Income-tax---

----Penalty---Concealment of income ---Assessee disclosing interest received under- S. 214 in returns for assessment year 1974-75---Assessee claiming deduction of the amount on ground that it was assessed in earlier year---No evidence produced that it was assessed in earlier year---Deduction not allowed---Penalty levied---Finding of Tribunal that interest was assessable in 1972-73---Levy of penalty alleging concealment of income in assessment year 1974-75---Not valid---Indian Income Tax Act, 1961., S.271(1)(c). .

The return of income for the assessment year 1974-75 was filed by the assessee-company on July 31, 1974, showing a total income of Rs. 53,64,400. In the profit and loss account for the year ended on March 31, 1974, relevant to the assessment year 1974-75, the assessee had credited an amount of Rs.2,77,708 under the head "interest on unsecured loans". The amount of Rs.2,77,708 included interest under section 214 of the Income Tax Act, 1961, allowed for the assessment year 1967-68 amounting to Rs.1,14,212. The assessee claimed deduction of this amount on the ground that it was assessed in earlier years. In the course of assessment proceedings, the Assessing Officer asked for evidence of earlier assessment of the amount of interest under section 214 for the assessment year 1967-68 amounting to Rs.1,14,212. The assessee could not produce such evidence. The assessment was completed following the direction of the Inspecting Assistant Commissioner of Income-tax without allowing the deduction of Rs.1,14,212 in the assessment year 1974-75. In the course of assessment proceedings, the Assessing Officer initiated penalty proceedings under section 271(1)(c) in respect of concealment and inaccurate particulars filed in the return relating to the incorrect claim of deduction of Rs.1,14,213 on the ground that the amount had already been assessed in earlier year. Penalty was imposed. The Tribunal came to the finding that the assessee had disclosed particulars of interest under section 214 of Rs.1,14,212 both in the statement of details of interest received and also in the return of income filed for the assessment year 1974-75. The Tribunal also found that the interest income under section 214 was liable to be assessed in assessment year 1972-73. The Tribunal, therefore, cancelled the penalty order issued under section 271(1)(c). On a reference:

Held that if certain income is not liable to be assessed in a particular assessment year, the question of concealing such income or furnishing inaccurate particulars of such income by the assessee while filing the return for the said assessment year could not arise at all. In this case the finding of the Tribunal was that the interest income under section 214 was liable to be assessed in the assessment year 1972-73. Therefore, the impugned income could not form part of the assessment for the assessment year 1974-75. Moreover, the Tribunal had found that the assessee had disclosed the particulars of interest under section 214 both in the statement of details of interest receipts and also in the return of income filed for the assessment year 1974-15. Even assuming this income was liable to be assessed, for the assessment year in question, it could not be said that the assessee had concealed the income or furnished inaccurate particulars of income. The cancellation of penalty was justified.

JUDGMENT

AJIT K. SENGUPTA, J.---In this reference under section 256(1) of the Income Tax Act, 1961, relating to the assessment year 1974-75, the Revenue has questioned the decision of the Tribunal cancelling the order of penalty imposed under section 271(1)(c) of the Act.

The facts are that the assessee is a resident company. The original assessment was completed under section 143(3)/144B of the Income Tax Act, 1961, on August 10, 1977. A penalty order under section 271(1)(c) was passed in this case for the assessment year 1974-75 on March 31, 1980.

The return of income for the assessment year 1974-75 was filed by the assessee-company on July 31, 1974, showing a total income of Rs.53,64,400. In the profit and loss account for the year ending on March 31, 1974, relevant to the assessment year 1974-75, the assessee had credited an amount of Rs.2,77,708 under the head "Interest on unsecured loans". The amount of Rs.2,77,708 included interest under section 214 of the Income Tax Act, 1961, allowed for the assessment year .1967-68 amounting to Rs. 1,14,212 and Rs.50,558 for the assessment year 1971-72.

According to the assessee, the amount of Rs.2,04,334 included Rs.1,14,212 "being the interest on income-tax for the assessment year 1967-68 assessed in the earlier years". The assessee did not make any such claim for deduction in respect of interest of Rs.50,556 under section 214 for the assessment year 1971-72. The assessee claimed deduction on the ground "assessed in earlier year". In. the course of assessment proceedings, the Assessing Officer asked for evidence of earlier assessment of the amount of interest under section 214 for the assessment year 1967-68 amounting to Rs.1,14,212. The assessee could not produce any such evidence as the amount was credited to the profit and loss account for the assessment year 1974-75 and there was no scope for assessment of the amount in any of the earlier assessment years and the fact was within the clear knowledge of the assessee. Thus, the Assessing officer proposed not to allow the claim for deduction of Rs.1,14,212 in his draft assessment order under section 144B of the Income Tax Act, 1961, for the assessment year 1974-75. The draft assessment order was duly forwarded to the assessee and the assessee objected to the various items of the draft assessment order, but no objection was put up on this issue. The assessee also did not raise any objection to the proposed disallowance of the claim for deduction of interest under section 214 for the assessment year 1967-68 amounting to Rs.1,14,212 in the course of hearing under section 144B before the Inspecting Assistant Commissioner of Income-tax. The assessment was thus completed following the direction of the Inspecting Assistant Commissioner of Income-tax without allowing the deduction of Rs.1,14,212 in the assessment year 1974-75 and the final assessment order under - section 143(3)/144B of the Income Tax Act, 1961, was passed on August 10, 1977. Thus, the inclusion of the amount of interest under section 214 for the assessment year 1967-68 amounting to Rs.1,14,212 in the assessment of the assessee-company for the assessment year 1974-75 had become final.

In the course of assessment proceedings, the Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961, in respect of concealment and inaccurate particulars filed in the return relating to the incorrect claim of deduction of Rs.1,14,212 on the ground that the amount had already been assessed in an earlier year. In the course of hearing of the penalty proceedings under section 271(1)(c), the assessee contended that it had claimed the amount as deduction on the bona fide belief that the amount of interests of Rs.1,14,212 allowed by the Income-tax Department under section 214 was not chargeable to tax and as the particulars were written in the return of income, there was no element of concealment. The Assessing Officer examined the contention of the assessee and found that the bona fide belief of the assessee that the interest under section 214 of the Income Tax Act, 1961, was exempt from tax was not tenable as the assessee had not claimed deduction of the amount of interest under section 214 received for the assessment year 1971-72 amounting to Rs.50,558, simultaneously credited to the profit and loss account along with the interest received for the assessment year 1967-68. The assessee claimed deduction of the amount on the ground that it had suffered tax in the earlier year, which was not at all correct. If the assessment for the assessment year 1974-75 was completed accepting the return as correct, the amount of Rs.1,14,212 would have escaped assessment. Thus, the Assessing Officer held that the assessee had concealed its income and furnished inaccurate particulars in respect of the income of Rs. 1,14,212 by claiming deduction in the return of income stating "assessed in earlier year" and as such the assessee was liable to penalty under section 271(1)(c).

Accordingly, the Assessing officer imposed a penalty under section 271(1)(c) of the Income Tax Act, 1961, amounting to Rs.2,00,000 by his order dated March 31,1980.

Being aggrieved by the order of penalty passed by the Assessing officer under section 271(1)(c) of the Income Tax Act, 1961, the assessee preferred an appeal more the Commissioner of Income-tax (Appeals). It was contended on behalf of the assessee before the Commissioner of Income-tax (Appeals) that the assessment order for the assessment year 1967-68 was assed on February 25, 1972, wherein the assessee was granted interest under section 214 of the Income Tax Act, 1961, amounting to Rs.1,15,145 on the amount of refund. The amount of interest under section 214 was subsequently reduced to Rs.1,14,212 firstly in the order under section 250 of the Income Tax Act, 1961, dated November 30, 1973, and thereafter in the order dated April 20, 1974. Thus, the interest under section 214 originated out of the assessment order dated February 25, 1972, and it vans assessable in the assessment year 1972-73. Accordingly, at the time of preparation of the return for the assessment year 1974-75, the deduction of the said amount of Rs.1,14,212 was claimed by writing "assessed in earlier year" in the return. The Commissioner of Income-tax (Appeals), after examining elaborately the contentions of the assessee and analysing the facts and circumstances of the case carefully, agreed with the Assessing officer and thus the penalty order under section 271(1)(c) passed by the Assessing officer was upheld, dismissing the appeal filed by the assessee. The assessee then carried the matter before the Tribunal by way of preferring appeals against the decision of the Commissioner of Income-tax (Appeals). It was contended on behalf of the assessee before the Tribunal that the amount of interest of Rs. 1,14,212 was assessable in the assessment year 1972-73 in pursuance of the assessment order dated February 25, 1972, for the assessment year 1967-68. The person who prepared the return did not use the correct expression because he was not properly instructed. So he had written "assessed in earlier year" in the return for the assessment year 1974-75 instead of writing "assessable in earlier year". After considering the facts and circumstances of the case and hearing the contentions of both the sides, the Tribunal came to its finding that, as the assessee had disclosed particulars of interest under section 214 of Rs.1,14,212 both in the statement of details of interest received and also in the return of income filed for the assessment year 1974-75, the assessee could not be charged with concealing its income or furnishing inaccurate particulars of income for the assessment year 1974-75, warranting the imposition of penalty under section 271(1)(c). The Tribunal, therefore, cancelled the penalty order under section 271(1)(c).

On the aforesaid facts, the following question of law has been referred to this Court:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the penalty order under section 271(1)(c) of the Income Tax Act, 1961, passed by the Assessing Officer imposing penalty of Rs. 2.00,000?"

The facts are eloquent. We do not find any question of law arising out of the order of the Tribunal. Even otherwise, the findings of the Tribunal having not been challenged in this case at all, the conclusion is obvious. The question is whether the income which, according to the Revenue, the assessee sought to conceal or furnish inaccurate particulars of was income for the assessment year in question. If certain income is not liable to be assessed as income of any particular assessment year, the question of concealing such income or furnishing inaccurate particulars of such income by the assessee while filing the return for the said assessment year could not arise at all. In this case, the finding of the Tribunal is that the interest income under section 214 was liable to be assessed in the assessment year 1972-73. Therefore, the impugned income could not form part of the assessment for the assessment year 1974-75.

Even otherwise, the Tribunal has found, which has not been disputed, R F that the assessee has disclosed the particulars of interest under section 214 of Rs.1,11,212 both in the statement of details of interest receipts and also in the return of income filed for the assessment year 1974-75. Even assuming that this I income was liable to be assessed for the assessment year in question. it cannot be said that the assessee had concealed the income or furnished inaccurate particulars of income when, in the statement and return, such income has been disclosed.

For the reasons aforesaid, we find no merit in the contention raised by the Revenue and we, therefore, answer the question in this reference in the affirmative and in favour of the assessee.

There will be no order as to costs.

BHAGABATI PRASAD BANERJEE, J.---I agree.

M.B.A./197/T.F.Reference answered.