INCOME TAX ACT, 1961

Section 271(1)(c)

Penalty under section 271(1)(c) - Concealment of income - Assessee had not declared income on loans and advances - Interest income declared on receipt basis

Assessee was carrying on banking business. During the course of assessment proceedings, AO noticed that assessee had not declared interest income on loans and advances on 'accrual basis', even though the assessee was following mercantile system of accounting. AO, accordingly, took the view that interest accrued on the loans advanced by it should have been declared by assessee in its return of income. It was submitted that, as per provisions of Co-operative Societies Act and Rules, assessee was bound to account for interest income, only on its realization. However, before AO, assessee furnished details of 'interest accrued but not accounted for'. AO did not accept the explanation offered by assessee and initiated penalty proceedings under section 271(1)(c). Held: Assessee has not declared interest accrued but not received by it in its return of income and the same was declared only during the course of assessment proceedings. As explained that, as per the Circulars issued under State Cooperative Societies Act and Rules, NABARD and RBI, it was required to account for interest income on realization basis. There is some valid reason for the assessee in not declaring interest accrued but not received by it. There was also no dispute with regard to the fact that assessee has offered interest income whenever it has realized it. These facts would show that interest income was not altogether concealed, but accounted for in the succeeding years on 'receipt basis', Therefore, levy of penalty under section 271(1)(c) was not warranted.

REFERRED : UCO Bank v. CIT (1999) 237 ITR 889 (SC) : 1999 TaxPub(DT) 1303 (SC) The Bhatkal Urban Co-operative Bank Ltd. v. Dy. CIT (ITA No. 429/Bang/2011, dated 12-10-2012)

FAVOUR : In assessee's favour

A.Y. :

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