AJIT K.SENGUPTA, J. - (1.) IN this reference under S. 256(1) of the IT Act, 1961 which relates to the asst. yr. 1974-75, the Revenue has questioned the decision of the Tribunal cancelling the order of penalty imposed under s. 271(1)(c) of the Act.
(2.) THE facts are that the assessee, is a resident company. The original assessment was completed under S. 143(3)/144 of the IT Act, 1961 on 10th Aug., 1977. A penalty order under S. 271(1)(c) was passed in this case for the asst. yr. 1974-75 on 31st March, 1980. The return of income for the asst. yr. 1974-75 was filed by the assessee-company on 31st July, 1974 showing a total income of Rs. 53,64,400. In the P&L account for the year ended on 31st March, 1974 relevant to the asst. yr. 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 S. 214 of the IT Act, 1961 allowed for the asst. yr. 1967-68 amounting to Rs. 1,14,212 and Rs. 50,558 for the asst. yr. 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 asst. yr. 1967-68 assessed in the earlier years". The assessee did not make any such claim of deduction in respect of interest of Rs. 50,556 under S. 214 for the asst. yr. 1971-72. The assessee claimed deduction on the ground "assessed in earlier year". In course of assessment proceedings the Assessing Officer asked for the evidence of earlier assessment of the amount of interest under S. 214 for the asst. yr. 1967-68 amounting to Rs. 1,14,212. The assessee could not produce any such evidence as the amount was credited to the P&L account for the asst. yr. 1974- 75 and there was no scope for assessment of the amount in any of the earlier assessment year and the fact was within the clear knowledge of the assessee. Thus, the Assessing Officer proposed not to allow the claim of deduction of Rs. 1,14,217 in his draft assessment order under S. 144B of the IT Act for the asst. yr. 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 of deduction of interest under S. 214 for the asst. yr. 1967-68 amounting to Rs. 1,14,212 in course of hearing under S. 144B before the IAC. The assessment was thus, completed following the direction of the IAC without allowing the deduction of Rs. 1,14,212 in the asst. yr. 1974-75 and the final assessment order under S. 143(3)/144B of the IT Act, 1961, was passed on 10th Aug., 1977. Thus, the inclusion of the amount of interest under S. 214 for the asst. yr. 1967-68 amounting to Rs. 1,14,212 in the assessment of the assessee-company for the asst. yr. 1974-75 had become final.
(3.) IN course of assessment proceedings the Assessing Officer initiated penalty proceedings under s. 271(1)(c) of the IT Act, 1961, 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. In course of hearing of the penalty proceedings under s. 271(1)(c), the assessee contended that it had claimed the amount as deduction on the bona fide belief that the amount of interest of Rs. 1,14,212 allowed by the IT Department under S. 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 S. 214 of the IT Act was exempt from tax was not tenable as the assessee had not claimed deduction of the amount of interest under S. 214 received for the asst. yr. 1971-72 amounting to Rs. 50,558, simultaneously credited to the P&L account along with the interest received for the asst. yr. 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 asst. yr. 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 S. 271(1)(c). Accordingly, the Assessing Officer imposed a penalty under S. 271(1)(c) of the IT Act, 1961 amounting to Rs. 2,00,000 by his order dt. 31st March, 1980.;