2017 (9) TMI 728 - AT - Income Tax

Penalty u/s 271(1)(c) - error in calculating the interest on F.D. - Held that - We have seen that during the assessment proceedings the assessee has accepted the error in calculating the interest on F.D. and the difference of ₹ 94,530/- was added to the total income of the assessee. Further addition on account of interest income of ₹ 10,83,695/- was added by the AO only after verification from Bank of India, Stock Exchange Branch. We have further noted that the verification was carried out by the AO only at the instance of the assessee s request letter dated 18.12.2005. The AO deputed the Tax Inspector only on the request of the assessee for verification of the credits in the bank account of the Assessee. In our considered view the assessee has sufficiently explained the addition made by the AO which is the sufficient explanation as per section 271(1)(c).Considering the fact that the assessee has sufficiently explained the facts, hence no penalty was leviable. The ground of appeal of the assessee is allowed.

Issues:
1. Assessment under section 144 of the Income Tax Act, 1961.
2. Addition of interest accrued on advance to companies and interest on FOR with Canara Bank.
3. Addition of credit entries appearing in bank account with Bank of India.
4. Non-granting of deduction for expenses incurred by the custodian.
5. Penalty levied under section 271(1)(c) of the Income Tax Act, 1961.

Analysis:

Issue 1: Assessment under section 144 of the Income Tax Act, 1961
The appellant challenged the assessment completed under section 144 by the Assessing Officer, contending it was bad in law. The appellant argued that the addition on interest income was made on an accrual basis, contrary to the cash system of accounting followed in previous years. The Tribunal, considering the appellant's past record and the method of accounting declared in earlier assessments, set aside the CIT(A)'s order and directed the AO to pass a fresh order after confirming the appellant's adherence to the cash system of accounting.

Issue 2: Addition of interest accrued on advance to companies and interest on FOR with Canara Bank
The appellant contested the addition of interest accrued on advance to companies and interest on FOR with Canara Bank. The Tribunal noted that the appellant's adherence to the cash system of accounting was crucial in determining the validity of these additions. The Tribunal referred to a similar case where the AO accepted the cash system of accounting in earlier years and directed the AO to reconsider the additions in light of the appellant's accounting method. Consequently, the appeal was allowed for statistical purposes.

Issue 3: Addition of credit entries appearing in bank account with Bank of India
The appellant disputed the addition of credit entries in the bank account with Bank of India. The Tribunal considered the appellant's explanation regarding the cash system of accounting and directed the AO to reevaluate the addition after confirming the appellant's accounting method. The appeal was allowed for statistical purposes based on the Tribunal's findings in similar cases.

Issue 4: Non-granting of deduction for expenses incurred by the custodian
The appellant raised concerns about the non-granting of a deduction for expenses incurred by the custodian. The Tribunal examined the appellant's arguments regarding the custodian's role and the information provided during the assessment proceedings. Based on the appellant's explanations and the verification conducted by the AO at the appellant's request, the Tribunal concluded that no penalty was leviable. As a result, the appeal was allowed.

Issue 5: Penalty levied under section 271(1)(c) of the Income Tax Act, 1961
The appellant challenged the penalty levied under section 271(1)(c) for interest income discrepancies. The Tribunal considered the appellant's submissions regarding the custodian's involvement and the errors in calculating interest income. It noted that the appellant had adequately explained the additions made by the AO, leading to the conclusion that no penalty was warranted. Consequently, the appeal was allowed, and the penalty was set aside.

This comprehensive analysis of the legal judgment highlights the key issues addressed by the Tribunal, detailing the arguments presented by the parties and the Tribunal's reasoning in each case.

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