2002 (2) TMI 44 - HC - Income Tax

Interest Taxable for 1979-80, Penalty Overturned for 1980-81

The court upheld that interest accrued and was liable to tax for the assessment year 1979-80, rejecting the assessee's attempt to evade tax. However, for ... Accrual Of Income, Mercantile System Of Accounting, Concealment Of Income, Advance Tax, Penalty - the record shows that all the relevant particulars on the basis of which the income of the assessee could be computed were disclosed by the assessee and a claim was put up that the interest cannot be said to have accrued, - In fact, on the basis of disclosures already made during the proceedings, interest income was added in the total income in the quantum proceedings. - we are of the opinion that there was no justification for imposing penalty under section 271(1)(c) of the Act on the assessee for the assessment year 1979-80. Issues Involved:1. Accrual and taxability of interest income for assessment years 1979-80 and 1980-81.2. Justification of levy of interest under section 215 of the Income-tax Act, 1961.3. Justification of penalty under section 273(2)(a) of the Income-tax Act, 1961.4. Justification of penalty under section 271(1)(c) of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Accrual and Taxability of Interest Income:- Assessment Year 1979-80:- The court examined the agreements and deed of assignment which stipulated that interest was payable on the deferred consideration amount from March 1, 1977.- The Tribunal held that interest accrued from day-to-day and was exigible to tax.- The assessee's resolution dated June 30, 1978, which purported to waive the accrued interest, was seen as an attempt to evade tax and not based on commercial expediency.- The Tribunal's decision that the interest of Rs. 66,29,236 accrued and was liable to tax on an accrual basis was upheld.- The court answered affirmatively, in favor of the Revenue, that the interest accrued and was rightly taxed.- Assessment Year 1980-81:- The court acknowledged the resolution dated June 30, 1978, which changed the mode of payment and stipulated that interest would start accruing from July 1, 1979.- Since no interest accrued during the accounting period from July 1, 1978, to June 30, 1979, the Tribunal's decision that no income accrued for the assessment year 1980-81 was upheld.- The court answered in favor of the assessee, confirming that no interest accrued during the relevant period.2. Justification of Levy of Interest Under Section 215:- Assessment Year 1979-80:- The Tribunal had set aside the levy of interest under section 215, citing the complexity of determining accrual of income.- The court held that the levy of interest under section 215 was automatic when the advance tax paid was less than 75% of the assessed tax.- The court found that the Tribunal erred in deleting the interest levied under section 215.- The question was answered in favor of the Revenue, confirming the levy of interest under section 215.3. Justification of Penalty Under Section 273(2)(a):- Assessment Year 1979-80:- The penalty was imposed for filing a 'nil' estimate of advance tax, which was found to be untrue.- The court noted that the resolution dated June 30, 1978, which shifted the date of accrual of interest to July 1, 1979, was passed before the 'nil' estimate was filed.- The court concluded that the assessee might have reasonably believed that the 'nil' estimate was correct.- The imposition of penalty under section 273(2)(a) was not justified.- The question was answered in favor of the assessee, and the penalty was set aside.4. Justification of Penalty Under Section 271(1)(c):- Assessment Year 1979-80:- The penalty was imposed for concealing particulars of income or furnishing inaccurate particulars.- The court observed that the assessee had disclosed all relevant particulars and provided an explanation based on the resolution dated June 30, 1978.- The court found that the explanation given by the assessee was bona fide, though not accepted in the quantum proceedings.- The presumption under Explanation 1 to section 271(1)(c) did not apply as the assessee had disclosed all material facts.- The imposition of penalty under section 271(1)(c) was not justified.- The question was answered in favor of the assessee, and the penalty was set aside.Summary:- Income-tax Reference No. 56 of 1986:- Assessment Year 1979-80: Questions answered in favor of the Revenue.- Assessment Year 1980-81: Questions answered in favor of the assessee.- Income-tax Reference No. 75 of 1987:- Question answered in favor of the Revenue.- Income-tax Reference No. 220 of 1995:- Question answered in favor of the assessee.- Income-tax Reference No. 58 of 1993:- Question answered in favor of the assessee.