Decided on November 30,1994



R.M.Mehta, - (1.) THIS appeal is directed against the order passed by the DC (Appeals) whereby he has confirmed a penalty of Rs. 13,620 imposed on the assessee by the Income-tax Officer under Section 271(1)(a).
(2.) The assessee in this case has been assessed in the status of an AOP on an income of Rs. 41,320 as against return filed on 4th January, 1988 declaring a deficit of Rs. 700 plus agricultural income of Rs. 3,056. It would also be necessary to mention that the assessee at the first instance did not file a return of income, but only did so after a notice under Section 148 had been issued on 18-11 -1987 and served on the assessee on 3-12-1987. The further relevant facts of the case are that up to the assessment year 1984-85 the assessee had been maintaining its books of account on the mercantile basis, but during the assessment year under consideration had changed the method from mercantile to cash and filed the return on the changed basis. It is also an accepted fact that in the course of the assessment proceedings, the Income-tax Officer rejected the changed method on the ground that it had been done with a view "to avoid incidence of tax on interest receivable on accrual basis". The Income-tax Officer further noted that the funds had been invested in the debentures of Pvt. Ltd. companies, which were controlled by the trustees and their relatives. He also took note of the fact that certain deposits had been made in private companies which once again were controlled by the trustees and their relations or other sister concerns. He also took note of the absence of steps on the part of the assessee to recover the amount of interest which had become due to it although the payees had made provision for interest in their accounts and had credited the interest to the interest payable account. The aforesaid views expressed by the Income-tax Officer led to an addition of Rs. 43,656 on account of "accrued interest". To conclude the sequence of facts, the Income-tax Officer initiated penalty proceedings under Section 271 (1)(a) for the late filing of the return and which ultimately came to be imposed in a sum of Rs. 13,620. On further appeal, the said levy of penalty came to be confirmed by the DC (Appeals) on the ground that the assessee's counsel could not give any satisfactory explanation for delay in the filing of the return. I have heard both the parties at some length in respect of the specific grounds raised in the assessee's appeal. The learned counsel made the following points :- (i) That the return showing deficit of Rs. 700 had been filed on the basis of the audited accounts which had earlier been filed with the Department on 26th June, 1985; (ii) Even the return filed in response to notice under Section 148 reflected the same figure of loss; (iii) On the basis of the audited accounts the assessee was under the bona fide belief that the return need not be filed and the rejection of the changed method of accounting was a later event which was not contemplated by the assessee; and (iv) That the same income which had been taxed in the assessment year under appeal had been included in the taxable income of the assessee in assessment year 1988-89.
(3.) THE learned counsel also sought to draw a parallel between the present case and that of another connected trust, namely, Jama Bhagat Public Charitable Trust which according to him had already been adjudicated upon by the Tribunal deciding in the ultimate analysis that penalty under Section 271(1)(a) was not exigible. According to him the dates of filing the return, issue of notice under Section 148 and the audited accounts reflecting the deficit were absolutely identical. A copy of the order of the Tribunal in IT Appeal No. 123 (Delhi) of 1992 (S.M.C.) dated 26-12-1993 was placed on record. THE learned counsel took us through the relevant portions of the order of the Tribunal placing reliance on the same decisions as had been relied upon during the course of the hearing of that appeal and these being the ones reported in Reform Flour Mills (P.) Ltd. v. CIT [1978] 114 ITR 227 (Cal.): Snow White Food Products Co. Ltd. v. CIT[1983] 141 ITR 847 (Cal.) and CIT v. Ganga Charity Trust Fund [1986] 162 ITR 612 (Guj.). He concluded his arguments by urging that the penalty be deleted in line with the order of the Tribunal cited. THE learned Departmental Representative, on the other hand, strongly supported by the order passed by the DC (Appeals) contending in the process that in the present case the change in the method of accounting had not been found bona fide by the tax authorities and in that view of the matter, there was no valid basis on the part of the assessee's counsel to urge that penalty under Section 271(1)(a) be cancelled. He placed reliance on the decision of the Karnataka High Court in the case of CIT v. Corporation Bank Ltd. [1988] 174 ITR 616 (Kar.).;

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