9911796707
TMI Blog2000 (7) TMI 918X X X X Extracts X X X X X X X X Extracts X X X X ..... as charged by the assessee. Further, the Assessing Officer found that the assessee had changed the method of accounting regarding interest income from mercantile system to cash system in the assessment year 1987-88. According to the Assessing Officer, the assessee had advanced the money to the sister concern from interest bearing fund hence, the proportionate interest at 18 per cent. of the aforesaid amount was disallowed and added to the income of the assessee. The Commissioner of Income-tax (Appeals) upheld the order passed by the Assessing Officer. Thereafter the penalty proceeding under section 271(1)(c) of the Act was initiated against the assessee for both the years. According to the assessee the loan was given to the sister concern f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tem of tubewell. The sister concern incurred heavy loss during the present assessment year because the consignment sent to Bangladesh was rejected as substandard quality. The assessee-company is the main customer of the fibre pipes produced by the sister concern. The said concern was in very bad financial position. Therefore, with a view to keep the concern running, the assessee used to give advances to that concern and ultimately it was not charging any interest from the assessment year 1985-86 onwards. Since there was no hope in realising interest or principal amount, the assesseecompany decided to change over the method of accounting from mercantile to cash system with regard to the interest income. Learned counsel has further submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through the appeal record. In our considered view the order of the Commissioner of Income-tax (Appeals) appears to be justified. No doubt the concept of real income in view of the decision of the Supreme Court in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102, and the right of the assessee is suitable cases to change in the method of accounting are acceptable propositions but then it must be done keeping in view the fundamental principle of law of income-tax as well as the method of accounting. Here in the instant case no doubt the financial position of Pioneer Glass was deplorable and practically it was difficult to realise any sum from it but then bringing any change in the method of accounting ought to have been done at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act, for assessment year 1987-88 is quoted below : Notice calling for the assessee to show cause as to why penalty under section 271(1)(c) should not be imposed was issued to the assessee. An amount of Rs. 1,28,378 was considered to be interest earned by the assessee on its loan advanced to Pioneer Protective Glass Fibre (P.) Ltd. The same has been confirmed by the Commissioner of Income-tax (Appeals)-VII, Calcutta. The assessee could not satisfactorily explain as to why penalty should not be imposed hence, I find this is a fit case for imposing penalty of Rs. 1,50,000. On a perusal of the aforesaid orders I find that the contention of the assessee that its sister concern was in deplorable condition financially, has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mills Ltd. v. CIT [1987] 168 ITR 705 has held that merely because the assessee agreed to addition to his income it does not follow that the amount agreed to be added was concealed income. There may be 101 reasons for such admission. In view of the aforesaid settled laws in my view it is not a fit case to levy penalty under section 271(1)(c) of the Act. The assessee was under a bona fide belief that the interest cannot be realised from the sister concern and, as such, changed the accounting system from mercantile to cash. The addition was made by the Assessing Officer without accepting the contention of the assessee which was upheld by the Tribunal. That ipso facto cannot give rise to the order of penalty. Merely, addition made by the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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