Income Tax Appellate Tribunal - Ahmedabad
Gaekwad Real Estate Traders vs Income-Tax Officer on 21 October, 1986
Equivalent citations: [1990]35ITD384(AHD)
ORDER
P.J. Goradia, Accountant Member
1. The common issue involved in these appeals is with regard to confirmation of the levy of penalty Under Section 271(1)(c) of the Act. The assessee is a registered partnership firm engaged in the business of Real Estates and assessed to tax regularly for the past many years. For the purpose of accounts, the previous year adopted is financial year and the books of accounts are also audited by Chartered Accountants. The accounts are maintained on mercantile system. The relevant facts leading to the present controversy as stated in the order dated 17th March, 1982 passed Under Section 271(1)(c) of the Act are as follows :
In this case the assessee filed a return of income on 30-7-1977 declaring an income of Rs. 1942 and agricultural income of Rs. 5065. The assessee filed a revised return on 15-9-1977 declaring loss of Rs. 56,580 and agricultural income at Rs. 5065. The assessee filed this revised return with a view to claim deduction of interest of Rs. 58,520 on accrual basis payable to Shri F.P. Gaekwad, one of the former partner. This deduction on accrual basis was claimed because the assessee maintains books of accounts on mercantile basis.
2. During the asst. year 1977-78, practically no business was done in the real estate. While scrutinising the case, it was noticed that under a registered deed dated 19-12-1975, the assessee had sold a land known as "Anandbaug land" to the Baroda Municipal Corporation for consideration of Rs. 13,78,252. An amount of Rs. 4,14,255 was paid by the Municipal Corporation by way of earnest money and the balance of Rs. 9,63,997 was payable to the assessee in two instalments of Rs. 5,51,300 and Rs. 4,12,697 on 12-3-1976 and 12-9-1976 respectively. The balance consideration was agreed to be a charge on the property. In the event when the vendee is failed to pay the instalment in time as mentioned above, the assessee was entitled to an interest at 12% on unpaid purchase price. As it so happened, the Municipal Corporation failed to make payment of the two instalments. The assessee firm promptly filed a Civil Suit against the Baroda Municipal Corporation in the Court of Civil Judge (Senior Division) Baroda for the recovery of the unpaid instalment and interest accrued as under :-
Rs. 1,11,000 being the amount of interest at the rate of 12% per annum from 12-3-1976 till November 1977 on Rs. 5,51,300.
Rs. 58,603 being the amount of interest at the rate of 12% per annum from 12-9-1976 till November 1977 on Rs. 4,12,697.
Rs. 1,69,603 The interest accrued up to 31 -3-1977 worked out to Rs. 97,139. It is not denied that the assessee maintains books of accounts on mercantile basis. If it is so, the assessee shouid have accounted for this interest of Rs. 97,139 during the year of.account. The assessee however, did not account this interest. When confronted with this, the assessee's Chartered Accountant Shri V.A. Mahajan of M/s. Mahajan Sant & Co. had no explanation to offer as to why the firm did not account for this interest. Naturally this amount was added to the income of the assessee with an observation in para 6 of the order that the assessee shall be liable for penalty Under Section 271(1)(c) for having concealed this income from interest. This aspect had to be viewed in light of the fact that the assessee had filed a revised return to claim accrued interest of Rs. 58,520 payable to Shri F.P.Gaekwad one of the partners of this firm as deductible expenses. This addition of Rs. 97,139 was duly approved by the I.A.C. Central, Baroda Under Section 144B of the Act. The assessee went in appeal before the learned CIT (Appeals), Baroda. The learned CIT (Appeals) while passing an order in appeal No. CAB/V-25/1980-81 dated 28-8-1981 sustained the action of the Department in taxing the income from interest. After considering the case, the CIT (Appeals), however reduced the income from interest to be added to the income of the assessee from Rs. 97,139 to Rs. 60,850. This reduction was given because there was dispute between the assessee and the Municipal Corporation and the CIT(A) was of the opinion that even though there was a provision for payment of interest at a particular rate in the agreement, the Municipal Coporation was not prepared to pay that much of interest. According to the view of the CIT(Appeals), it cannot be said that the interest at the prescribed rate had actually accrued to the appellant. In view of the CIT(A) directed that since the dispute was settled and interest of Rs. 60,850 was agreed to be paid to the assessee, the amount of Rs. 60,850 should be substituted for the figure of Rs. 97,139 included in the assessment.
2. After considering the submissions made in writing by the assessee, the ITO levied the penalty on following basis as stated in the order :-
The arguments are not convincing. As pointed out above, the assessee had taken care to see that a provision was incorporated to charge interest on non-fulfilment of monetary obligation. It is not denied that it was an enforceable contact in the Court of law. The assessee's contention that there is no evidence put by the Income-tax Officer to show that the entire transaction was concealed cannot be accepted because the assessee had not shown this income while filing the return of income. When some income is taxable it is the duty of the assessee to show such income in the return of income and claim the same as exempt by giving clear note in Part-Ill of the return. The assessee has while filing the revised return written "Nil" in this part. In view of this, but for the detection, the amount could not have been taxed in the year of account. I am therefore satisfied that this is a fit case for the levy of penalty Under Section 271(1)(c) of the IT Act. The amount of income in respect of which the assessee had concealed the particulars amounted to Rs. 60,850 which is considered as the income tried to be concealed by the assessee. Since the concealed income exceeds a sum of Rs. 25,000 the order Under Section 271(1)(c) is passed after obtaining the previous approval of the I AC Central, Baroda as required under the provisions of Section 271(1)(iii) of the IT Act.
5. The maximum penalty leviable works out to Rs. 79,642. However, looking to the facts and circumstances of the case, I levy penalty of Rs. 39,821.
3. In appeal before the CIT(A), various contentions were raised as stated in letter dated 21st October, 1982 appearing on page 14 of the paper book. Since the same gives clear idea about the factual aspects of the case, is reproduced hereinbelow:-
1. It is very pertinent to note that in point of time, what is the date on which the alleged income came to the knowledge of the assessee firms, so that it could have been included in income in the profit and loss account. The final accounts were drawn and signed as late as on 28-8-1977. On this date, the assessee firm had not filed a suit in the court of law against the recovery of the principal amount. The suit was filed as late as on 19-11-1977, i.e., almost after about three months of the finalisation of accounts. There was, therefore.no question of providing interest in the final accounts only because there was such term in the sale deed. The question of providing interest arises only on filing a suit in pursuance of the said term in the sale deed and question of invoking the said term surfaced only when it was thought fit that legal course only would fetch the recovery of the principal amount involved.
This shows that the assessee firm had no intention whatsoever of not disclosing this interest which it (the assessee firm) could not predict precisely on the date when the final accounts were prepared, i.e., on 28-8-1977. We fail to understand how this could be termed as concealment of income.
2. What is stated in 1 above, can further be substantiated by the fact that the learned Income-tax Officer has initially proposed to add Rs. 97,139 as alleged concealment of income while he ends up with a figure of Rs. 60,850 as final figure as concealed income. This proves that the assessee could not predictably determine the accrued part, which was finally determined only on a compromise decree made on October 1980.
3. In normal practice, in drafting the sale deed, a term is generally included for charging interest on payments which are defaulted. This does not necessarily mean, that in a case of every default recovery is taken to court of law and interest is pressed for payment. Normally, as it happened in the assessee's case, negotiations were made with the Baroda Municipal Corporation for payment of the principal amount even after due dates and only after a sufficient time when it was found that the payment is not forthcoming, recourse to court of law, was made. Realisation of interest is therefore an incidental result of a suit which the assessee firm never anticipated on the date of preparation of final accounts,
4. Whatever is stated in paras 1, 2 & 3 sufficiently proves that the explanation regarding non-provision, of interest was bona fide and all the facts relating to the same were before the Income-tax Officer.
5. It is not for the first time that such a question of non-provision of accrued interest should arise. The first instalment which was defaulted on 12-3-1976 falls in the year ending 31-3-1976 relevant to the assessment year 1976-77, the assessment of which was done without any such addition. The whole transaction was there on the record and we are surprised how the assessment year 1977-78, the Income-tax Officer thought of this addition and that too as concealment of income.
6. The learned CIT(A) has in his order tried to quote the provision of interest claimed as deduction on the balance amount standing to the credit of Maharaja F.P. Gaekwad (a depositor) on filing the revised return by the assessee. This argument does not advance the case of Income-tax Officer as firstly these two transactions are not of identical nature. The amount standing to the credit of F.P. Gaekwad, is an advance received at a particular rate of interest, while the amount due from Baroda Municipal Corporation is merely a facility provided by the assessee firm to pay the sale consideration of the property in instalments. These two transactions therefore cannot be equated. Secondly accrual of interest is only an incidental thing, the primary purpose is to reduce the principal amount. Non-provision of such interest therefore, is justifiably bona fide act on the part of the assessee firm and there is no question of conscious withholding of information.
7. Coming to the legal position of the alleged concealment, it is emphasised that the judicial pronouncements still recognise an element of mens rea in order to substantiate concealment. This has been held as an essential ingredient for every offence under the common law. The word concealment itself signifies a guilty mind and the person who conceals, should have withheld the information 'intentionally, knowingly, dishonestly etc.' We fail to understand how in the present case, the assessee firm could be said to have intentionally, knowingly and dishonestly withheld the information. When the circumstances warranted that such a provision for accrued interest was not necessary, when the negotiations were proceedings with the Municipal Corporation to recover the principal amount.
4. The CIT(A) confirmed the levy of penalty giving following findings :
(i) The financial condition of B.M.B. was certainly not so bad as to put in doubt the recovery of the outstanding amount and therefore, the contention raised in respect of there being no obligation on the part of assessee to disclose in the return of income interest accruing on the basis of the sale deed was rejected.
(ii) Even the disclosure made in the accounts for the year ending 31-3-1976 could not be of any help to the assessee because the amount outstanding was exclusive of interest.
(iii) Copy of the sale deed was filed with the ITO in or after March 1979, when the first hearing was actually held. The fact remained up to the part of the time of filing the original as also revised returns for A.Y. 1977-78, the assessee had not disclosed to the department the existence of a stipulation for interest.
(iv) The assessee had filed revised return to claim liability in respect of contractual obligation for payment of interest an outstanding amount due to retired partner, but conveniently failed to disclose even the existence of stipulation of right to receive interest and this circumstance itself made the assessee liable to penalty.
5. At the time of hearing before us, it was initially submitted by the learned representative of the assessee that the assessee was not a money lender. The default was committed on 12th March, 1976 because the first instalment itself was not paid and therefore, on the basis of stand taken by the revenue, the interest had accrued right from that date and yet in asst. year 1976-77 no attempt was made for adding any amount on the basis of accrual of income and the assessment order was not disturbed till to date.
Besides, the assessee was dealer in Real Estate and the day to day business of the assessee necessitated frequent contacts with the B.M.C and therefore, it could not be said that the assessee could not have forgone the interest receivable. The liability was disputed by BMC for which the attention was drawn to certain correspondence between the assessee and BMC.lt was submitted that only on 15th December, 1979 there was an amicable settlement on the point of interest and it was agreed that interest at the rate of 6 per cent would be paid by the BMC and therefore, only in assessment year 1980-81, there could be accrual of income. No doubt when the appeal was being considered by the CIT(A) for assessment year 1977-78, the assessee had agreed to the inclusion of appropriate amount of interest as income but that was so because by that time the interest was received by the assessee and in any case the tax was to be paid and hence no objection was raised in respect of such inclusion that is why the matter was not carried before the Tribunal. But this aspect would not justify the levy of penalty for which reliance was placed on in the case of Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705/33 Taxman 460A (SC). Besides, such stipulation in the sale deed was only for damages which was required to be distinguished from interest per se. Reliance was placed on various decisions enumerated below :
in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC), in the case of CIT v. Ferozepur Finance (P.) Ltd. [1980] 124 ITR619(Punj.&Har.), in the case of CIT v. Motor Credit Co. (P.) Ltd. [1981] 127 ITR 572 (Mad.), in the case of CIT v. Western India Engg. Co. [1971] 81 ITR 712 (Guj.), in the case of Smt. Ramalaxmi Jivraj v. CWT [1982] 138 ITR 731/9 Taxman 205 (Guj.), in the case of CIT v. A. Gajapathy Naidu [1964] 53 ITR 114 (SC), in the case of Swadeshi Cotton Mills Co. Ltd. v. CIT [1967] 63 ITR 57 (SC).
6. For assessment year 1978-79, the only distinction in facts was that revised return was filed on the basis of finding given by the CIT(A) in appeal for assessment year 1977-78, since that appellate order was accepted by the assessees.
6.1 The Senior Departmental Representative supporting the order passed by the CIT(A) relied upon number of decisions given on page 2 & 3 in the book by Shri K.H. Kaji on "Gujarat High Court digest on direct tax cases". For assessment year 1976-77, the interest accrued was only for 18 days and the amount being small, no such adjustment was found necessary.
Besides, even in the absence of stipulation regarding charge of interest, BMC was required to pay minimum interest at 4 1/2 per cent as per the Rules. Referring to the Auditor's Report, it was submitted that no mention of such accrual was ever mentioned even by the C.As. The decision in the case of CIT v. T.N.K. Govindarajulu Chetty [1987] 165 ITR 231 (SC) was relied on for the proposition that even when the amount of interest was received subsequently, the same was required to be bifurcated according to the period during which the interest could be said to have accrued. Besides, the submission that the assessee had also taken Clearance Certificate in form envisaged Under Section 230A of the Act could not advance the case of the assessee because there only draft sale deed has to be enclosed. Besides such proceedings are altogether different proceedings. The principal amount was never in jeopardy. With regard to the obligation, decision in the case of CIT v. Smt. P.K. Kochammu Amma [1980] 125 ITR 624/4 Taxman 11 (SC) was relied upon. Further reliance was placed in the case of K.P. Kandasami Mudaliar & Sons v. CIT, N.A. Malbary and Bros. v. CIR [l964]51 ITR 295 (SC) was relied upon for the proposition that even if revised return was filed, a penalty could be levied.
6.2 In reply, the learned representative of the assessee highlighted certain factual aspects by stating that the relevant amounts due from the purchaser were shown in the relevant accounts for the year ending 31-3-1976 and the copy was on record. Referring to page 41 in the paper book being a letter dated 3rd September, 1979 addressed to the ITO explaining the circumstances under which the interest could not be included, it was submitted that the same was not considered. For assessment year 1978-79, again reliance was placed on in the case of CIT v. K. Mahim [1984] 149 ITR 737 (Ker.).
7.1 We have considered the relevant material together with the submissions made before us and have also considered judicial pronouncements on the issue. Various Judicial pronouncements were available on the basis of law prevailing under the various stages of its transformation. However, there are certain matters about which there is consistency. Some of the important of such matters are (i) Penalty proceedings for concealment are penal in character and they cannot be linked with criminal proceedings. (ii) Onus to prove that there is concealment lies on the department, (iii) Ultimately, it should be proved beyond doubt that there was conscious concealment. Major change was made by the Taxation Laws Amendment Act, 1975 by inserting Explanation I to Section 271 (1)(c) of the Act with effect from assessment year 1976-77. The new Explanation I provides as under:
Explanation 1 : Where in respect of any facts material to the computation of the total income of any person under this Act,-
(A) such person fails to offer in explanation or offers an explanation which is found by the Income-tax Officer or the Appellate Assistant Commissioner or the Commissioner (Appeals) to be false, or (B) such person of fers an explanation which he is not able to substantiate and fails to prove that such explanation is bonafide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. Then the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of Clause (c) of this sub-section be deemed to represent the income in respect of which particulars have been concealed.
7.2 On the basis of the law prevailing in this assessment year, therefore, we have to decide whether the explanation offered by the assessee is bonafide and all the facts relating to the explanation and material to the computation of the total income had been disclosed or not. This again puts us in the situation to find out whether there was an absence of bonafide belief or not. In other words, whether there was conscious concealment of particulars of income or filing of inaccurate particulars.
For necessary findings firstly we shall consider whether on the basis of law prevailing at the time of filing of the return of income whether the assessee had any basis for the belief as said to have been entertained.
This again would require us to find out whether the law on the controversy before us was so well settled that the assessee could never have entertained such a belief. Yet another aspect we shall consider is even if there was such an established law how the assessee entertained such belief in spite of knowledge of the established law. Fortunately for the benefit of us, there is now one judgment of the Supreme Court rendered on 8th January, 1986 where similar controversy was considered. That is in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102/24 Taxman 337 (SC). We are concerned with the ratio of the judgment, though the judgment was delivered in a dispute in the assessment of a person carrying on banking business. The ratio laid down by the Supreme Court embodies within itself the principles required to be considered in similar type of controversy on the basisof mercantile system of accounting. For the purpose of immediate appreciation, we extract here below the decisions rendered by two of their Lordships together with dissenting judgment by one in the Bench consisting of three judges. The relevant portions are extracted here below :
Sabyasachi Muhharji, J. (Ranganath Misra, J. concurring):
(i) For the content of taxable income, one has to refer to the substantive provisions of the Income-tax Act, 1961, mainly Section 5 read with the other relevant sections.
(ii) In some limited fields where something which is the reality of the situation prevents the accrual of the income, then the notion of real income, i.e., making the income accrue in the real sense of the term, can be brought into play but the notion of real income cannot be brought into play where income has accrued according to the accounts of the assessee and there is no indication by the assessee treating amount as not having accrued. Suspended animation following inclusion of the amount in the suspense account does not negate accrual and after the event of accrual, corroborated by appropriate entry in the books of account, on the mere ipse dixit of the assessee, no reversal of the situation can be brought about.
(iii) The concept of reality of the income and the actuality of the situation are relevant factors which go to the making up of the accrual of income but once accrual takes place and income accrues, the same cannot be defeated by any theory of real income. The concept of real income cannot be so used as to make accrued income non-income simply because after the event of accrual, the assessee neither decides to treat it as a bad debt nor claims deduction Section 36(2) of the Act, but still enters the same with a diminished hope of recovery in the suspense account. Extension of the concept of real income to this field to negate accrual after the amount had become payable is contrary to the postulates of the Act.
(iv) Where interest has accrued and the assessee has debited the account of the debtor, the difficulty of recovery would not make its accrual non-accrual.
(v) The following propositions emerge in relation to the theory of real income: (1) It is the income which has really accrued or arisen to the assessee that is taxable. Whether the income has really accrued or arisen to the assessee must be judged in the light of the reality of the situation. (2) The concept of real income would apply where there has been a surrender of income which in theory may have accrued but in the reality of the situation, no income had resulted because the income did not really accrue. (3) Where a debt has become bad, deduction incompliance with the provisions of the Act should be claimed and allowed. (4) Where the Act applies, the concept of real income should not be so read as to defeat the provisions of the Act. (5) If there is any diversion of income at source under any statute or by overriding title, then there is no income to the assessee. (6) The conduct of the parties in treating the income in a particular manner is material evidence of the fact whether income has accrued or not. (7) More improbability of recovery, where the conduct of the assessee is unequivocal, cannot be treated as evidence of the fact that income has not resulted or accrued to the assessee. After debiting the debtor's account and not reversing that entry - but taking the interest merely to a suspense account cannot be such evidence to show that no real income has accrued to the assessee or has been treated as such by the assessee. (8) The concept of real income is certainly applicable in judging whether there has been income or not but, in every case, it must be applied with care and within well recognised limits.
TuhapurkarJ. (Dissenting):
(i) Whether on receipt basis or on accrual basis, it is the real income and not any hypothetical income which may have theoretically accrued that is subjected to tax under the Act
(ii) Any hypothetical income which may have theoretically accrued but has not truly resulted or materialised in the concerned accounting year cannot be brought to charge simply because the assessee has been regularly employing the mercantile system of accounting and makes entries in his books in regard to such hypothetical income.
(iii) From the mere fact that interest on 'sticky' advances was charged to the concerned debtors by making debit entries in their respective accounts, no inference can be drawn that the assessee had regarded it as accrued, income because simultaneously such interest was credited to the 'Interest Suspense Account' and not to the profit and loss account. In fact, by making these entries, the assessee must be regarded as having demonstrably shown an intention to treat such interest as its hypothetical and not real income.
(iv) In the case of interest on sticky loans, the practice of debiting the accounts of the concerned debtors with interest and carrying the same to 'Interest Suspense Account' instead of the interest account or profit and loss account is a well recognised and accepted practice of commercial accountancy, that is wholly consistent with the mercantile method of accounting and it prevents the wrong crediting and improper and illegal distribution or remittance of inflated and unreal profits.
(v) Even under the mercantile system of accounting whenever adopted, it is only the accrual of real income which is chargeable to tax, accrual is a matter of substance and it is to be decided on commercial principles having regard to the business character of the transactions and the realities and specialities of the situation and cannot be determined by adopting a purely theoretical or doctrinaire or legalistic approach. If, therefore, for the purpose of determining whether there has been accrual of real income or not regard is to be had to the business character of the transactions and the realities and specialities of the situation in preference to a theoretical, doctrinaire or legalistic approach, interest on sticky loans, which has theoretically accrued but has not factually resulted or materialised at all to an assessee during the accounting year, can certainly be regarded as hypothetical income and not real income.
There is no reason why the factum of stickiness of loans operating throughout the accounting period or periods, not on the basis of the mere ipse dixit of the assessee but on being objectively established to the satisfaction of the taxing authorities by reference to the facts showing the deteriorating financial position of the concerned debtors and the history of their accounts, should not have the effect of preventing the accrual of interest thereon as real income to the assessee. Under the Income-tax Act, in order that income should accrue, it should not merely fall due or become legally recoverable but should also be factually and practically realisable during the accounting year or years. In other words, mere non-receipt of income, when it is reasonably realisable, will not effect accrual but factual or practical unrealisability thereof may prevent its accrual depending upon the facts and circumstances attending upon the transaction.
(vi) There is a clear distinction between an irrecoverable loan and a sticky loan; the former would be a bad debt in respect whereof the chances of recovery are almost nil and having been written off, the same can form the subject matter of a deduction Section 36(1)(vii) while the latter is a loan to which a high degree of improbability of recovery attaches in a particular year or years due to which interest thereon becomes hypothetical income and not real income during the said year or years and, therefore, it cannot be brought to tax, though, if realised subsequently, the same could be and ought to be brought to tax.
7.3 It will be observed from the above that there was keen desire on the part of their Lordships who took pains to express in clear terms the legal position on the basis of legal and factual concepts regarding accrual on the basis of mercantile system of accounting. The nature of issue in controversy is such that businessman's view point or Accountant's view point could not be totally disregarded. The ratio had to be laid down elaborately mentioning at times the consideration of certain situations not only on the basis of multi shaded facts but also how they could shape the opinion and the conduct of the assessee ultimately reflected in accounts. We would emphasise here that on the basis of this decision, there cannot be doubt in deciding that in respect of the accrual of interest the revenue's stand has to be upheld. But it should be remembered that we are deciding the issue of penalty in penalty proceedings. The decision has a binding effect on merits because two of the three Hon. Judges have taken a particular view but what is more important to bear here in mind is that one of them held a different view as that of assessee, informing us that other view could be entertained by many in the judicial and professional circles. If this is acceptable and indeed it must be, we are not in a position to agree that there was conscious concealment. It is not as if the assessee held the view as was held by the two Judges in the aforesaid decision and yet no mention was made in part 3 of the return of income or anywhere disclosing the legal position on the basis of which claim regarding non-accrual was required to be considered. This being the position, we state that Explanation I which is newly inserted though diluting the rigour of law regarding burden on the revenue, the case does not come within the provisions regarding levy of penalty.
7.4 We are entirely in agreement with the finding given by the CIT(A) that totality of the facts and circumstances is required to be appreciated in the matter of concealment. But we would like to state that the basis for the concealment is required to be clearly established and that can be only after all the facts and circumstances of the case are considered and not only on one circumstance even if reflecting the picture adverse to the assessee's stand as mentioned by the CIT(A). We would further like to highlight the measure of satisfaction on concealment as recorded in the order passed by the ITO. He has proceeded on basis that it was the duty of the assessee to show such income in the return of income in part-3 and even while filing revised return such part-3 contained the word 'NIL' and this being the position the amount could not have been taxed in the year under consideration, but for detection by him. But he did not proceed further for the important aspects required to be considered. Firstly, even if there was detection by the ITO of such stipulation in the sale agreement yet something more was required to be done and that is to bring an evidence clearly pointing out that the assessee's belief had no basis. Of course, there was no mention regarding Explanation I inserted with effect from 1-4-1976, but even according to that Explanation whether the initial burden on the assessee was fully discharged or not on which clear finding has to be given by the ITO. That apart, the nature of income is such that the amount of receipt was bound to have been shown in the year of receipt in this case the asst. year 1980-81. It cannot be said that the assessee would not have offered such receipt in assessment year 1980-81. On the contrary, there is clear admission on the part of the assessee regarding the taxability. Again, it cannot be said that the assessee believed that there shall be lower income in assessment year 1980-81 when the return of income was being filed in 1977 and 1978 for this year. It cannot be said that assessee adopted device to reduce the incidence of tax. Therefore, the only inference which can be drawn is that there was bonafide belief which was honestly conceived and that would not entail penalty.
7.5 The circumstances in respect of the revised return carried overwhelming influence on the decision taken by the authorities below. In our opinion the approach adopted by the authorities below while considering the issue of penalty was not correct. The reason for filing the revised return was to claim the accepted liability in respect of payment of interest and since it was accepted, on the basis of settled legal position with regard to the deductibility of expenditure on the basis of accounting system followed, the only year would be the year to which the liability pertained. The assessee could not have claimed in future such liability in respect of this year even on the basis of payment when made in future. But when the issue has to be considered with regard to the accrual of income, certain factual concepts do have impact on consideration even after the Supreme Court decision referred to above. There was clear distinction in these two matters even at the time when the revised return was filed especially because the income when received in future could be taxed on which legitimate tax to the revenue could be collected but in the case of deduction for liability, the legal position being clear, no such allowance could be claimed in future asst. years.
8. For assessment year 1978-79, the difference in the fact as stated would not alter our decision.
We, therefore, delete the penalties levied in both the years. The orders passed by the CIT(A) are set aside.
9. In the result, both the appeals are allowed.