Case Law Details
DCIT Vs Sarva Haryana Gramin Bank (ITAT Delhi)
Introduction: The Income Tax Appellate Tribunal (ITAT) Delhi recently issued an order in the case of DCIT vs. Sarva Haryana Gramin Bank concerning a penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961. This article provides an in-depth analysis of the case and the reasoning behind the ITAT’s decision.
Subheading 1: Background of the Case: Sarva Haryana Gramin Bank, the assessee, was subjected to a penalty under Section 271(1)(c) of the Income Tax Act for the assessment year 2015-16. The penalty was imposed by the Assessing Officer (AO) concerning certain disallowances and additions made during the assessment.
Subheading 2: Grounds of Appeal: The Revenue challenged the penalty imposed on the assessee, amounting to Rs.1,79,17,819, in its appeal to the ITAT Delhi. The penalty primarily arose from three disallowances:
(i) Disallowance of Rs.2,31,17,869 under Section 14A read with Rule 8D of the Income Tax Rules. (ii) Disallowance of deduction of Rs.2,33,02,768 for the amortization of premium paid at the time of purchasing securities over the remaining period. (iii) Disallowance of Rs.57,21,000 due to the loss on the sale of obsolete stationery and other petty items.
Subheading 3: Assessee’s Defense: The counsel for the assessee pointed out that the quantum proceedings had already resolved two of the issues in favor of the assessee. Therefore, the basis for imposing the penalty on these issues no longer existed.
Regarding the third issue of disallowance related to obsolete stationery and other petty items, the counsel argued that the documentary evidence supported the genuineness of the claim. The losses incurred were a result of the amalgamation of two banks into a single entity, rendering the existing stationery obsolete. The bank’s management decided to dispose of this unusable stock, leading to the losses.
Subheading 4: ITAT’s Decision: The ITAT Delhi considered the arguments put forth by the assessee and examined the facts of the case. It noted that two of the disallowances/additions had been deleted during the quantum proceedings, eliminating the basis for the penalty on those counts.
Regarding the third disallowance related to obsolete stationery, the ITAT acknowledged that the bank was a rural institution operated by professional management. The amalgamation had indeed rendered the stationery obsolete. Furthermore, documentary evidence had been presented during the quantum proceedings, which indicated the genuineness of the losses claimed.
The ITAT emphasized the principle that a mere wrong claim, by itself, does not automatically invite a penalty under Section 271(1)(c) if the actions of the assessee are bona fide and beyond reasonable doubt.
Conclusion: In the case of DCIT vs. Sarva Haryana Gramin Bank, the ITAT Delhi ruled in favor of the assessee. The penalty imposed under Section 271(1)(c) was dismissed, as two of the additions/disallowances had been deleted during the quantum proceedings, and the remaining claim for obsolete stationery losses was found to be supported by genuine documentary evidence. This case underscores the importance of assessing the bona fides of an assessee’s actions before imposing penalties under the Income Tax Act.
FULL TEXT OF THE ORDER OF ITAT DELHI
The captioned appeal has been filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi (‘CIT(A)’ in short) dated 09.01.2023 arising from the penalty order dated 28.03.2022 passed by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961 (the Act) concerning AY 2015-16.
2. As per the grounds of appeal, the Revenue has challenged the reversal of penalty of Rs.1,79,17,819/- by the CIT(A) imposed under Section 271(1)(c) of the Act by the Assessing Officer.
3. When the matter was called for hearing, the ld. counsel in the Revenue’s appeal pointed out that impugned penalty under Section 271(1)(c) arises from (i) disallowance of Rs.2,31,17,869/- under Section 14A read with Rule 8D of the Income Tax Rules; (ii) disallowance of deduction of Rs.2,33,02,768/- in respect of amortization of premium paid at the time of purchase of securities over the remaining period of securities (iii) disallowance of Rs.57,21,000/- on account of loss on sale of obsolete stationery and other petty items.
4. The ld. counsel adverted to the decision of the Co-ordinate Bench in the quantum proceedings in assessee’s own case for the Assessment Year 2015-16 in ITA No.1984/Del/2019 order dated 19.10.2022 in question and submitted that first two issues have been adjudicated in favour of the assessee and the quantum addition itself has been deleted. As regards third issue towards disallowance of loss claimed on sale of obsolete stationery and other petty items, the ld. counsel submitted that the ITAT has observed that the documentary evidences have been placed to support the bona fides of the claim but however the ITAT remitted the matter in the quantum proceedings to the file of the Assessing Officer to take cognizance of the documentary evidences. On merits, the ld. counsel submitted that the claim towards loss on account of obsolete stationery arises owing to the fact that erstwhile Gurgaon Gramin Bank and erstwhile Haryana Gramin Bank were amalgamated into single bank namely, the assessee herein. As a consequence, the printed stationery in the name of erstwhile bank became obsolete and the management of the bank decided to dispose of such unusable stock of stationary and the resultant losses were booked in the ordinary course of business. Under the circumstances, it was pleaded that imposition of penalty under Section 271(1)(c) is highly unjustified and undeserving.
5. As pointed out on behalf of the assessee, the imposition of penalty flows from the additions/disallowances as listed in the preceding paragraph. Two of such disallowances/additions stood deleted in the quantum proceedings and therefore, the very basis for imposition of penalty does not survive any more. The consequential penalty under Section 271(1)(c) thus automatically cease to survive. As regards the third item of disallowance on account of obsolete stationery etc., we firstly notice that the assessee is a rural bank run by the professional management. Simultaneously, we also take note of the fact that the amalgamation has taken place resulting in the stationery becoming unusable and obsolete. In the wake of such facts coupled with the fact that the documentary evidences were placed in the quantum proceedings as noted by the Co-ordinate Bench, we find that the bona fides of the losses claimed are sufficiently proved. The onus that lay upon the assessee has been primarily discharged on the parameters of penalty proceedings. Without prejudice, it is well settled that a mere wrong claim by itself will not, ipso facto, invite imposition of penalty under Section 271(1)(c) where the bona fides of the action of the assessee are beyond reasonable doubt.
6. In the totality of circumstances, we find merit in the plea of the assessee for exoneration from the clutches of penalty under Section 271(1)(c) of the Act.
7. We thus endorse the action of the CIT(A) and decline to interfere therewith.
8. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open Court on 22/08/2023
