CIT vs. POLYMER LAND INDIA PVT LTD

IN THE HIGH COURT OF DELHI AT NEW DELHI . 17.01.2011 Present: None. . +ITA No.43/2011 . . This appeal is filed against the order of the Tribunal deleting the penalty imposed by the Assessing Officer. In fact, this penalty was deleted by CIT(A) and the order of CIT(A) is upheld by the Income Tax Appellate Tribunal. The Assessing Officer, in respect of the assessment year 1999-2000 (for which this appeal pertains) had started reassessment proceedings by issuing notice under Section 147 read with Section 148 of the Income Tax Act. In the reassessment proceedings, the Assessing Officer noticed that certain amount was advanced by the Assessee as loan and interest thereupon was not shown as income. No doubt, no interest had in fact been received by the Assessee, however, Assessing Officer was of the opinion that since the respondent was following Mercantile System of Accounting, notional interest had to be shown as income and on that basis notional interest was worked out and additions made. At the same time, on the aforesaid ground, the Assessing Officer also initiated penalty . . proceedings stating that the assessee had concealed this income and a penalty of Rs.24,59,272/- . ITA No.43/2011 Page 1 of 3 was levied under the provisions of Section 271(1)(C) of the Income Tax Act. This penalty is deleted by the CIT(A) as well as ITAT on the ground that in the quantum proceedings, this Court had admitted the appeal which would reflect that the issue involved substantial question of law and thus it was debatable and penalty could not be sustained on this case. Discussion in the order of ITAT are as under: . ?3. We have considered the rival contentions, carefully gone through the orders of the authorities below and also order of the Tribunal wherein addition on account of deemed accrual of interest was decided in favour of the Revenue. In this case, neither assessee was in receipt of any interest income nor any accrual of interest was there, nor it was offered on the plea that principal itself was becoming bad. Actually the amount was advanced by the assessee against supply of the material. In the initial period, this arrangement was continued but thereafter, the supplier M/s.TIPCO to whom advances were made agreed to pay interest thereon. M/s.TIPCO had also credited interest expenditure in its books of account in the FY 1997-98 but the same was returned back in the FY 1997-98 itself indicating that the same was not payable. However, the assessee has neither credited this amount in its books of account nor offered the same in the return of income. The Tribunal in its order has also observed that in respect of the advance so given ultimately a mutual settlement was arrived in January 2002 between the assessee and the promoting company according to which, M/s.TIPCO foregone the claim of equity to the tune of Rs.1.25 crores in the assessee company and the assessee company has to write off the principal amount of Rs.5.25 crores. Therefore, no real income has accrued to the assessee during these years. We also found from the record that similar addition of notional interest income was made by . . ITA No.43/2011 Page 2 of 3 . the AO in four assessment years starting from AY 1998-99. In the AY 1998-99, appeal filed by the assessee was allowed by the CIT(A) and the addition made on account of such interest income was deleted. The Revenue did not come in further appeal before the Tribunal against deletion of interest alleged to be accrued in favour of the assessee in respect of this amount of advance. We also found that in respect of the similar accrual of interest which was added by the AO in the AY 2001-02, no penalty was levied by the department itself u/s 271(1)(c) of the Act. Thus, the department itself is not consistent with regard to the addition made by AO. In some year, addition was deleted by CIT(A) but the department did not come in appeal whereas in some year, no penalty was levied u/s 271(1)(c) in respect of additions so made. It is also undisputed fact that against the order of the Tribunal confirming the addition of interest income, the Hon?ble High Court has already accepted substantial question of law. In the case of Roopam Mercantile ? 91 ITD 273 for concealment of income, Ahmedabad Bench of the Tribunal held that where a plea or claim which is held by the High Court to have given rise to a substantial question of law, cannot be treated to be frivolous or mala-fide so as to attract levy of penalty u/s 271(1)(c). Recently, Hon?ble Supreme Court in the case of Reliance Petro Products (P) Ltd. ? 322 ITR 158 has reconfirmed the view taken by the Tribunal . . in the case of Roopam Mercantile (supra) which was subsequently confirmed by the Hon?ble High Court.? . We are in agreement with the aforesaid view taken by the Income Tax Appellate Tribunal. No question of law arises. The appeal is dismissed. A.K. SIKRI, J. . . M.L. MEHTA, J. JANUARY 17, 2011 DEV ITA No.43/2011 Page 3 of 3 . #4