Central Bank of India Wins MAT Dispute: ITAT Cancels ₹305.49 Crore Penalty

Facts and Issue of the Case

The present case involves the Central Bank of India (the “Bank” or “assessee”) and a penalty of ₹305.49 crore imposed by the assessing officer (AO) under Section 271(1)(c) of the Income‑tax Act, 1961 (the “Act”). This penalty arose from the disallowance of a claim by the Bank for write-off of bad debts while computing “book profits” under Section 115JB (the “Minimum Alternate Tax” or “MAT” provision).

To trace the procedural journey: for Assessment Year (AY) 2016-17, the Bank filed its original return on 30 November 2016, declaring a business loss of ₹61.38 crore under the normal provisions of the Act and book profits of ₹2.49 billion under Section 115JB. Later, in March 2018, it filed a revised return reflecting a total loss of ₹73.44 crore and book profits of about ₹2.48 billion under MAT.

Upon scrutiny, the AO completed assessment under Section 143(3), determining taxable income of ₹6.66 billion under the normal provisions and ₹41.77 billion under Section 115JB. The AO disallowed the Bank’s claim of bad-debt write-off while computing book profit under 115JB, held that the write-off constituted inaccurate particulars, and imposed the penalty of ₹305.49 crore under Section 271(1)(c).

The Bank challenged the penalty before the first appellate authority — the CIT(A)-NFAC, which dismissed its appeal (on 20 May 2022). The matter then went to the Income‑tax Appellate Tribunal (ITAT), Mumbai. In 2025, the Tribunal restored the matter to CIT(A) for fresh adjudication. The CIT(A), in his order dated 25 February 2025, deleted the penalty. The Revenue (i.e., the tax Department) challenged this deletion before ITAT by way of appeal.

Thus, the central issue before the courts and tribunal: whether Section 115JB (MAT on book profits) applies to the Bank — and if it does not, whether the imposition of penalty under Section 271(1)(c) for “inaccurate particulars” can be sustained.

Observation by the Court and Tribunal

The Tribunal (and earlier CIT(A)) observed that the Bank is not liable to pay MAT under Section 115JB because, as per prior decisions, certain banks — especially those constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (so-called “corresponding new banks”) — do not fall within the scope of Section 115JB. In a Special Bench decision for AY 2013-14 (ITA No. 3740/Mum/2018), the Tribunal had held that clause (b) to sub-section (2) of Section 115JB (inserted by Finance Act, 2012) does not apply to such banks.

Relying on that precedent, the CIT(A) concluded that the very foundation for computing book profits under Section 115JB — and thereby, for penalizing the Bank under Section 271(1)(c) — was absent. As such, the penalty was rendered unsustainable. The write-off of bad debts, allegedly disallowed under MAT computation, became a moot point once MAT was held inapplicable.

Further, the Tribunal noted that the penalty provision requires a finding of “deliberate concealment” or furnishing of “inaccurate particulars.” The Bank had furnished full disclosure, bona fide explanations, and sought to rely on a legitimate interpretation of law — not a dishonest concealment. The Bank had also not claimed a deduction under normal provisions (e.g., under Section 36(1)(vii)) for the bad debts; it only claimed them under Section 115JB. Relying on judicial precedents (for example, decisions where penalty cannot be levied merely due to differing interpretation of law), the Tribunal held that mere difference in legal interpretation does not warrant penalty where there is no mala fide intent.

The ITAT also condoned the delay (126 days) in filing the Revenue’s appeal, finding that there was reasonable cause for the delay — but went on to dismiss the appeal on merits. The Tribunal held that once Section 115JB is held inapplicable to the Bank, the disallowance of bad-debt write-off under that section and consequential penalty under Section 271(1)(c) have no basis.

In open court on 12 November 2025, the order was pronounced: MAT under Section 115JB does not apply to Central Bank of India, and the associated penalty of ₹305.49 crore is deleted. The Revenue’s appeal is dismissed.

Law Applicable

At the heart of this dispute lies the interpretation of Section 115JB — the Minimum Alternate Tax (MAT) provision — vis-à-vis banks (especially those banks incorporated or re-constituted under special banking legislation). The 2012 amendment (via Finance Act, 2012) inserted clause (b) in sub-section (2), which purportedly extended MAT to entities preparing financial statements under their governing Acts (for example banking regulation laws). The Revenue’s contention was that this amendment brings the Bank within MAT’s scope.

However, the Tribunal’s Special Bench (in the earlier 2013-14 case) interpreted the law differently: banks constituted under the 1970 Banking Undertakings Act (the so-called “corresponding new banks”) are distinct from ordinary banking companies for MAT purposes. Therefore, clause (b) does not apply to them, and MAT under Section 115JB does not apply.

Further, on the penalty side, the relevant law is Section 271(1)(c), which allows levy of penalty when an assessee furnishes inaccurate particulars of income. But jurisprudence (including decisions of higher courts) holds that “inaccurate particulars” must carry a connotation of active concealment or mala fide intent. Mere difference in legal interpretation, or a bona fide claim under a debated provision, does not justify penalty if full disclosure was made. The Tribunal referred to precedents such as CIT v. Reliance Petroproducts Ltd. to support this position.

Thus, two distinct legal strands — non-applicability of MAT to certain banks; and the threshold for imposition of penalty under Section 271(1)(c) — converge in favor of the Bank. Once MAT is out, there is no “book profit” computation; once book profit computation is out, there is no foundation for penalty; and even if there were a contested claim, bona fide explanation and full disclosure preclude penalty.

Conclusion by the Tribunal

The Tribunal, after due deliberation, held that the penalty of ₹305.49 crore levied on Central Bank of India stood deleted. It affirmed that MAT under Section 115JB does not apply to the Bank (a “corresponding new bank”). Consequently, any addition made to book profits by disallowing bad-debt write-off under MAT computation falls away, and penalty imposed on that basis under Section 271(1)(c) is unsustainable. The Revenue’s appeal is dismissed.

The order, pronounced in open court on 12 November 2025, reinforces the long-held interpretation that certain banks — especially those restructured under special banking legislation — are outside the ambit of MAT. It also underscores that penalty for “inaccurate particulars” demands more than mere difference of opinion; it requires concealment or mala fide intent, which was absent in this case.

For all practical purposes, this judgment brings relief to the Bank and — by extension — to other similarly placed banks. It clarifies and reaffirms that MAT will not automatically apply to all banking entities, especially those with special statutory status. It also serves as a caution to tax authorities against levying penalties based solely on aggressive but arguable tax positions adopted in good faith and with proper disclosure.