ITAT: No Penalty on Yes Bank for Income Tax Addition made on Debatable Issue

The Revenue department filed three appeals against Yes Bank Ltd. for the financial years 2011-12 to 2013-14, challenging the CIT(A)’s order for deletion of the penalty levied under Section 271(1)(c) of the Income Tax Act. The Assessing Officer had imposed the penalty for disallowing the bank’s claim of deduction under Section 35D for expenses incurred during the issue of Qualified Institutional Placement (QIP) shares, alleging that the claim amounted to furnishing inaccurate particulars.

Appeal Before CIT(A): The CIT(A), relying on the ITAT’s earlier decision and the Supreme Court’s judgment in CIT v. Reliance Petroproducts Pvt. Ltd., held that a mere incorrect or debatable claim does not constitute concealment or inaccuracy and deleted the penalty.

Issue Raised: Whether making a deduction claim under Section 35D for QIP issue expenses, which was disallowed by the AO, amounted to furnishing inaccurate particulars of income warranting penalty under Section 271(1)(c).

Tribunal Decided: The ITAT noted that in A.Y. 2010-11, the first year of the claim, the coordinate bench had already allowed Yes Bank’s deduction under Section 35D after holding that QIPs constituted “public issues.” Therefore, the later years could not be treated differently, as per the Supreme Court’s ruling in Shasun Chemicals & Drugs Ltd., which held that once a deduction under Section 35D is accepted in the initial year, it cannot be denied in later years.

The Tribunal held that even if the deduction under Section 35D was ultimately disallowed, such a disallowance does not automatically imply furnishing of inaccurate particulars. Since the issue was clearly debatable and the assessee had disclosed all relevant facts, the penalty under Section 271(1)(c) could not be sustained.

The ITAT thus affirmed the CIT(A)’s order and dismissed the Revenue’s appeals for all three years.

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