Indian Kanoon - Search engine for Indian Law

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.

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.

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.