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10. In context of the reference having bearing on the quantum proceedings (Ref. No. 56 of 1986), the learned counsel for the assessee contended that, in view of the resolution dated 30-6-1978, passed by the assessee, accepting the proposal of the vendee Elscope (P) Ltd. contained in their letter dated 15-6-1978, which both documents were produced during the course of assessment proceedings, there was no accrual of interest to the assessee on the amount of deferred consideration till 30-6-1979. It was argued-that, under the original agreement dated 28-2-1977, as modified by the supplemental agreement dated 4-3-1977, as also in the deed of assignment dated 28-6-1977, though interest was to be paid on the amount of deferred consideration, no date on the amount of deferred consideration, no date was mentioned for accrual of such interest and, therefore, it should be held that interest was to be paid only from the date on which the instalments were to fall due and were not paid. It was further argued that, before the end of the accounting year 1978-79 (i.e., from 1-7-1977, to 30-6-1978), it was open for the assessee to agree to modification of the terms of mode of payment and substitute the original stipulation regarding payment of interest by fixing the time from which the interest would accrue and accordingly, by such modification, the date of accrual of interest was fixed as 1-7-1979, under the resolution dated 30-6-1978. The learned counsel submitted that there was no challenge against the genuineness of the resolution dated 30-6-1978, at any stage of the proceedings uptill now-and once that resolution is held to be genuine, it should be given its full play and it should be held that no interest accrued till 30-6-1979, by virtue of this resolution, even if it were to accrue under the mode of payment earlier stipulated in the deed of assignment. It was further argued that, in the event the court comes to the conclusion that the interest income did accrue during the said accounting year from 1-7-1977 to 30-6-1978, it should be held that the income so accrued on mercantile basis of accounting was given up by the assessee for valid consideration which was commercial expediency. The assessee wanted to reorganise its business and this fact was recorded even in the agreements and deed of assignment and it is not as if the agreement were made as a device to evade taxes. The assessee wanted to put more capital in the hands of its subsidiary Elscope (P) Ltd., and there were further transactions between Elscope (P) Ltd. and its own subsidiary, and all these transactions were genuine and in reality, entered into as per the scheme of reorganisation. It was submitted that, under the original agreement and deed of assignment, there was no mention about any security being furnished in respect of the outstanding amount payable by Elscope (P) Ltd. to assessee, while in the proposal dated 15-6-1978, sent by Elscope (P) Ltd. to the assessee, there was a clear offer of giving security in respect of the deferred consideration which was required to be paid by Elscope (P) Ltd. to the assessee. Since the proposal was coupled with this offer, the assessee, with a view to get its dues secured, shifted the date of accrual of interest on the deferred consideration to 1-7-1979, by accepting the proposal of Elscope (P) Ltd. and passing the said resolution dated 30-6-1978.

(ff) The decision of this High Court in National Textiles v. CIT (2001) 19 DTC 655 (Guj-HC) : (2001) 249 ITR 125 (Guj) was cited for the proposition that, where the circumstances were equally consistent with the hypothesis that they could have been sundry loans of small amounts obtained from different parties, the imposition of penalty was not justified.

12. The learned counsel appearing for the revenue submitted that, in view of the specific terms of the agreement and the deed of assignment, interest was payable on the deferred consideration amount from 1-3-1977, being the date of the transaction. It was submitted that since interest was to be charged on the amount outstanding from time-to-time, it became payable from 1-3-1977, being the date when the deferred consideration amount became outstanding. The learned counsel also argued that there was no commercial expediency for which the interest that had accrued could have been given up. It was pointed out that the unit and the business which were transferred by the assessee to its subsidiary Elscope (P) Ltd. with effect from 1-3-1977, under the agreement dated 28-2-1977, were in turn transferred by Elscope to its subsidiary Ambalal Sarabhai Enterprises Ltd. with effect from 1-7-1977, and that under the agreement between Elscope and ASE, the liabilities in respect of the transferred unit and business were taken over by ASE. There was also a stipulation in clause (4) of that agreement dated 28-6-1977, between Elscope and ASE that liability of Elscope to pay under the agreement under which it had purchased the unit and the business from the assessee, as it stood on 30-6-1977, was taken over by the ASE and if no claim was made in respect of such liability which was taken over, then ASE was to pay Elscope total value of such liabilities and such value was deemed to augment the purchase price payable by ASE to Elscope to be added pro rata in the instalments of the balance purchase price. It was also submitted that, under the deed of assignment dated 25-4-1978, it was stipulated between Elscope and ASE that the purchaser ASE would perform all contracts and agreements entered into by Elscope and the Elscope was discharged in respect of such liabilities. On the basis of these documents, the learned counsel for the revenue argued that the transaction between the assessee and Elscope was not a genuine transaction, but Elscope was only made a conduit pipe and merely a technical transfer was effected so that Elscope can in turn transfer its subsidiary the same unit and business and the result was arranged in such a way that Elscope would gain, which was the gain of the assessee itself, since it was the sole shareholder of Elscope.

15. The only question that now remains to be examined is whether the interest that had accrued and which the assessee did not in fact receive was given up for any commercial expediency after it had accrued upto 30-6-1978, as pleaded in the alternative on behalf of the assessee, on the basis of the resolution dated 30-6-1978. The ground of commercial expediency put forth was that the debt which had not been secured was now secured. In the proposal dated 15-6-1978 sent by the assessee's subsidiary Elscope which had purchased its undertaking, while proposing modification in the terms of the deed of assignment dated 28-6-1977, the vendee had suggested modification of the method of payment of the balance amount of Rs. 6,54,10,253.49, as narrated above and suggesting that the amount of Rs. 6,54,10,253.49, as narrated above and suggesting that the amount which was payable on demand will not carry any interest while the amount which was to be paid by instalments will carry simple interest at 11 per cent per annum with effect from 1-7-1979 on the amount remaining outstanding from time-to-time. It win be noted that the last mentioned words purported to have been quoted from the deed of assignment in the letter dated 15-6-1978, to the effect that, "continue as unsecured deferred consideration" were not there in the deed of assignment, nor were they incorporated in the supplemental agreement dated 4-3-1977, substituting the mode of payment originally stipulated in the agreement dated 28-2-1977. At the end of the proposal of the vendee, it was mentioned that "mode of payment of the purchase price and the question of security is still under discussion between our company and Ambalal Sarabhai Enterprises (P) Ltd." to whom the business purchased by this subsidiary from the assessee, was transferred. The vendee wrote "We confirm that we shall provide you the same security or securities similar to the security as may be provided by Ambalal Sarabhai Enterprises (P) Ltd. in respect of the deferred purchase consideration". Admittedly, the vendee had already executed the deed of assignment on 25-4-1978, in favour of the ASE for the assets which included the asset purchased by Elscope from the assessee, under which the mode of payment between the two was finally settled. Therefore, the proposal was made in the letter dated 15-6-1978, of the vendee on a statement namely, "mode of payment of purchase price and question of security is still under discussion between our company and Ambalal Sarabhai Enterprise (P) Ltd." which was not correct. The assessee readily obliged its subsidiary Elscope by accepting the said proposal of shifting the date of accrual of interest to 1-7-1979, and though no concrete proposal of security was made, by simply stating that "the said amount will be secured to the satisfaction of the (assessee) company". Admittedly, no security passed. The Commissioner (Appeals) has admirably discussed this aspect in para 15 of his order, exposing the hollowness of the assessee's stand that it secured bonds of ASE, in the following words :

20.5. The question that, therefore, remains to be considered is, whether the revenue proves that particulars of interest income which is added in the assessment year 1979-80 were concealed by the assessee during the assessment proceedings. The particulars on the basis of which accrual of income could be worked out for the accounting period of 1-7-1977, to 30-6-1978, would be those which formed source of information about that income on the basis of which, the interest income could be ascertained and worked out by computing total income, be ascertained and worked out while computing the total income, supplemental agreement dated 4-3-1977, clearly referred to the fact that the date of transaction was 1-3-1977, and that, under the mode of payment adopted thereunder, interest at the rates stipulated was to be paid from the date from which the amount of consideration was outstanding and on such amounts which remained outstanding from time-to-time, It is precisely from these particulars that the Income Tax Officer raised specific queries during the proceedings in response to which, the resolution dated 30-6-1978, accepting the proposal of Elscope made on 15-6-1978, for substituting the terms of payment incorporated in the agreement and deed of assignment was produced during the assessment proceedings. It has also come on record that, in the notes 'annexed to and forming part of the balance sheet as on 30-6-1978, mentioned the fact that the deferred sale consideration pertained to the amount receivable in instalments from the subsidiary company Elscope (P) Ltd. 'for the transfer and assignment of the industrial undertaking and business'. The amount of deferred sale consideration of Rs. 6,54,10,253 was mentioned as due on 30-6-1977, which was reduced to Rs. 4,94,81,765 at the end of 30-6-1978, and the payments received during the year towards the deferred consideration were also disclosed. Admittedly, it was not a case where interest was received by the assessee but was not shown. The balance sheet of the subsidiary Elscope was also produced as required by law and there was no inconsistency urged between the two balance sheets.