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TMI Blog2020 (1) TMI 817X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year under consideration and, while in the succeeding asst. year i.e. asst. year 2012-13, it warrants reduction of the total income by ₹ 363.76 lakhs. According to the assessee it has not claimed deduction of above said amount in asst. year 2012-13. These facts would show to that the interest income is not altogether concealed, but accounted for in the succeeding years on receipt basis , According to the assessee, the above system is followed in consonance with certain principles directed to be followed by its controlling authorities. In effect, it results in shifting of income from one year to another year only. Hence explanations furnished by the assessee cannot be said to be false. We also notice that the AO has also not found it to be false or fount it to be not bonafide. In any case, the system so followed by the assessee results in shifting of income from one year to another year and the said practice, according to the assessee, is supported by the directions given by the controlling authorities. The impugned addition would not give rise to levy of penalty u/s 271(1)(c) - Decided in favour of assessee. - ITA No.1499/Bang/2016 - - - Dated:- 17-1-2020 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing explanations and accordingly pleaded that the penalty proceedings should be dropped. 1. We have fully co-operated during the assessment procedures and have submitted all the documents and records for the smooth completion of assessment. 2. We have fully discharged the entire tax due of ₹ 89,38,364/-. An amount of ₹ 64,83,274/- was paid before the receipt of the assessment order and the balance amount of ₹ 24,55,090/- was paid on 29/03/2014. A copy of challan is enclosed herewith. 3. We have not preferred any appeal to the higher authorities against the assessment order. 4. The addition to income made in the assessment is related to the method of accounting followed by the bank due to the statutory compulsion under the Karnataka Co-operative Societies Act, 1959. 5. During the course of assessment proceedings no undisclosed assets and properties nor unexplained investments and money nor undisclosed income were observed by the Assessing Officer. 6. The addition pertains to the adjustment required for application of provisions of Section 145 of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,171/- had already been added to income and therefore is excluded from taxation for the current AY 11-12. The difference of ₹ 2,09,81,469/- is offered to tax and the same has been assessed. The taxes due have already been paid. 14. As it is a matter of interpretation of Law and as we are bound by the Karnataka Co-operative Societies Act and Rules provisions, the question of concealment or providing inaccurate particulars do not arise. 15. As the entire additions made in the assessment order pertains to interpretations of Law, the ground of concealment and furnishing inaccurate particulars does not arise. 4. The AO was not convinced with the explanations furnished by the assessee and accordingly levied penalty of ₹ 64.83 lakhs u/s 271(1)(c) of the Act for furnishing of inaccurate particulars of income. The ld CIT(A) also confirmed the penalty order and hence the assessee has filed this appeal before the us. 5. The ld AR submitted that the assessee has not accounted for interest accrued on loans, but not received by it as per the mandate of the Karnataka cooperative societies Act and Rules, which r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulars income and also levied penalty on the very same limb. Accordingly, he submitted that the ld CIT(A) was justified in confirming the penalty levied u/s 271(1)(c) of the Act. 7. We have heard the rival contentions and pursued the record. It is the submissions of the assessee that it is bound by the Karnataka Cooperative Society s Act and Rules which, according to the assessee, mandate that the interest income should be accounted for on realization basis only. There is no dispute with regard to the fact that the assessee is following mercantile system of accounting and hence, as per the provisions of sec. 145 of the Act, the interest accrued on loans advanced by it should have been offered for taxation, even though it has not been received by it. At the same time, we should notice that the Hon ble Supreme Court has held in the case of UCO Bank Ltd., (Supra) that the interest due on loans which were doubtful of recovery need not be recognized as income. This law has been laid down by Hon'ble Supreme Court on the basis of real income principle , i.e., only real income should be brought to tax. The principle of real income theory has been a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed deduction of above said amount in asst. year 2012-13. These facts would show to that the interest income is not altogether concealed, but accounted for in the succeeding years on receipt basis , According to the assessee, the above system is followed in consonance with certain principles directed to be followed by its controlling authorities. In effect, it results in shifting of income from one year to another year only. 9. Hence we are of the view that the explanations furnished by the assessee cannot be said to be false. We also notice that the AO has also not found it to be false or fount it to be not bonafide. In any case, the system so followed by the assessee results in shifting of income from one year to another year and the said practice, according to the assessee, is supported by the directions given by the controlling authorities. Accordingly, we are of the view that, in the facts and circumstances of the case, the impugned addition of ₹ 209.81 lakhs would not give rise to levy of penalty u/s 271(1)(c) of the Act. Accordingly, we set aside the order passed by ld CIT(A) and direct the AO to delete the impugned penalty. 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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