1988 (12) TMI 142 - AT - Income Tax

Summary

Issues Involved:

1. Assessment of interest income under Section 214 for the assessment year 1974-75.
2. Deduction of interest income from business income.
3. Allegation of concealment of income and furnishing inaccurate particulars.
4. Imposition of penalty under Section 271(1)(c) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Assessment of Interest Income under Section 214:

The primary issue was whether the interest income of Rs. 1,14,212 under Section 214, related to the assessment year 1967-68, should be assessed in the assessment year 1974-75. The assessee argued that the interest income accrued in February 1972 and should be assessable in the assessment year 1972-73. The CIT(A) and the ITO held that the interest income arose in the financial year 1973-74 and thus was assessable in the assessment year 1974-75.

The Tribunal, however, concluded that the interest income under Section 214 accrued on 25-2-1972 when the assessment order and demand notice were passed. Therefore, it should be assessable in the assessment year 1972-73, not in 1974-75.

2. Deduction of Interest Income from Business Income:

The assessee deducted Rs. 2,04,384, including Rs. 1,14,212, from its business income in the return for the assessment year 1974-75. The ITO disallowed this deduction, stating that the interest income was chargeable to tax and not deductible. The Tribunal agreed with the assessee that the interest income should have been assessed in the assessment year 1972-73 and not in 1974-75, implying that the deduction claimed was not relevant for the year 1974-75.

3. Allegation of Concealment of Income and Furnishing Inaccurate Particulars:

The ITO initiated penalty proceedings under Section 271(1)(c) for concealment of income and furnishing inaccurate particulars thereof. The ITO and CIT(A) held that the assessee had concealed the particulars of its income by claiming a deduction of Rs. 1,14,212, which was not taxable in the earlier year. The assessee contended that it had disclosed full particulars and that the deduction was claimed based on a bona fide belief that the income was not taxable in 1974-75.

The Tribunal found that the assessee had disclosed the particulars of interest income under Section 214 both in the return and in the statements filed. Therefore, there was no concealment or furnishing of inaccurate particulars of income.

4. Imposition of Penalty under Section 271(1)(c):

The ITO imposed a penalty of Rs. 2,00,000 under Section 271(1)(c) for concealment of income. The CIT(A) upheld this penalty. The Tribunal, however, held that since the interest income should have been assessed in the assessment year 1972-73 and not in 1974-75, the question of concealing particulars of income or furnishing inaccurate particulars for the assessment year 1974-75 did not arise. Consequently, the Tribunal canceled the penalty imposed by the ITO.

Conclusion:

The Tribunal allowed the appeal, holding that the interest income under Section 214 should be assessed in the assessment year 1972-73, and there was no concealment or furnishing of inaccurate particulars by the assessee for the assessment year 1974-75. The penalty of Rs. 2,00,000 imposed under Section 271(1)(c) was canceled.