PRINCIPAL COMMISSIONER OF I T KOTA vs. M/S KOTA SAHA BHOOMI VIKAS BANK LTD

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 126 / 2016 Principal Commissioner Of Income Tax, Kota ----Appellant Versus M/S Kota Sahakari Bhoomi Vikas Bank, Plot No.3, Behind Income Tax Office, Rawatbhata Road, Kota. ----Respondent _____________________________________________________ For Appellant(s) : Ms. Parinitoo Jain For Respondent(s) : _____________________________________________________ HON'BLE MR. JUSTICE K. S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS judgment 23/10/2017 1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal of the department. 2. This court while admitting the appeal on 15.09.2016 framed the following questions of law:- “1. Whether the Tribunal was legally justified in deleting the addition of Rs. 97,00,729/- debited in the profit and loss account in respect of loans waived off by the Central Govt. specifically when complete details to prove the genuineness of the expenditure wee not produced, the penal interest was not shown in the books as income and recovery charges were regularly debited in the profit and loss account? 2. Whether the Tribunal was legally justified in deleting the addition of Rs. 1,23,651/- made u/s. 37(1) on account of penal interest paid by the assessee to the Rajasthan Rajya Bhoomi Vikas Ltd. on the over due loans remaining unpaid by the assessee?

(2 of 3) [ITA-126/2016] 3. Counsel for the appellant contended that Tribunal has seriously committed an error in reversing the view taken by the AO inasmuch as the penal interest of 97,00,729/- which has been taken double time is not permissible in books of accounts. She has taken us to the observation made by the AO which reads as under:- “4. Subject to above discussion, total income of the assessee is assessed as under:- COMPUTATION OF INCOME 1. Total Income as per return : Rs. (-) 32196349/ Add:-Bank Dwara Vahan Raashi : 97,00,729/- FBT Expense : 1,33,244/- Depreciation : 25,846/- Penalty Interest : 123651/- Rs. 9983470/- Total assessed income R/o : Rs.(-) 22212879 Total Income : Rs.(-) 22212880 Assessed u/s 143(3). Prepare ITNS-150 which is integral part of the order. Issue demand notice. Penalty proceeding u/s 271(c) is being separately initiated for furnishing inaccurate particular of income and concealment of income.” 4. Regarding issue No.2 she has taken us through Para 3. 4 of the order passed by AO which reads as under:- 3.4 Penalty Interest “The assessee claimed deduction of Rs. 123651/- on account of penalty interest. However this deductions is not allowable in view of the explanation below section 37(1) of I. T. Act, 1961. This deduction disallowed and added to total income of the assessee. (Disallowance of Rs. 1,23,651/-)” 5. However, we have gone through the order passed by CIT(A) who while considering the matter observed as under:- “The Assessing Officer without bringing anything on record concluded that penal interest was not treated as income. Similarly if recovery charges were already debited than the same can’t be debited again without im-balancing the accounts. The Assessing Officer

(3 of 3) [ITA-126/2016] again did not bring anything on record to justify the finding. The Assessing Officer is therefore directed to delete addition of Rs. 9700729/- (iv) Penal Interest : 123651/- As regarding the penal interest of Rs. 123651/- the Assessing Officer has noted that this is not allowable in view of explanation to section 37(1) of the I. T. Act. However, it has been explained by the appellant that the Apex Bank I. e. Rajasthan Rajya Bhoomi Vikas Ltd., provides loan to the assessee. If there is any overdue loan remaining unpaid to the Apex Bank then it attracts the penal interest. The payment of such interest is not a offence or prohibited by law. The amount is paid as per the rules and guidelines of Rajashtan Rajya Bhomi Vikas Ltd. and it is of compensatory in nature. The assessee’s contentions are acceptable as the penal interest has been paid for delay in making the repayment of the loans as per the rules and regulations of the bank and fact of liability of penal interest of Rs. 123651/- has not been disputed by the Assessing Officer. It is not the payment for a purpose which is prohibited by law. The said payment is not for contravention of any statutory provisions and is merely compensatory in nature. So, the addition made by AO on above account is deleted.” 6. In our considered opinion, when the amount has been deposited in the account showing it as notional income, subsequently when it is waived, the finding recorded by both the authorities is just and proper. 7. The issues are answered in favour of the assessee against the department. 8. The appeal stands dismissed. (VIJAY KUMAR VYAS),J. (K.S.JHAVERI),J. B.M.G/Gourav/25