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2020 (1) TMI 817 - AT - Income TaxPenalty u/s 271(1)(c) - assessee has not declared interest income on loans and advances on ‘accrual basis’, even though the assessee was following mercantile system of accounting - HELD THAT:- 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 Karnataka Society’s Act and Rules, NABARD and RBI, it was required to account for the interest income on realization basis. There is some valid reason for the assessee in not declaring interest accrued but not received by it. There is also no dispute with regard to the fact that the assessee has offered interest income whenever it has realized it. Before the CIT(A) the assessee has furnished details of interest adjustments required to be made u/s 145 of the Act in the financial year 2010-11 and 2011-12 relevant to the asst. years 2011-12 and 2012-13 Interest adjustments warranted an addition of ₹ 209.81 lakhs during the year under consideration and, while in the succeeding asst. year i.e. asst. year 2012-13, it warrants reduction of the total income by ₹ 363.76 lakhs. According to the assessee it has not claimed deduction of above said amount in asst. year 2012-13. These facts would show to that the interest income is not altogether concealed, but accounted for in the succeeding years on ‘receipt basis’, According to the assessee, the above system is followed in consonance with certain principles directed to be followed by its controlling authorities. In effect, it results in shifting of income from one year to another year only. Hence explanations furnished by the assessee cannot be said to be false. We also notice that the AO has also not found it to be false or fount it to be not bonafide. In any case, the system so followed by the assessee results in shifting of income from one year to another year and the said practice, according to the assessee, is supported by the directions given by the controlling authorities. The impugned addition would not give rise to levy of penalty u/s 271(1)(c) - Decided in favour of assessee.
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