the acquisition of certain businesses from Royal Bank of Scotland, amounting to Rs. 149.20 Crores was claimed as revenue expenditure by the Assessee. The Ld. AO treated the expenditure as capital in nature, but allowed depreciation @ 25% (of Rs 37.30 Crores, treating it as intangible asset. This resulted in net addition of Rs 111 .90 Crores.
b. Claim for bad debts u/s 36(1 )(vii) amounting to Rs. 65,97,164 dis-allowed by the AO on the ground that the assessee being a bank, will not be eligible for the deduction.
c. Excess depreciation inadvertently claimed by the Bank amounting to Rs 5,10,000, was dis-allowed in the course of assessment.
d. Profit on sale of scrap amounting to Rs. 66,985/-inadvertently not treated as business income by the assessee, was subjected to tax.
12. Copy of the assessment order is at Exhibit 8 of paperbook (at page 38 to 64).
13. The assessee preferred an appeal before the CIT(A), against the first two adjustments alone, which came to be rejected vide order dated 20.03.2017. Copy of the order of the CIT(A) is at Exhibit 10 of paperbook (at page 66 to 93).
14. The Ld AO, along with the assessment order, initiated proceedings for imposition of penalty u/s 271 (1 )(c) of the Act, which was kept in abeyance in view of pendency of appeal against the assessment proceedings.
15. Against the order of the CIT(A), the Assesee preferred an appeal before the Hon’ble Income-tax Appellate Tribunal, Pune (‘the Hon’ble ITAT’). During the pendency of the appeal proceedings, the assessment proceedings for subject years were concluded. Citing the pendency of appeal for A.Y. 2014-15, the Ld AO refused to grant even depreciation on the goodwill arising out of purchase of business by the assessee from Royal Bank of Scotland. Assessment orders for A.Y. 2015-16 and 2016-17, are at Exhibit 19 and 20 (page 145 to 168 of the paperbook)
16. Given that substantial addition made during A.Y. 2014-15 was only resulting in deferment of taxes, the assessee sought to withdraw the appeal preferred by it before the Hon’ble ITAT. The Hon’ble ITAT, vide order dated 06.01.2020 dismissed the appeal of the assessee based on the assessee’s request. Copy of the order of the Tribunal for A.Y. 2014-15 is at Exhibit 11(page 94 to 95 of the paperbook)
17. Due to the dismissal of the appeal of the assessee for A.Y. 2014­15, the National Faceless Assessment Centre (NFAC) issued a notice on 10.06.2021 to show cause why the penalty under section 271(l)(c) should not be imposed on the assessee in relation to the additions made in the assessment order. A copy of the notice dated 10.06.2021 is at Exhibit 12 (page 96 to 98 of paperbook).
18. Vide letter dated 11.11.2021, the Respondent filed detailed submissions as to why the additions made in the course of assessment do not warrant imposition of penalty u/s 271 (1 )(c) of the Act. A copy of the submissions is at Exhibit 13 (page 99 to 108 of paperbook).
19. However, without taking note of the reply filed by the assessee, the Ld. AO proceeded to hold that the assessee does not have any explanation to offer and hence imposed penalty u/s 271(1 )(c) of the Act vide an order dated 28.03.2023. The Ld. AO notes the following as the reason for imposing the penalty
“3…. The assessee has not submitted any supporting documents in response to the notices. Keeping in view the non submission of response by the assessee to the show cause notices, it is surmised that the assessee has nothing to say in the matter.
4. Accordingly, penalty is being imposed on the assessee for furnishing inaccurate particulars in his income
A copy of the order imposing penalty is at Exhibit 14 (page 109 to 110 of paper book).
20. Against the order levying penalty, the assessee preferred an appeal before the Ld. CIT(A). The assessee reiterated the submissions before the CIT(A). A copy of the submissions made before the CIT(A) is at Exhibit 16 (page 116 to 125 of the paperbook).
21. After considering the oral and written submissions of the Assessee, the CIT(A) vide an order dated 02.02.2024 deleted the penalty imposed on the assessee. A copy of the order of the CIT(A) is at Exhibit 17 (page 126 to 141 of paperbook).
22. Aggrieved by such order of the Ld. CIT(A), the Ld. AO has filed the present appeal before this Hon’ble Tribunal.
B. SUBMISSIONS OF THE RESPONDENT ASSESSEE BANK
I. Penalty imposed without application of mind is un sustained – issue squarely covered by the judgment of Gujarat High Court in Scientific Chemicals
23. In order to impose a penalty on the asseseee, the Section 271(l)(c) of the Act mandates the Ld AO has to form a reasonable belief that the assessee has “furnished inaccurate particulars of income” or has “concealed the particulars of his income”. As observed by the Supreme Court in Sir Shadi Lai Sugar and General Mills v CIT[1987] 168ITR 705 (SC), the fact that the assessee has admitted the additions made in the course of assessment does not absolve the Revenue to prove the mens rea of quasi criminal offence for the purpose of imposition of penalty.
24. In the impugned order, the Ld. AO has imposed penalty in the case of the assseee as (a) the quantum additions have been confirmed by the appellate authorities, and (b) on the erroneous presumption the Assessee has not responded to the SCN issued by the Ld AO. When section 271(l)(c) of the Act requires the Ld. AO to record is satisfaction before imposition of penalty, the AO could not have imposed penalty merely because the assessee has not filed any response. The CIT(A) has held the order imposing penalty to be bad in law on this count too. The assessee submits that there is no specific ground raised by the Revenue against this observation of the CIT(A).
25. On identical facts, the Gujrat High Court in CIT v. Scientific Chemicals[2005]278 ITR 199 (Guj) (page 24-26 of the compilation, relevant portion at page 26) has held that a order imposing penalty passed without application of mind is bad in law and deserves to be quashed.
26. The question before the Gujarat High Court related to imposition of penalty u/s 271(l)(a) of the Act, for delay in filing of return. Though the assessee filed certain explanation, the AO overlooked it. The AO presumed that the assessee had no reason to offer for the delay, and therefore he was satisfied that the assessee had without any reasonable cause failed to file the return in time. The CIT(A) granted partial relief on the basis of reasonable cause shown by the assessee. In second appeal, the Tribunal agreed with the CIT(A) on the reasonable cause, but held that the penalty imposed without application of mind was bad in law.
27. Before the High Court, the Revenue argued that the CIT(A) having considered the explanation offered by the having granted partial relief, the assessee could have no grievance. The High Court negatived the argument and observed that, though the powers of the CIT(A) are co-terminus of the AO, where the AO was required to satisfy himself before imposition of penalty, he only would have to exercise the discretion and no one else. The High Court therefore upheld the order of the Tribunal deleting the penalty. Relevant portion of the order of the High Court is reproduced below]
“The authority vested with discretion by a statutory provision is under a mandate to exercise such discretion in a judicial manner and not arbitrarily. When the explanation tendered by the assessee is ignored or omitted from the zone of consideration before the order is made, it would definitely violate the principles of natural justice. The order would be vitiated by exercise of arbitrariness in the decision-making process and the discretion cannot be stated to have been exercised judicially.
There is one more aspect of the matter. When an authority is vested with discretionary powers and omits to take into consideration the explanation tendered, which has admittedly been filed in response to the show-cause notice, the order would suffer from the vice of non-application of mind whenthe order records that no explanation is tendered. In the present case, admittedly, it has been found by the Tribunal that though the explanation wastendered, the Income-tax Officer proceeded on the footing that no explanation was tendered and thus, it is established that the order stands vitiated for non-application of mind. If a statute invests a public officer with the authority to do an act in a specified set of circumstances, it is imperative upon him to exercise the authority in a manner appropriate to the facts and circumstances of the case when a party interested and having a right takes appropriate steps in that regard and circumstances for exercise of authority with the discretion are shown to exist. The exercise of discretion has to be in a judicial manner, namely, fairly and reasonably. ”
II. The assessee has not furnished inaccurate particulars of income
28. The Ld. AO has initiated penalty proceedings for “furnishing inaccurate particulars of income”. The term ‘furnished inaccurate particulars of income’ is not defined in ‘the Act. However, its meaning has been repeated explained by the Courts to indicate “statement made or any detail supplied which were found to be factually incorrect”. A claim made which is considered by the Revenue to be legally incorrect, cannot lead to a conclusion that the assessee has furnished inaccurate particulars of income. In CIT vs. Reliance Petroproducts(P.) Ltd. (2010) 322ITR 158 (SC), the Hon’ble Supreme Court explained this principle in the following words:
“It was not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee could not be held guilty of furnishing inaccurate particulars. The revenue argued that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. Such cannot be the interpretation of the concerned words. The words are plain and simple. 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 of inaccurate particulars.
A mere making of the claim, which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars.
29. The principle has also been explained by the Tribunal in Van Oord Dredging and Marine Contractors BV v. ADIT [2020] 184ITD 750 (Mum) (page 17 – 23 of the compilation, relevant portion at page 20) in the following words
“…….The expression furnishing of inaccurate particulars of income’ has also not been defined in the Act. The expression ‘inaccurate’ refers to ‘not in conformity with the fact of truth’ and i.e. the meaning which in our humble opinion, is relevant to the context of ‘furnishing of inaccurate particulars’. The expression ‘particulars’ refers to facts, detail, specifies, or information about someone or something’. Thus, the plain meaning of expression ‘inaccurate particulars of income’ implies furnishing of details or information about income which are not in conformity with the facts of truth. The details or information about income deal with the factual detail of income and this cannot be extended to areas which are subjective such as the status of taxability of an income, admissibility of a deduction and interpretation of law. The furnishing of inaccurate information thus relates to furnishing of factually correct details and information about income. ”
30. The jurisdictional Bombay High Court, in the case of PCIT vs Shamrao Vithal Cooperative Bank [ITA No. 659/2017] (page 28 – 30 of the compilation, relevant portion at page 29) has also held that where two views are possible, merely making of a bonafide claim even if ultimately found to be not sustainable is not a ground for allege that the assessee has furnished inaccurate particulars of income.
“The Tribunal recorded that in relation to the assessee’s claim of expenditure two views were possible. Even otherwise the revenue has not made out any case of concealment of income or concealment of particulars of any income. As is well laid down through series of judgments of Supreme Court, merely raising a bonafide claim even if ultimately found to be not sustainable is not a ground for imposition of penalty. In the result, Income Tax Appeal is dismissed.
31. Similarly, in the case of CIT vs. Amtek Auto Ltd. [2013] 352 ITR 394 (P&H), (page 42-43 of the compilation, relevant portion at page 43), while deciding the issue whether penalty could be levied on the claim of a certain item of expenditure as revenue or as capital, observed as under:
“The assessee has disclosed the nature of transactions in its return. It was on the basis of the interpretation of the provisions of the statute, that the Assessing Officer found that such expenditure claimed by the assessee was not revenue expenditure but capital expense. There is a fine distinction as to when an expenditure can be treated as a revenue or a capital expenditure. Therefore, merely for the reason that the assessee has claimed the expenditure to be revenue will not render the assessee liable to penalty proceedings. The order passed by the Tribunal does not give rise to the questions of law sought by the revenue.
32. Clearly therefore, merely making a claim in the return of income, which is adjudged to be incorrect in law, would not by itself lead to the conclusion that an assessee has furnished inaccurate particulars of income.
A. Penalty imposed on premium paid for acquisition of business from Royal Bank of Scotland
A.1. The assessee furnished all the particulars relating to the claim, and none of them have been found to be inaccurate.
33. The assessee has paid a premium of Rs. 149.20 crores for the acquisition of the mortgage portfolio as well as the credit cards division of Royal Bank of Scotland. A small bank like the assessee, acquiring the business from a foreign Bank with over 300 years presence, was an event of pride and was widely publicized. The premium paid was only to take over the customer contacts, employees, existing mortgages and debts, etc. and not towards acquisition of trade mark or brand name. These business and customer relations can be terminated at any time by the counter party, and hence, the assessee treated the premium as a revenue expenditure.
34. The fact about the assessee paying the premium, and treating its revenue expenditure was disclosed by the assessee in the following manner
(i) Published annual accounts of the Bank for the year ended 31 March 2014, are at Exhibit 1 of paper book (at page 1 to 13, relevant portion at page 1)
(ii) Disclosure by the auditors in their tax audit repot in Form 3CD at Exhibit 2 of paper book (at page 14).
(iii) Letter written to the jurisdictional Assessing Officer detailing the tax- treatment of premium paid by it to acquire the business of RBS Exhibit 5 of paperbook (at page 27).
35. The assessee has thus completely disclosed the particulars of the transaction with the Revenue Authorities in all possible manners. None of these facts have been found to, or even alleged to be incorrect. In this background, the Revenue cannot contend that the assessee has furnished inaccurate particulars of its income.
A.2. The claim made by the assessee is a plausible view, supported by the guidance issued by RBI and judgments of various Courts
36. The premium paid by the assessee to acquire the running business of Royal Bank of Scotland gave the assessee easier access to trained employee, existing loans, customer contacts, etc.. These business benefits necessarily do not yield an enduring benefit. The employees may resign over which the assessee does not have any control. The old customers of Royal Bank of Scotland, may refuse to bank with the assessee, being an Indian bank. The advantage gained by paying this premium, therefore is a revenue expenditure, as held by the Karnataka High Court in CIT v. IBM Global Services India (P.) Ltd [2014] 366ITR 293 (Kar) (page 94 -101 of the compilation, relevant para 12 and 13 at page 99).
37. In the appeal before the Karnataka High Court, IBM India had paid a premium of Rs 18.4 Crores to Tatas to take over trained employees, and Rs 5.3 Crores to get access to client database. The High Court held that the premium paid did not result in any enduring advantage and hence allowable as a revenue expenditure, in the following words.
“12. As per the agreement entered into between the parties, the assessee had paid consideration to the transferor company. While filing the returns, the said transaction has been disclosed by the assessee and claimed it asrevenue expenditure. However, the Revenue found fault with the same and held that the expenditure incurredfor getting the enduring advantage is the capital gain. Hence, the expenditure incurred cannot be treated asRevenue expenditure since there is a transfer of business and the amounts paid are capital in nature. The saidorder was confirmed by the First Appellate Authority. The Appellate Tribunal after re-examining the matter indetail, relying upon the various judgments of the various High Courts as well as the Supreme Court held thatthe expenditure incurred is revenue in nature. In the instant case, insofar as payment for getting domesticcustomer database is concerned, it is clear that, assessee has only got right to use that database, the companywhich has provided such database is not precluded from using such database. Hence the expenditure incurredis for the use of database and not for acquisitions of such database. A similar issue was raised in WIPRO GEMEDICAL SYSTEM case wherein it was held that payment made towards access to information base and fortransition of customer order filing is a business consideration. There is no question of acquisition of any assetswhen the access is made and the payment is made for the same. The said payment cannot be treated asrevenue expenditure. There is no infirmity or irregularity in the saidfinding of the Tribunal.
13. In respect ofpayment made towards transfer of human skill is concerned’, as per the agreement, totalpayment made is about Rs.18.4 crores. Out of which, Rs.9.01 crores was attributable to STP Unit, for whichthe payment of tax is exempted. The payment has been made towards the expenses incurred for training andon recruitment. Such expenses were under revenue field, and therefore the payments have been made to savesuch revenue expenses as per the agreement. TATA IBM has spent lot of money to give training to those employees who were transferred to the assessee-company. They are trained in the field of software. They haveopted for employment with assessee-company and for their past services in TATA IBM, expenditure has beenincurred. Such expenditure cannot be termed as expenditure laid for carrying on the business. The advantages obtained by TATA IBM can be treated as services rendered by those employees to TATA IBM. The concept ofpayment made once and for all and of the enduring benefit respond to the changing economic realities ofbusiness and hence the expenditure incurred on processing domestic customer database and transfer of humanskill is a revenue, though the benefit may be of enduring in nature. Hence, the said expenditure has to betreated as revenue expenditure. The order passed by the Assessing Officer to disallow the expenditure asrevenue expenditure is erroneous in law.
38. In the context of business take over by Banks, the Reserve Bank of India has specifically provided that the premium paid for taking over of business shall only be amortized over a period not exceeding 5 years, but shall not be capitalized. The issue of treatment of such premium came up for consideration before the Tribunal mACIT vs Shamrao Vithal Co-operative Bank ITA No.5226/Mum/2014 (Mum), (page 31 – 39 of the compilation, relevant para 7 at page 38). The assessee bank had acquired three cooperative banks and paid aggregate premium of Rs 22.83 Crores. As per the guidelines issued by RBI, the bank had treated the expenditure as revenue expenditure and amortized it over a period of five years. While deciding an appeal on imposition of penalty against such claim, the Tribunal had held that the claim of the expenditure being revenue in nature, was a possible view taken by the assessee.
“7. … Moreover, on a perusal of the circular issued by the RBI as referred to by the learned Commissioner (Appeals) a copy of which is placed before us, it is seen that acquirer Urban Cooperative Bank is permitted to amortize the loss taken over from the acquired bank over a period of not more than five years including the year of merger. It is also noticed that in case of Bank of Rajasthan (supra), the Tribunal has allowed it as revenue expenditure. Therefore, on a conspectus of facts discussed above, it is to be noted that the claim made by the assessee cannot be said to be totally inadmissible or amounts to either furnishing of inaccurate particulars of income or misrepresentation of facts. It is possible to accept that the assessee being guided by RBI circular has claimed the deduction. In such circumstances, the assessee cannot be accused of furnishing inaccurate particulars of income more so when the assessee has furnished all relevant information and material before the Assessing Officer in relation to acquisition of three Urban Cooperative Banks. … “
39. This order has been approved by the Bombay High Court in PCIT vs Shamrao Vithal Co-operative Bank ITXA No. 659/2017 (Bom.) (page 28 – 30 of the compilation, relevant para 4 at page 29).
40. It is also now well settled that when a bona fide claim is made by the assessee, penalty cannot be imposed when the claim is overturned by the Assessing Officer. This principle has been reiterated by the Delhi High Court in CIT v. SAS Pharmaceuticals [2011] 335 ITR 259 (Del) (page 80 – 84 of the compilation, relevant para 13 at page 84).
A.3. The claim made by assessee is based on professional opnion obtained from PWC
41. When the transaction was being contemplated, the assessee sought a legal opinion from Price Waterhouse Coopers, on the treatment of the premium being paid to take over the business of Royal Bank of Scotland. PWC, by their detailed opinion, advised the assessee to claim the expenditure as a revenue expenditure.
42. The assessee could not produce the document before the lower authorities due to change in the team that had obtained the opinion and the one handling the litigation, and hence is producing the opinion for the consideration of the Tribunal.
43. As observed by the Tribunal in Procter & Gamble Hygiene & Healthcare Ltd. V. JCIT [2024] 158 com 183 (Mum.) (page 85 – 93 of the compilation, relevant para 11 at page 91), where a claim is based on a professional opinion, penalty cannot be imposed if the view expressed in the opinion is not agreeable to the Tax Authorities.
B. Penalty imposed on claim for bad debts – Rs. 65,97,164
B.1. The claim for bad debts is a bona fide claim
44. The Bank has debited the following sums in its Profit and Loss Account for the Financial Year 2013-14;

SNo
Description
Amount (Rs.)

1.
Provision for Bad & Doubtful Debts
29,44,38,850/-

2.
Bad debts written off
65,97,164/-

45. As claims for provision for bad debts are restricted by Section 36(l)(viia) of the Act to a certain percentage of the annual profits, the assessee restricted its claim for deduction in the following manner.

SNo
Description
Amount (Rs.)
Section under which claim is made

3.
Provision for Bad & Doubtful Debts
13,37,53,975
36(l)(viia)

4.
Bad debts written off
65,97,164
36(l)(vii)

46. Section 36(l)(viia) of the Act provides for deduction of provision for bad debts, while Section 36(1 )(vii) deals with deduction for bad debts actually written off. In the facts of the assessee, it has actually written off bad debts in relation to credit card business taken over by the assessee during the assessment year 2014-15. No provision was ever created by the assessee in relation to these debts. The claim would therefore be fully governed by Section 36(1 )(vii) and not hit by Section 36(l)(via) at all.
47. Detailed arguments on the allowability of the claim has been made by the assessee before the AO and the CIT(A). The order clearly notes the interpretation advanced by the assessee. No factual inaccuracies have been pointed out the lower authorities. It is mere case of the interpretation given by the assessee, not finding favor with the lower authorities. This cannot lead to a conclusion that the assessee has furnished inaccurate particulars of its income.
48. In any case, as observed by this Tribunal in ITO v. Karad Janata Sahakari Bank Ltd ITA No.2600/Pun/2017 (page 107 – 112 of the compilation, relevant para 9 at page 110), merely making an excess claim for deduction under Section 36(l)(viia) in the return of income cannot tantamount to furnishing of inaccurate particulars of income.
B.2. The dis-allowance is based on Explanation 2 to Section 36(l)(viia) introduced with effect from AY 2014-15. This heins the first year of operation of the Explanation, very less clarity was available on its applicability.
49. The claim of the assessee has been denied by the lower authorities solely based on Explanation 2 to Section 36(l)(vii) introduced by the Finance Act, 2013 with effect from 01st April, 2014. The subject year is the first of operation of the Explanation.
50. As has been explained by the CIT(A) in his order (in para 8.1), the amendment seeks to overrule the earlier judgment of various Courts, which permitted the claim for deduction of bad debts by Banks.
51. In other words, as per the Revenue, but for the Explanation, the assessee would have been eligible for the deduction. From a plain reading of the Explanation, it is clear that the restriction of deduction is only intended to deny deduction for bad debts which are not debited to the provision for bad debts accounts. This Explanation, impliedly would apply only in relation to debts for which provisions have been created earlier. It can certainly, at least prima facie, would not apply to debts for which provision was not created.
52. The intention of the Explanation is to curtail double deduction. When the assessee has not claimed deduction for the provision, the question of double deduction does not arise.
C. Penalty imposed on excess claim of depreciation – Rs 5,10,000
53. The assessee had sold one building owned by it, during the Assessment Year 2014- 15. The building formed part of block of assets, and was eligible for depreciation at 10%. The building was sold for a total consideration of Rs 1.95 Crores, of which Rs 1.44 Crores was received during the Assessment Year 2014-15, and this alone was reduced from the block of asset.
54. The remaining sum of Rs 51 Lakhs was received as advance during Assessment Year 2013-14, and was separately shown as a liability in the balance sheet. There was a clerical error in setting off the advance received against the sale consideration due.
55. Immediately upon the Ld AO pointing out the mistake, the Assessee sue moto requested the AO to dis-allow the excess depreciation. The request made by the assessee has been noted by the Ld AO in para 5.3 of the assessment order.
56. The assessee humbly submits that the error was a clear oversight on the part of the assessee, not intended to avoid payment of tax. The bona fide is also established from the assessee sue moto requesting the AO to dis allow the excess depreciation claimed.
57. In Price Waterhouse Coopers (P.) Ltd CIT[2012] 348ITR 306 (SC),a big 4 tax consulting firm, due to clerical error claimed provision for gratuity as deduction. The Supreme Court observed that such clerical errors cannot be coloured with furnishing of inaccurate particulars. The Court therefore deleted penalty imposed on dis­allowance made by the assessee.
58. The assessee therefore submits that the clerical error cannot be seen as furnishing of inaccurate particulars by the assessee.
D. Penalty imposed on sale of scrap not offered to tax – Rs.66,985
59. The profits made from sale of assets are dealt with under the head “capital gains”, whereas the profits from sale of scrap is treated as “business income”. The assessee had recorded Rs. 1,70,29,119/- as profits from sale of assets in its books of accounts. As this head of profits would be dealt with under the head “capital gains”, the assessee excluded the entire sum from its business profits.
60. However, when re-examining the line items that constituted Rs.1,70,29,119/-, it was identified that a small sum of Rs.66,985 represented proceeds from sale of scrap and not assets. Upon noticing this, the assessee sue moto requested the AO to treat the sum of Rs 66,985 as its business income. The fact that the assessee sue moto requested the AO to treat the sum as taxable income upon identifying the mistake is noted in para 6.2 of the assessment order.
61. The assessee submits that the error has crept in due to incorrect classification in accounting books, and smallness of the amount. This error, the assessee submits, cannot be treated as furnishing of inaccurate particulars of income.
62. This Tribunal, recently in Rane Industries Pvt Ltd v. DCIT[ITA 555/Pune/2020, decision dated 13.06.2022], held that penalty for furnishing of inaccurate particulars of income cannot be imposed for obvious clerical errors. In the said case, the assessee had claimed tax paid as a deduction. When pointed out during the course of assessment, the assessee realised its mistake and offered the amount to tax. The Tribunal deleted the penalty imposed by the Assessing Officer, by making the following observation;
“3. It is not a case where the assessee tried to mislead the Revenue by intentionallyclaiming higher amount of deduction. Rather it is a case of inadvertent mistake in the computation of income. The Hon’ble Supreme Court in Price Waterhouse Coopers Pvt. Ltd. Vs. CIT (2012) 348 ITR 306 (SC) has held that no penalty u/s.271(l)(c) can be imposed in respect of inadvertent and bona fide mistake committed by the assessee. The Hon’ble jurisdictional High Court in CIT Vs. Somany Evergreen Knits (2013) 352 ITR 592 also deleted the penalty which occurred due to bona fide and inadvertent mistake of the Chartered Accountant while filing the return. Since the facts and circumstances of the instant case amply show that the excess claim of deduction was due to bona fide and unintentional mistake, respectfully following the precedents, we order to delete the penalty. ”
In view of the above, the Respondent submits the order of the Ld. Commissioner (Appeals) deserves to be upheld. The Respondent therefore prays that the present appealfiled by the Ld. AO be dismissed.”
2.2 Ld.Authorised Representative(ld.AR) for the Assessee had also filed an application under Rule 29 of the Income Tax Appellate Tribunal Rules 1963 requesting the Hon’ble ITAT for admission of Additional Evidence which could not be filed during Assessment Proceedings/Penalty proceedings. The additional Evidence is Copy of the “Memorandum” dated 25/9/2013 issued by PWC to assessee advising about deductibility of expenses paid for acquisition of assets and allowability of depreciation on intangible assets. Ld.AR also filed an affidavit of the Chief Financial Officer of the assessee explaining the reasons for not filing the said Opinion of PWC during Assessment, Penalty proceedings.
Submission of Ld.DR:
3. Departmental Representative(ld.DR) for the Revenue relied on the order of the Assessing officer. Ld.DR explained the nature of the additions and vehemently argued that assessee has filed inaccurate particulars of its income.
Findings and Analysis:
4. We have heard both the parties and perused the records.
4.1 Before we discuss, we will like to reproduce the entire Penalty Order dated 28/03/2022 as under :
“2. As per the assessment order u/s. 143(3) of the Income Tax Act, was passed in the case of the assessee on 27.12.2016, assessing total income of Rs.1,78,89,87,089/- as against return of income of Rs.66,28,12,940/-. Penalty proceeding u/s 271(1)(c) was initiated simultaneously on addition/disallowances amounting to Rs.1,49,91,74,149/-.
3. Against the order u/s. 143(3) of the Income Tax Act, the assessee preferred appeal before the CIT(A) then appealed again before the ITAT. The Hon’ble CIT(A)-1, Kolhapur dated 20.03.2017 and Hon’ble ITAT, Pune, vide No. ITA No. 1241/PUN/2017 dated 06.01.2020 has confirm the addition for A.Y. 2014-15.
3. Accordingly, show cause notices u/s 271 (1)(C) dated 27.12.2016 and 10.06.2021 were issued to assessee which was successfully delivered to assessee though email. The assessee has not submitted any supporting documents in response of the notices. Keeping in view the non submission of response by the assessee to the show cause notices, it is surmised that the assessee has nothing to say in the matter.
4. Accordingly, penalty is being imposed on the assessee for furnishing inaccurate particulars in his income, and therefore, as per provisions of sec 271 (1)(c) of the I.T.Act the assessee is liable for penalty on the sum computed at the rate of 100% to 300% of the tax payable to be evaded. Which is calculated as under:-

Inaccurate Income
Rs1,49,91,74,149/-

Tax on inaccurate income after surcharge and cess
Rs 50,95,69,294/-

Penalty leviable under section 271(1)c) 100% to 300% of the tax payable
Rs.1,52,87,07,882/-

Accordingly, a penalty of Rs 50,95,69,294/- is hereby imposed on the assessee, u/s 271 (1)c) of the I.T. Act, 1961. Demand and challan are also issued accordingly .The penalty order is passed with prior approval of competent authority.”
4.2. Thus, it is observed from the impugned penalty order that the AO has not specifically stated the reasons for the Penalty. It is necessary for the AO to discuss why he has alleged that assessee had filed inaccurate particulars. In the Penalty Order the AO has not even mentioned about the nature of additions, quantum of disallowances. From the reading of the impugned Penalty Order it is clear that the AO has failed to demonstrate that the Assessee has filed inaccurate particulars. Penalty proceedings are independent of Assessment Proceedings. In this case the AO has not mentioned anything about how the Assessee has filed “inaccurate particulars of income” in the impugned Penalty Order.
4.3. The relevant Section 271(1)(c ) is reproduced here under : 271. (1) If the [Assessing] Officer or the [***] [Commissioner (Appeals)] [or the [Principal Commissioner or] Commissioner] in the course of any proceedings under this Act, is satisfied that any person—
(a) [* * *]
(b)…………, or
(c) has concealed the particulars of his income or furnished inaccurate particulars of [such income, or]
………………
[Explanation 1.—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 the [Principal Commissioner or] Commissioner] to be false, or
(B) such person offers an explanation which he is not able to substantiate [and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him], then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed………..
4.4 As per the Explanation-1, Sub Clause-(A) of Section 271(1(c) the AO has to consider submission of the Assessee and record his findings vis a vis the submission and arrive at the conclusion whether the explanation offered by the assessee is “False” or arrive at the conclusion whether the explanation offered by the assessee is not bonafide or unsubstantiated. In this case though the assessee filed an elaborate submission during the Penalty Proceedings the AO has failed to record any findings regarding the submission of the Assessee. It is mandatory for the AO to record his findings and arrive at a conclusion.
4.5. There were four additions in the Assessment Order. The first addition was of Rs.149.20 crores. The Assessee had claimed the said amount which was Premium Paid for acquisition of certain business portfolio of RBS India and professional fees paid for the same as Revenue Expenditure. The AO in the Assessment Order held it as Capital Expenditure for acquiring Intangible Asset and allowed Depreciation. Second Addition is on account of Bad Debts claimed u/sec.36(1)(vii) of Rs.65,97,164/-. Third addition was about excess depreciation claimed inadvertently of Rs.5,10,000/-. Fourth addition is of Rs.66985/- Sale of scrap. However, in the Penalty Order the AO has not established how the assessee has filed inaccurate particulars about the impugned issues when admittedly all the details were on record. During the Penalty Proceedings the assessee had filed elaborate submission vide letter dated 11/11/2021 which is at page 99-108 of the paper book filed by the Assessee. The Ld.DR has not challenged the veracity of the said submission dated 11/11/2021. The submission of the assessee has not been discussed in the impugned penalty order dated 28/03/2022. We have already mentioned that AO has not even mentioned about the nature of Additions in the Penalty Order. As held by the Hon’ble Apex Court in CIT v. Reliance Petro Products (P.) Ltd. [2010] 189 Taxman 322/322 ITR 158 (SC) if we accept the contention of revenue, then in case of every return where the claim sum is not accepted by the AO for any reason, assessee will invite 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 assessee, such claim made in the return cannot amount to be inaccurate particulars.
4.6 In these facts and circumstances of the case, for all the reasons discussed above, we agree with the Ld.CIT(A) that the Penalty u/s 271(1)(c) of the Act is not maintainable. Hence, we direct the Ld.AO to delete the impugned penalty. Accordingly Ground Number 1 of the Revenue is dismissed.
4.7 In the Ground Number 2 and 3, the Revenue has discussed about the Revised Return and alleged that the revised return was filed only after issue of notice u/s.143(2).However, what revenue has discussed in the Ground number 2 and 3 is not emanating from the impugned Penalty Order. Not a single word has been mentioned by the Assessing Officer about the Revised Return. Rather the word “Revised Return” is not at all appearing in the Penalty Order. Therefore, the Revenue cannot raise a ground which is not discussed in the impugned Penalty Order. The Penalty proceedings and Assessment proceedings are separate proceedings. AO has to discuss independently the issues in the Penalty Order and in this case the AO has not discussed it. Therefore, since the ground number 2 and 3 of the revenue is not emanating from the Penalty Order, are here by dismissed for the reasons discussed above. Part of the ground number 3 is about ‘Inaccurate particulars ’which has been already discussed in earlier paras hence need not be repeated. Accordingly, Ground number 2 and 3 of the revenue are dismissed.
4.8 Ground Number 4 is general in nature. No additional ground was raised, no ground was altered or modified. Accordingly Ground number 4 is dismissed.
5. In the result, the appeal of the Revenue is dismissed.
6. We do not intend to discuss the Additional Evidence filed by the assessee as we have already dismissed the appeal of the revenue on merits.
Order pronounced in the open Court on 30th September, 2024.