DCIT Vs Bank of India (ITAT Mumbai)
Mumbai ITAT: Penalty Invalid Where Notice Alleged Inaccurate Particulars but Order Found Concealment
The AO levied penalty under section 271(1)(c) concerning additions relating to section 14A, amortisation of lease premium, foreign branch income, bad debts and provision for country risk. The CIT(A) cancelled the penalty both on jurisdictional grounds and on merits.
The Mumbai ITAT upheld the deletion, noting that the show-cause notice initiated penalty for furnishing inaccurate particulars of income, whereas the final penalty order imposed it for concealment of income. This mismatch reflected uncertainty regarding the precise charge and rendered the penalty unsustainable, following the Bombay High Court decisions in Samson Perinchery and Mohd. Farhan A. Shaikh.
On merits, the Tribunal noted that the section 14A disallowance and bad-debt addition had already been deleted in the quantum appeal, while the country-risk provision had been restored to the AO. Penalty could not survive where the underlying additions had been deleted or were pending fresh adjudication.
The remaining issues concerning amortisation of lease premium and exclusion of foreign branch income were debatable legal questions on which the High Court had admitted substantial questions of law. A claim involving a genuine legal controversy, with all relevant facts disclosed, cannot amount to concealment or furnishing inaccurate particulars merely because it was not accepted.
Accordingly, the Tribunal upheld the cancellation of penalty and dismissed the Revenue’s appeal.
List of Cases Discussed / Relied Upon
- CIT v. Samson Perinchery [2017] 88 taxmann.com 413 (Bom.)
- Mohd. Farhan A. Shaikh v. DCIT [2021] 125 taxmann.com 253 (Bom.)
- Nayan Builders & Developers (P.) Ltd. v. ITO, ITA No. 2379/Mum/2009, dated 18/03/2011
- CIT v. Reliance Petroproducts Pvt. Ltd.
- Assessee’s own case in ITA No. 1451/Mum/2023 for AY 2016-17, order dated 30/01/2026
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Present appeal filed by revenue arises out of the order dated 12/02/2026 passed by NFAC, Delhi [hereinafter referred to as “Ld.CIT(A)”] for A.Y. 2-16-17, on the following grounds of appeal:-
“1) The Ld. CIT(A) has erred in law and on facts in deleting the penalty levied under section 271(1)(c) of the Income-tax Act, 1961, without properly appreciating the findings recorded in the assessment and penalty order.
2) The Ld. CIT(A) has erred in holding that the penalty proceedings are invalid on account of alleged defect in notice, without appreciating that the assessee was fully aware of the charge, had participated in the proceedings, and no prejudice was caused, and further ignoring the provisions of section 292B of the Act.
3) The Ld. CIT(A) has erred in deleting the penalty on the ground that additions have been deleted OR set aside by the honorable ITAT, without appreciating that the quantum proceedings have not attained finality and are subject to further appeal.
4) The Ld. CIT(A) has erred in holding that the issues involved are debatable in nature, without appreciating that the assessee had failed to substantiate its claims and had furnished inaccurate particulars of income within the meaning of section 271(1)(c).
5) The appellant craves to leave and add, amend, alter and /OR delete any of the ground of appeal as above.”
2. Brief facts of the case are as under:- The assessee is a public sector bank engaged in the business of banking and other related financial activities. For AY 2016-17, the assessee filed its return of income electronically on 30/11/2016, declaring total loss of Rs. 844,76,92,620/-. The return was subsequently revised on 31/03/2018, declaring total loss of Rs. 505,48,52,864/-. The case was selected for scrutiny and assessment was completed u/s. 143(3) of the Income-tax Act, 1961 vide order dated 14/03/2019, determining the total income at Rs. 6,516,76,89,047/-, after making various additions/disallowances. The additions, inter alia, included disallowance u/s. 14A, amortization of lease premium, exclusion of foreign income, bad debts written off and provision for country risk.
Aggrieved by the aforesaid assessment order, the assessee preferred an appeal before the Ld. CIT(A).
2.1. The Ld. CIT(A), vide order dated 28/02/2023, partly allowed the appeal. The disallowance u/s. 14A was restricted to Rs. 12,94,13,414/-, while the additions relating to amortization of lease premium, exclusion of foreign income, bad debts written off and provision for country risk, inter alia, were sustained. Several other additions, including broken period interest, loss on sale of ARC, amortization of premium on securities under HTM category, interest on IPDI bonds, interest accrued but not due and deferred payment guarantee commission, were deleted.
2.2. Subsequently, penalty proceedings u/s. 271(1)(c) were taken up by the Ld. AO. Show-cause notices u/s. 271(1)(c) were issued on 16/08/2021 and 18/01/2024, to which the assessee furnished its responses. The assessee, inter alia, submitted that the issues forming the basis of the penalty had been challenged in appeal and that the additions/disallowances were either deleted or were matters involving recurring and debatable legal issues.
2.3. The Ld. AO, however, after considering the appellate outcome and the assessee’s submissions, held that the assessee had concealed particulars of income and furnished inaccurate particulars of income. Accordingly, penalty proceedings u/s. 271(1)(c) were concluded vide order dated 30/03/2024.
Aggrieved by the aforesaid penalty order, the assessee preferred an appeal before the Ld. CIT(A).
2.4. Before the Ld. CIT(A), the assessee challenged the levy of penalty, inter alia, on the ground that the penalty was initiated for furnishing inaccurate particulars of income, whereas the final penalty order levied penalty for concealment of income. The Ld. CIT(A) called for a Remand Report from the Ld. AO, along with the penalty notice dated 14/03/2019. On examination, the Ld. CIT(A) found that the charge mentioned in the notice and the charge for which penalty was ultimately levied were different. Relying upon the decisions of the Hon’ble jurisdictional High Court in CIT v. Samson Perinchery [2017] 88 taxmann.com 413 (Bom.) and Mohd. Farhan A. Shaikh v. DCIT [2021] 125 taxmann.com 253 (Bom.), the Ld. CIT(A) held that the penalty order was not sustainable and cancelled the penalty on this ground.
2.5. The Ld. CIT(A) also examined the penalty on merits. It was noted that the Hon’ble Tribunal, in assessee’s own case in ITA No. 1451/Mum/2023 for AY 2016-17, order dated 30/01/202 6, had deleted the disallowance u/s. 14A and the addition on account of bad debts written off, while the issue relating to provision for country risk had been restored to the file of the AO.
2.6. As regards the additions concerning amortization of lease premium and exclusion of foreign income, the Ld. CIT(A) noted that substantial questions of law had been admitted by the Hon’ble jurisdictional High Court and held these issues to be debatable in nature. Relying upon the decision of the Hon’ble Tribunal in Nayan Builders & Developers (P.) Ltd. v. ITO, ITA No. 2379/Mum/2009, dated 18/03/2011, as affirmed by the Hon’ble Bombay High Court in CIT v. Nayan Builders & Developers [2015] 56 taxmann.com 335 (Bom.), as well as the principle laid down in CIT v. Reliance Petroproducts Pvt. Ltd., the Ld. CIT(A) held that penalty u/s. 271(1)(c) was not exigible on such debatable issues.
2.7. Accordingly, the Ld. CIT(A) cancelled the penalty both on the legal ground relating to the mismatch in the charge and on merits, and allowed the substantive grounds raised by the assessee.
Aggrieved by the aforesaid order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal.
3. The Revenue has challenged the action of the Ld. CIT(A) in deleting the penalty, contending, inter alia, that the penalty was wrongly held to be invalid on account of the alleged defect in the notice; that the assessee was aware of the charge and no prejudice was caused; that the deletion/set-aside of the quantum additions by the Tribunal could not, by itself, justify deletion of penalty when the quantum proceedings had not attained finality; and that the issues were not merely debatable but involved failure on the part of the assessee to substantiate its claims and furnishing of inaccurate particulars of income.
4. The Ld.AR on the contrary relying on the order passed by Ld.CIT(A) submitted that the issues in respect of which the additions have been confirmed are debatable in nature. It is submitted that addition on the lease premium has already been admitted and question of law has been framed by the Hon’ble High Court in assessee’s own case. It is further submitted that the second issue in respect of foreign branch income also stands admitted before Hon’ble High Court and the question of law has been framed before Bank of Baroda.
5. On the legal issue, the Ld.CIT(A) has observed that showcause notice u/s 274 was issued to the assesse calling upon reply in respect of the additions which were confirmed based on the fact that assessee had furnished inaccurate particulars of income. In response the assessee had replied to the said notice explaining the details in such a manner that, all the necessary materials to carry out assessment in the case of assessee were furnished before the Ld.AO and no case of furnishing inaccurate particulars of income could be made out. The Ld.CIT(A) however noticed that while passing the penalty order the Ld.AO levied penalty for concealment.
5.1. In any event, once an issue becomes debatable in nature, penalty cannot be levied as there is no malafide intention made out on behalf of the assessee in making such claims in its return of income. We, therefore, do not find any infirmity in the view taken by Ld.CIT(A) and the same is upheld. Accordingly, the grounds raised by revenue are dismissed.
In the result, appeal filed by revenue stands dismissed.
Order pronounced in the open court on 17/08/2026.
