1982 (4) TMI 11 - HC - Income Tax

Summary

Issues Involved:
1. Imposition of penalty for non-disclosure of interest income.
2. Alleged concealment of income by the assessee.
3. Change in the method of accounting.
4. Tribunal's decision on penalty.
5. Concept of real income and its applicability.
6. Legal precedents and their relevance.

Detailed Analysis:

1. Imposition of Penalty for Non-Disclosure of Interest Income
The case pertains to the assessment years 1970-71 and 1971-72, where the assessee did not disclose interest receivable from Speciality Papers Ltd. and M/s. Bags & Cartons. The ITO initiated penalty proceedings under section 274(2) of the Income Tax Act, 1961, as the minimum penalty leviable exceeded Rs. 1,000. The IAC concluded that the assessee had concealed particulars of income, noting that interest income was shown on an accrual basis until December 31, 1967, and there was no indication of a change in the method of accounting for these items alone.

2. Alleged Concealment of Income by the Assessee
The IAC held that the assessee must have concealed particulars of income, citing a letter from Speciality Papers Ltd. dated September 28, 1973, which confirmed accrued interest up to March 31, 1973, was due. The assessee argued that they did not want to give up their claim for interest and could file a suit for recovery if necessary. The IAC directed the assessee to pay a penalty of Rs. 64,200 under section 271(1)(c) of the Income Tax Act, 1961.

3. Change in the Method of Accounting
The Tribunal, in its quantum appeal, held that the interest income should have been shown in the return of income as the right to receive amounts accrued during the years under reference. The assessee contended that there was a change in the method of accounting, but the Tribunal found no evidence to support this claim. The Tribunal noted that the assessee's right to receive interest had not ceased to exist and there was no agreement not to charge interest while recovering the principal.

4. Tribunal's Decision on Penalty
The Tribunal confirmed the levy of penalty by the IAC, stating that the assessee had not provided evidence that it had forgone the claims regarding interest. The Tribunal observed that the decision for the assessment year 1969-70 related to section 147(b) and was not relevant for the applicability of section 271(1)(c). The Tribunal found that the assessee had concealed the particulars of income as there was no bona fide justification for not showing the income in the return.

5. Concept of Real Income and Its Applicability
The High Court referred to its previous judgment in Income-tax Reference No. 60 of 1977, where it was held that there was no claim of a change in the method of accounting from mercantile to cash system. The court emphasized that the principle of real income should not subordinate the accrual of income. The court found that the assessee had no agreement or negotiation in the relevant year to waive the interest, and thus, the income had accrued. The court concluded that the assessee had no plausible explanation for not including the income in the return, leading to the conclusion of deliberate concealment.

6. Legal Precedents and Their Relevance
The court reviewed several legal precedents, including CIT v. Khoday Eswarsa and Sons, Cement Marketing Co. of India Ltd. v. Asst. Commr. of ST, Burmah-Shell Oil Storage and Distributing Co. of India Ltd. v. ITO, and others. The court distinguished these cases based on their specific facts and found them not applicable to the present case. The court held that the assessee had no bona fide or legal justification for not disclosing the income, and thus, the imposition of penalty was justified.

Conclusion:
The High Court concluded that the Tribunal was correct in confirming the levy of penalty under section 271(1)(c) read with section 274(2) of the Income Tax Act, 1961, for the assessment years 1970-71 and 1971-72. The question was answered in the affirmative and in favor of the Revenue, with each party bearing its own costs.