9911796707
TMI Blog1982 (4) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... was no indication that the assessee had changed the method of accounting in respect of these two items alone. The IAC held that the assessee must have concealed the particulars of income for the following reasons: " Though the assessee might have reversed the entries of interest accrued from 1968-69 onwards, on 31st December, 1971, yet the fact remains that as late as 28th September, 1973, the Speciality Papers Ltd. in their letter to the assessee confirmed that, apart from the principal loan, a sum of Rs. 8,56,066 by way of accrued interest up to 31st March, 1973, was due to them. In this letter, Speciality Papers Ltd. further stated that if they commit any default in the payment of any instalment of the principal loan, the assessee shall have the right to recover the interest and enforce his right under the second mortgage as mentioned in the letter. This would clearly show that the assessee had a right to recover the interest under the second mortgage in case there was default in the payment of instalments by Speciality Papers Ltd. Similarly, regarding the other amount, some instalments commencing from 1st August, 1972, for the repayment of the principal amount were agreed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest up to 31 St March, 1973, making together the sum of Rs. 17,15,478.11. We further confirm that we are liable to pay you interest from 1st April, 1973, on the outstanding amount of the loan for the time being at the bank overdraft rate which may be in force from time to time as also commission amounting to Rs. 44,412. 11 as above, if we make defaults as stated hereafter. We will, in the first instance, pay to you the sum of Rs. 8,15,000, being the balance amount outstanding on account of the principal amount of the loan, and a sum of Rs. 3,32,423, being interest on the outstanding amount of the loan, up to 31st December, 1967, making together the sum of Rs. 11,47,423 by the instalments as follows:" Thereafter, certain instalments were mentioned with which we are not concerned. In the appeals relating to the quantum of tax payable for those years, the Tribunal had held that the interest income should have been shown in the return of income and the right to receive the amounts accrued to the assessee during the years under reference. The assessee thereafter from the order of the IAC went to the Tribunal on the, question of penalty and contended that no penalty should be levi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as such no penalty was leviable. This aspect, was further supported by the plea that in a subsequent year, another judicial body has taken this view and where two views were not only possible but in fact had been taken by the two judiciaries viz., the Tribunal, in such a case, the assessee could not be held guilty of concealment for the purpose of imposition of penalty. It appears that for the assessment year 1970-71, the quantum appeal had come up in reference before this court in Income-tax Reference No. 60 of 1977, James Finlay Co. v. CM and the judgment was delivered on the 22nd and 23rd December, 1980. The said judgment is reported in (1981] 22 Current Tax Reporter, Calcutta, page 28 (since reported in [1982] 137 ITR 698 (Cal)). In the relevant previous year, the assessee was following the mercantile system of accounting. We held in that reference, Income-tax Reference No. 60 of 1977 ([1982] 137 ITR 698 (Cal)), that there was no claim before the Tribunal that there was any change of method of accounting from mercantile system to cash system, was made. The only claim was that the realisation of the claim of interest was postponed, In that case, in the assessee-company's book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r or concession or rebate in respect of managing agency commission (interest in the present case) was made, accrued to or given up on grounds of commercial expediency, simply because it took place some time after the close of the accounting year. In examining any transaction and situation of this nature the court should have more regard to the reality and speciality of the situation rather than the purely theoretical or doctrinaire aspect of it. The court should lay greater emphasis on the business aspect of the matter viewed as a whole when that can be done without disregarding statutory language. In considering the concept of real income, the main basis was, the factors of the accrual of the commission or interest, making of the accounts, legal obligation to give up a part of the commission and the forgoing of the commission at the time of making of accounts were not disjointed facts and there was a dovetailing about these facts which should not be ignored. Therefore, simply because after the close of the accounting year, certain income was given up in a mercantile system of accounting, it would not by itself disentitle the assessee to ask for an application of the concept of rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the suspense account during the year of account, the, aforesaid conduct was not preventing the accrual of income. We found that there was no claim for waiver of interest at all. The Tribunal was not right in coming to the conclusion that the amounts in question were not includible to the assessment year 1970-71 as income of the previous year. We had occasion to discuss several authorities to which our attention was drawn by the learned advocates appearing for the respective parties in that case. The said decisions were also relied on in this case in respect of their respective contentions. In this year, it may be noted that the following facts should be borne from the said judgment regarding the previous year. (1) In this year with which we are concerned there was no claim of any change in the method of accounting; (2) there was also no transaction which fructified and stopped the accrual. No germ was transplanted in the year in question ; (3) our attention was drawn to the letter dated 1st December, 1969, which we have set out in the said judgment referred to hereinbefore; (4) thereafter, Mr. Kaliachand, a director of the Speciality Papers Ltd., wrote to the assessee offering to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the income of the assessee was not includible for one reason or the other and such a view was a plausible or possible view, in such a case, the assessee could not be held to be guilty of concealment and as a principle of law it must be accepted. But there must be a contention on the part of the assessee which is legally plausible or possible for the non-inclusion of the income in a particular year; we have found in this case there was no such contention raised or could have been raised in view of the facts found. Our attention was drawn to several authorities, which of course decided the cases on particular facts. We first refer to the decision of the Supreme Court in the case of CIT v. Khoday Eswarsa and Sons [1972] 83 ITR 369, where the Supreme Court emphasised that penalty proceedings being penal in character, the Revenue must establish that the receipt of the amount in dispute constituted income of the assessee. Apart from the falsity of the explanation given by the assessee, the Revenue must have before it, before levying penalty, cogent material or evidence from which it could be inferred that the assessee had consciously concealed the particulars of his income or had del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a false return and penalty could not be imposed on the assessee under s. 43 of the Madhya Pradesh General Sales Tax Act, 1958, and s. 9(2) of the Central Sales Tax Act, 1956. It appears that the assessee was contending throughout that on a proper construction of the definition of " sale price " in s. 2(o) of the Madhya Pradesh General Sales Tax Act, 1958, and s. 2(h) of the Central Sales Tax Act, 1956, the amount of freight did not fall within the definition and was not liable to be included in the taxable turnover. That was the reason why the assessee did not include the amount of freight in the taxable turnover. The facts of that case would indicate the line that where there is a genuine claim for the inclusion of an item as income then it might be liable to tax. In the instant case, that the amount was received and it was income was not disputed. The only dispute in the instant reference before us is in which year, the income would be taxable ? That also depends on the system of accounting, and at least, there is also no dispute that the assessee in this case followed the mercantile system of accounting. There is also no dispute as to the legal agreement between the parties. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the penalty proceedings, the authority concerned entirely proceeded on the basis of s. 271(1)(c) of the Act and did not rely on the explanation at all. We may incidentally mention that in the instant reference before us also the Revenue has not proceeded on the explanation. The learned judge observed that even if the deeming provision in the Explanation could be invoked in justification of the penalty proceedings, the Explanation would have no application in the absence of any fraud or gross or wilful neglect on the part of the assessee. The act of raising the legal contention which the assessee raised before the ITO and which according to the assessee was sound and tenable and was still being pursued by the assessee in appropriate proceedings, could not constitute fraud or gross or wilful negligence. As there was no fraud or gross or wilful negligence on the part of the assessee, the provisions contained in the Explanation to s. 271(1)(c) of the Act could not be attracted, even if it could be otherwise said that the said Explanation applied because of the discrepancy between the income returned by the assessee and the income assessed by the ITO. The conditions which were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lment or liable to penalty for non-disclosure of document and the assessment was not liable to be reopened. In this case no such contention is possible. There was no controversy that the accrual of interest depended on the construction of any document, or the construction of any correspondence between the parties. This was the income of the assessee. There was no dispute.. Our attention was also drawn to another decision of the Supreme Court in the case of CIT v. Jai Parkash Om Parkash Co. Ltd. [1964] 52 ITR 23. There the Supreme. Court reiterated that the question whether, on the facts as ascertained, certain income could be said to have accrued to the assessee, was a question of law and, therefore, the question raised by the Commissioner ought to have been referred. So, the assessee, which kept its accounts on the mercantile basis, entered into a forward contract on February 5, 1952, for the sale of certain quantity of mustard at Rs. 27-8-0 per maund, the due date being June 7. The price fell so thereafter and the purchaser purported to cancel the contract before the due date but the assessee refused to accept the cancellation. On February 28, the assessee sent a telegram to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puted amount represented an income. Here, there is no question or no dispute that the amount in question was the income of the assessee. There was no dispute as to the quality of the receipt. The only dispute was in which year it could be taxed. There was no proper explanation from the assessee which could be said to be either bona fide or legal or tenable or possible that it was not taxable in the year in question. Therefore, the observations made in this decision do not help the assessee. Reliance was also placed on certain observations made by this court in the case of CIT v. Raigharh Jute Mills Ltd. [1981] 132 ITR 702 (Cal). There, the court observed that in a case where a suit had been filed, the right to get interest for the period subsequent to the institution of the suit would depend not on the bargain between the parties but on the discretion of the court as contemplated by s. 34 of the CPC. The Tribunal had found that there was no chance of interest being recovered and, therefore, the assessee was not, charging interest. Whether there was accrual of interest or not should be judged from a realistic point of view. The Tribunal further found that the principal amount had ..... 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