TMI Blog1980 (8) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... e Rs. 78,131. The suit was decreed for Rs. 78,131 on July 18, 1969, along with Rs. 4,159 as costs. The total decretal amount of Rs. 82,290 was entered by the assessee in its books of account as " suspense account (Government litigation) " during the accounting year 1970-71. This item was not entered in the books of account of the assessee during the accounting year 1969-70 relevant to the assessment year 1970-71. The assessee filed a return for the relevant assessment year on September 30, 1970, declaring its income at Rs. 46,250. The assessment was originally completed by the ITO on July 6, 1971, on a total income of Rs. 47,675. The revenue claims that the suspense account showing credit of Rs. 82,290 came to the notice of the ITO during the proceedings for the assessment year 1971-72 and, since this amount related to the earlier year, the ITO initiated proceedings under s. 147 of the I.T. Act, 1961 (hereinafter referred to as " the Act and issued a notice under s. 148 of the Act to the assessee on February 10, 1,972. In response to this notice, the assessee filed a return reiterating its income to be Rs. 46,250 as had been shown in the earlier return. The assessee pleaded that, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s books of account right from the accounting year 1964-65, and even the expenses on civil suits were debited in the account books as and when incurred. While following the observations made in Regal Theatre v. CIT [1966] 59 ITR 449 (Punj), it came to the conclusion that the assessee did not indulge in any concealment of facts with the intention of evading any tax in respect of any gains. On this basis, it allowed the appeal filed by the assessee and waived the penalty. At the instance of the Commissioner, the Appellate Tribunal has, in Income-tax Reference No. 74 of 1977, referred the following questions of law to us for our opinion: " (i) Whether the Tribunal has been right in law in cancelling the penalty of Rs. 1,25,000 ? (ii) Whether the Tribunal has been right, in law in holding that where the Explanation to section 271(1)(c) is applicable, only minimum penalty, as prescribed under section 271(1)(c), is imposable and when the conduct of the assessee was analysed the fiction of the Explanation could not be made to play any role against the assessee ? " Since the aforesaid two references, namely, Income-tax Reference No.11 of 1976, and Income-tax Reference No. 74 of 1977, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the amount has accrued. In the instant case, the very foundation of the claim is in jeopardy. If the appeal goes against the assessee, then nothing Would be due". The learned counsel also argued that, in the peculiar circumstances of this case, the fact that the assessee adopted the mercantile system of accounting did not make the least bit of difference and the decretal amount could be regarded as a receipt of the assessee for the purpose of income-tax only during the year when the amount was realised by it. The other submission made was that in applying the provisions contained in the Act, the court should always keep in mind that such an interpretation is not placed on the provisions of the Act which tend to infringe upon the fundamental rights of a citizen. In elaboration of this point, the learned counsel submitted that if the claim for damages in respect of a trading transaction was decreed in favour of an assessee and he is called upon to pay tax on the assumption that the amount decreed should be deemed to have been received by him on the date of decree, the revenue would be able to deprive him of a substantial sum in the form of income-tax even though that decree is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected to any unreasonable hardship. As noticed earlier, in the year in which the assessee supplied wheat to the department of the State Govt., it did reflect this transaction in its account books, and in the income-tax returns for the relevant year it did not claim any loss in respect of the cash equivalent of the wheat supplied to the State Govt. Even when the State Govt. paid the price of wheat, the amount was set apart in a separate account. When the assessee succeeded in getting a decree for the additional amount executed, it did indicate having received this amount in the corresponding assessment year. Since the State Govt. had gone in appeal, the very fact of accrual had gone into a state of flux. In the peculiar circumstances of this case, the decretal amount could not have been deemed to have accrued to the assessee in the assessment year in which the decree was passed. However, when the decretal amount reached the pocket of the assessee the question of accrual became otiose because the liability to pay tax would at once arise as soon as the amount was received by it. The case would have been entirely different if the assessee had on account of supply of wheat to the State ..... X X X X Extracts X X X X X X X X Extracts X X X X
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