14. Section 271(1)(c) – Penalty – Concealment – Two views are possible – When two views are possible, penalty cannot be imposed

14.  Section 271(1)(c) – Penalty – Concealment – Two views are possible – When two views are possible, penalty cannot be imposed

The assessee is a co-operative bank. It had incurred expenditure for acquisition of three co-operative banks. Claiming directives of the RBI contained in its circular, the bank amortised such expenditure over a span of five years. The Revenue was of the opinion that the expenditure was capital in nature and that the claim of expenditure would be governed by the Income-tax Act, 1961 and not by the directives of RBI. The expenditure was therefore disallowed.

The AO initiated proceedings for imposition of penalty u/s 271(1)(c) and held that the assessee has deliberately made a wrong claim of deduction which is otherwise inadmissible. Accordingly, the AO proceeded to pass an order imposing a penalty of Rs. 1,41,30,553 u/s 271(1)(c).

Being aggrieved at the penalty order so passed, the assessee preferred an appeal before the CIT(A). The CIT(A) observed that the AO had taken a view that the expenditure is capital in nature due to the enduring benefit accruing to the assessee, but as per the RBI circular the assessee is allowed to amortise 1/5th of the expenditure over a period of five years. He, therefore, inferred that there exist two different views with regard to the assessee’s claim. Accordingly, he held that the issue on which the addition was made being a debatable one, it cannot be said that the claim made by the assessee is totally inadmissible. The assessee has furnished all requisite particulars of income, so it cannot be said that the assessee has furnished inaccurate particulars of income or concealed its income. The Commissioner (A), relying upon the decision of the Hon’ble Supreme Court in CIT vs. Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158 (SC), deleted the penalty imposed by the AO.

But Revenue, now aggrieved by the order of the CIT(A) preferred an appeal before the ITAT. The Tribunal held that the addition on the basis of which penalty was imposed by the AO as on date does not survive. Moreover, on a perusal of the circular issued by the RBI as referred to by the CIT(A), it is seen that the acquirer bank is permitted to amortise 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 the case of Bank of Rajasthan, the Tribunal has allowed it as revenue expenditure. Therefore, 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 the 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 AO in relation to the acquisition of three urban co-operative banks.