Common Judgment: (L. Narasimha Reddy, J.)
Both the appeals arise out of a common order, dated 27.03.2001, passed by the Income Tax Appellate Tribunal, Visakhapatnam (for short the Tribunal).
While I.T.T.A.No.126 of 2001 is filed by the Department, the other appeal is filed by the Assessee.
For the sake of convenience, the parties are referred to as arrayed in I.T.T.A.No.126 of 2001.
The respondent filed its returns for the assessment year 1991-92. The Income Tax Officer (I.T.O.) noticed that certain items of income were not shown in the returns. That included Rs.4,91,805/-, which the respondent treated as written off, on account of the fact that the creditors were not either traceable or that it has become time barred and an amount of Rs.9,85,988/-, representing the interest, written off by the concerned Bank.
Ultimately, those two amounts were brought under the purview of the tax. The I.T.O. initiated proceedings under Section 271(1)(c) of the Income Tax Act, 1961 (for short the Act) proposing to levy penalty in respect of those two amounts. After considering the explanation submitted by the respondent, the I.T.O passed an order, dated 16.11.1995, levying penalty. The respondent carried the matter in appeal before the Commissioner of Income Tax (Appeals) (for short the Commissioner). The appeal was partly allowed through order, dated 28.06.1996. The Commissioner granted the relief in respect of the interest waived by the Bank, but dismissed the appeal, in respect of the other amount. In this view of the matter, the Revenue filed I.T.A.No.1738/Hyd/1996, feeling aggrieved by the order of the Commissioner, to the extent it has set aside the order of penalty in relation to Rs.9,85,988/-.
The respondent, on the other hand, filed I.T.A.No.1607/Hyd/1996 in relation to the other item. The Tribunal dismissed both the appeals through the order, dated 27.03.2001. Hence, these appeals under Section 260A of the Act.
Sri S.R.Ashok, learned Senior Standing Counsel for the Department, submits that the Commissioner as well as the Tribunal erred in setting aside the proceedings under Section 271(1) (c) of the Act in relation to the first item. He contends that once the Bank has written off the interest, the respondent was under obligation to show it as income and failure to do so would naturally attract Section 271 of the Act. He further submits that the very fact that the amount was brought under tax and the same became final would disclose that there was clear intention on the part of the respondent to suppress the source of income. It is also his case that the mere reflection of that amount in the books of account would not absolve the Assessee, of the liability to disclose the amount.
He further contends that the appeal preferred by the respondent is bereft of any merit. It is argued that the respondent claimed the benefit of deduction of the second item on the basis of the unilateral declaration that the amounts due to him from various persons became irrecoverable. According to the learned Senior Counsel, the question of amount being written off would arise, if only any Court of law declares the debts as time barred or concerned creditor has expressed his intention to waive the same, and that none of those circumstances exist in the instant case.
Sri Y.Ratnakar, learned counsel for the respondent, on the other hand, submits that the Commissioner as well as the Tribunal have taken correct view of the matter, as regards the first item and that no interference is warranted. He contends that both the amounts were reflected in the books of account and it cannot be said that there was any intention on the part of the respondent, to conceal the items or source of income. Learned counsel further submits that the Tribunal has taken a hyper-technical view of the matter, in the context of giving effect to Section 41 (1) of the Act. He placed reliance upon certain precedents.
The respondent claimed the benefit of deduction of the second item by stating the debts owed to him, by various persons or agencies became time barred. Section 41 of the Act is to the effect that where an Assessee gets the benefit of allowance or deduction in a particular assessment year, but thereafter, gets the benefit of that very amount or part of it, such amount shall be deemed to be profit or gains of business or profession and accordingly chargeable to income tax. In the concerned assessment year, the respondent has endorsed in his books of account that the second item is written off. The reason mentioned therein is that either the creditors were not traceable or that it has otherwise become time barred. In that view of the matter, the respondent did not feel like showing it as profit and gains of business or profession in the concerned assessment year. The I.T.O. took the view that the amount ought to have been shown as income under Section 41 (1) of the Act and accordingly, levied tax. That aspect has assumed finality.
Another aspect noticed by the I.T.O. was that the first item representing the written off interest was not shown as an item of income and that also attracts Section 41 (1) of the Act. Having brought both the items under the purview of the tax, the I.T.O proceeded to initiate proceedings for levy of penalty under Section 271 of the Act. Show cause notice was issued and order of penalty was passed. In the appeal, the Commissioner sustained the penalty in respect of the second item and has set aside the one, as regards the first item. The Commissioner took the view that though the addition of the same as an item of income was sustained, it cannot be said that there was any mala fide intention on the part of the respondent in not showing it. Reliance was placed upon the judgment of the Supreme Court in Cement Marketing Company of India Limited Vs. Assistant Commissioner of Sales Tax (124 ITR 15) . It was treated as a bona fide mistake and the penalty to that extent was set aside. The Tribunal concurred with the finding.
We too are of the same view. It is almost a case of understanding of the relevant provision of law by the Assessee. It is only when an amount, which is already allowed or deducted, that can constitute the subject matter of Section 41 (1) of the Act, cannot be rejected as irrelevant. It is a different matter that the amount was brought under the assessment. However, as long as there is possibility to understand the provision in different ways and the Assessee has chosen one, the occasion to invoke Section 271 of the Act does not arise. We draw support from the judgment of the Supreme Court in Commissioner of Income Tax Vs. Delhi Automobiles (272 ITR 381).
Coming to the second item, if the debts were written off by the respondent itself, the situation is substantially different. It is not a case where the debtors have instituted proceedings and the debts were found to be barred by time or that any creditor has made a declaration to the effect that he is waiving the loan. It is only when those circum
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stances exist, that the occasion to take the amount from the purview of Section 41 of the Act, may arise. We do not intend to pronounce upon the correctness or otherwise of the invocation of Section 41 of the Act, vis--vis the said amount. The issue is as to whether the respondent was under obligation to reflect the amount written off as an item of income. A unilateral act on its part did not have the effect of writing off, of the amount, and in that view of the matter, it ought to have been reflected in the tax. We do not see any error in the order of the Tribunal in this behalf. We, therefore, dismiss both the appeals. There shall be no order as to costs. The miscellaneous petitions filed in these appeals shall also stand disposed of.