Mere Allowable Deductions Variance is not Inaccurate furnishing of Income Particulars

PCIT Vs ICICI Bank Ltd (Bombay High Court)

Introduction: The case of PCIT versus ICICI Bank Ltd, heard by the Bombay High Court, revolves around the imposition of penalties under Section 271(1)(c) of the Income Tax Act. The dispute arose from variations in allowable deductions claimed by the assessee. This article delves into the court’s analysis and the implications of its ruling.

Detailed Analysis: The essence of the case lies in the dispute over whether the assessee furnished inaccurate particulars of income by claiming deductions not initially mentioned in the return of income. The Assessing Officer (AO) imposed penalties under Section 271(1)(c), alleging inaccuracies in income reporting.

The crux of the matter hinges on the nature of the deductions claimed by the assessee. The Income Tax Appellate Tribunal (ITAT) and subsequent appellate authorities examined the validity of the deductions and the bonafide nature of the claims.

The ITAT concluded that the assessee’s claim for deductions under Section 36(1)(viii) was bona fide, even though these deductions were not initially claimed in the return of income. The variance in allowable deductions was attributed to changes in the determination of business profit, rather than deliberate inaccuracies on the part of the assessee.

The Bombay High Court upheld the ITAT’s findings, emphasizing the principle established in Commissioner of Income Tax v. Reliance Petro Products Pvt Ltd. The court highlighted that a mere claim not accepted by the AO, if made in good faith, does not constitute furnishing inaccurate particulars of income.

In essence, the court ruled that discrepancies arising from legitimate claims, even if initially omitted, do not warrant penalties under Section 271(1)(c). The decision underscores the importance of assessing the bonafide nature of claims and the absence of deliberate concealment or inaccuracies in income reporting.

Conclusion: The Bombay High Court’s judgment in PCIT-2 versus ICICI Bank Ltd provides clarity on the application of penalties under Section 271(1)(c) of the Income Tax Act. The ruling emphasizes the distinction between genuine claims and deliberate inaccuracies, highlighting the importance of assessing the bonafide intent of taxpayers. By upholding the ITAT’s decision and dismissing the appeal, the court reinforces the principle that penalties should be reserved for cases of deliberate evasion or concealment, rather than genuine discrepancies arising from legitimate claims.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. The following two substantial questions of law are proposed:

“a) Whether on the facts and in circumstances of the case and in law the Hon’ble ITAT is right in deleting the penalty u/s.271(1)(c) levied in respect of addition made of Rs.139,60,67,639/- on account of disallowance of claim of deduction u/s.36(i)(viii) holding that the variation in the deduction u/s.36(1)(viii) was due to the change in the business profit and it cannot be said that assessee has furnished inaccurate particulars of income.

b) Whether on the facts and in circumstances of the case and in law the Hon’ble ITAT is right in deleting the penalty u/s.271(1)(c) levied in respect of addition made of Rs.139,60,67,639/- on account of disallowance of claim of deduction u/s.36(i)(viii) holding that the assessee has made a bona-fide claim without discussing the merits of the reasons for variation in the business profit as worked out by the A.O.”

2 Assessee-respondent, a banking company filed its return of income for AY-1999-2000 on 31^st December 1999 declaring total income of Rs.119,33,33,740/- un-der the normal provisions. Assessee also declared book profit of Rs.78,29,67,083/- under Section 115JA of the Income Tax Act 1961 (the Act). Subsequently, assessee filed revised return of income on 27^th February 2001, declaring total income at Rs.46,53,59,236/- and book profit of Rs.102,15,58,970/-. The Assessing Officer (AO) completed the assessment by disallowing certain de-ductions.

3 Assessee challenged the assessment order before the Commissioner of Income Tax (Appeals) (CIT(A)) and thereafter before the ITAT. When assessee’s appeal was pending be-fore the ITAT, the AO issued a notice to assessee under Section 271(1)(c) of the Act and the allegation was the additions made in the assessment order were a result of furnishing of inaccurate particulars of income or concealment of income by assessee. Assessee’s objections were rejected and the AO passed an order imposing penalty of Rs.48,86,23,673/- under Section 271(1)(c) of the Act. In the appeal filed by assessee, the CIT(A) deleted the penalty imposed by the AO. The Department challenged that order of CIT(A) before the ITAT and the ITAT upheld that finding of the CIT(A).

4 It is the case of revenue that in the return of income, assessee did not claim certain deductions, during the course of assessment proceedings. Assessee claimed such deductions and thereby has furnished inaccurate particulars of income. It is department’s case that only be-cause assessee has offered income and not claimed deductions in the return of income would not ab-solve assessee from the liability of Section 271(1)(c) of the Act. The ITAT, in our view, correctly held that provisions of Section 271(1)(c) of the Act are not attracted. The ITAT was of the view and rightly so that assessee had made a bonafide claim under Section 36(1)(viii) as such deductions claimed is linked to the business profit. Only because there was variance in the deductions allowable due to change in determination of business profit, it cannot be said that assessee has furnished inaccurate particulars of income or concealed inaccurate particulars of income. As held by the Apex Court in Commissioner of Income Tax Vs. Reliance Petro Products Pvt Ltd.¹ 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.

5 In the circumstances, in our view, no substantial questions of law arise.

6 Appeal dismissed.

Notes:

1 (2010) 322 ITR 158 (SC)