TMI Blog2011 (12) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... .C. GUPTA, A. MOHAN ALANKAMONY, JJ. R.N. Vepari for the Appellant. Samir Tekriwal for the Respondent. ORDER G.C. Gupta, Vice-President These two appeals by the assessee for the A.Y. 1995-96 and 2005-2006 are directed against the order of the CIT(A). Since identical issues are involved in both the appeals, these are disposed with this consolidated order. 2. The only issue in both these appeals of the assessee is regarding the validity of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961 on the assessee. 3. The learned counsel for the assessee submitted that the assessee-cooperative society was engaged in the business of establishing sugar factory in notified background area of Dadra Nagar Haveli, Union Territory. He submitted that in order to grant benefit to the tribal population of this area, the Central Government has given a package, according to which, the Government was to contribute share capital of the factory to the extent of 32.5% of the total project cost and 7.5% of the project cost was to be contributed by the sugarcane grower members and co-operative institutions in the area. The balance 60% of the project cost was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO has levied penalty under Section 271(1)(c) of the Act for non-disclosure of the interest amount for the relevant financial years, against which the appeal preferred to the CIT(A) was dismissed and the assessee has come in appeal before the Tribunal. The learned counsel submitted that the bona fide belief of the assessee is clear in the facts of the case. He submitted that in fact the principle of over-riding title applies to the facts of the case as the assessee has never received the interest amount and the interest income never accrued to it. He referred to various letters of the Administrator of Dadra and Nagar Haveli, Union Territory wherein the assessee was directed that the interest earned on share capital contribution by the Central Government kept in special account of Silvassa Branch of the State Bank of India as "Reserve" was not permitted to be withdrawn without prior approval of the Administrator of the Union Territory. He referred to the letter dated 6-11-1998 from the Administrator, Dadra and Nagar Haveli, Union Territory wherein the assessee was directed that the interest accrued on government share capital contribution be adjusted against the additional sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. ITO [2010] 322 ITR 283/188 Taxman 282 (SC) ( ii ) CIT v. Zoom Communication (P.) Ltd. [2010] 327 ITR 510/191 Taxman 179 (Delhi); ( iii ) PSB Industries India (P.) Ltd. v. CIT [2011] 15 taxmann.com 201 (Delhi) ( iv ) Order of the ITAT, Ahmedabad 'B' Bench in ITA No. 3229/Ahd/2010 dated 20.10.2011; The learned DR submitted that the interest income earned by the assessee on its FDRs with State Bank of India was credited by the assessee to "reserve account" and not to its profit loss account. He submitted that the assessee has not claimed any exemption on the interest amount and hence not taken the same to its profit and loss account filed along with its return of income. He submitted that this conduct of the assessee takes away the case of the assessee from bona fide conduct as the explanation of the assessee was not justifiable as the assessee has earned interest income during the relevant year and the redemption to the central government was much later. He relied on the orders of the AO and the CIT(A). 5. The learned counsel for the assessee in his rejoinder submitted that the case laws cited by the learned DR are distinguishable since they pertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad to remain deposited with the nationalised banks and was not to be withdrawn without prior approval of the Administrator of Dadra Nagar Haveli, Union Territory. One important condition of the government for its contribution to the project was that the interest earned on designated special account with State Bank of India was to be kept in special account and was to be maintained as "reserve". The assessee pursuant to this condition directly took the interest received on FDR of the government capital contribution to "reserve" account. The assessee earned on this investment interest of about Rs. 4.95 crores till 31-3-1997 and the assessee was directed vide letter of the Asstt. Registrar, Co-operative Society, Silvassa dated 24.9.1999 to issue share certificate in the name of the "President of India" for the total interest accrued on investment of government share capital upto 31-3-1999. In these facts of the case, the claim of the assessee was that it was not liable to income tax on the amount of interest accrued on capital contribution made by the central government which was kept in designated special account with the State Bank of India and the interest thereon was directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim that the interest amount was not includible in its hands could not be termed as making unsustainable and frivolous claim. The argument of the learned DR that there was no domain of the Central Government over the interest income accrued on the contribution made by the central government and there was no direction of the central government to assessee for non-utilisation of the interest amount for its business purpose, is not sustainable since the assessee was directed time and again vide various letters from the Administration of Dadra Nagar Haveli and also Asstt. Registrar, Cooperative Societies, Silvassa to consider the interest amount as part of the share capital contribution, that was required to be made by the central government and also to issue share certificate in the name of the 'President of India' for the total interest amount on investment of government share capital upto 31-3-1999. In view of these directives by the authorities, there is no requirement of any further direction to the assessee by the central government for non-utilisation of interest amount for its business purpose. The decisions of the Hon'ble Courts relied upon by the learned DR pertains to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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