Principal Commissioner Of Income Tax, Kota v. M/S Kota Sahakari Bhoomi Vikas Bank, Plot

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR 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 IncomeTax Office, Rawatbhata Road, Kota. ----Respondent _____________________________________________________ For Appellant(s) : Ms. Parinitoo JainFor 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 thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal of the department. 2.This court while admitting the appeal on 15.09.2016 framedthe following questions of law:- “1. Whether the Tribunal was legally justified indeleting the addition of Rs. 97,00,729/- debited inthe profit and loss account in respect of loanswaived off by the Central Govt. specifically whencomplete details to prove the genuineness of theexpenditure wee not produced, the penal interestwas not shown in the books as income andrecovery charges were regularly debited in theprofit and loss account? 2. Whether the Tribunal was legally justified indeleting the addition of Rs. 1,23,651/- made u/s.37(1) on account of penal interest paid by theassessee to the Rajasthan Rajya Bhoomi VikasLtd. on the over due loans remaining unpaid bythe assessee? 3.Counsel for the appellant contended that Tribunal hasseriously committed an error in reversing the view taken by theAO inasmuch as the penal interest of 97,00,729/- which has beentaken double time is not permissible in books of accounts. She hastaken us to the observation made by the AO which reads asunder:- “4.Subject to above discussion, total income of theassessee is assessed as under:-COMPUTATION OF INCOME Assessed u/s 143(3). Prepare ITNS-150 which isintegral part of the order. Issue demand notice.Penalty proceeding u/s 271(c) is being separatelyinitiated for furnishing inaccurate particular ofincome 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:- 3.4Penalty Interest “The assessee claimed deduction of Rs.123651/- on account of penalty interest. However thisdeductions is not allowable in view of the explanationbelow section 37(1) of I. T. Act, 1961. This deductiondisallowed 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 bringinganything on record concluded that penal interest wasnot treated as income. Similarly if recovery charges were alreadydebited than the same can’t be debited again withoutim-balancing the accounts. The Assessing Officer again did not bring anything on record to justify thefinding. The Assessing Officer is therefore directed todelete addition of Rs. 9700729/- (iv) Penal Interest : 123651/- (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 bringinganything on record concluded that penal interest wasnot treated as income. Similarly if recovery charges were alreadydebited than the same can’t be debited again withoutim-balancing the accounts. The Assessing Officer again did not bring anything on record to justify thefinding. The Assessing Officer is therefore directed todelete addition of Rs. 9700729/- (iv) Penal Interest : 123651/- As regarding the penal interest of Rs. 123651/- theAssessing Officer has noted that this is not allowablein view of explanation to section 37(1) of the I. T.Act. However, it has been explained by the appellantthat the Apex Bank I. e. Rajasthan Rajya BhoomiVikas Ltd., provides loan to the assessee. If there isany overdue loan remaining unpaid to the Apex Bankthen it attracts the penal interest. The payment ofsuch interest is not a offence or prohibited by law.The amount is paid as per the rules and guidelines ofRajashtan Rajya Bhomi Vikas Ltd. and it is ofcompensatory in nature. The assessee’s contentionsare acceptable as the penal interest has been paid fordelay in making the repayment of the loans as perthe rules and regulations of the bank and fact ofliability of penal interest of Rs. 123651/- has notbeen disputed by the Assessing Officer. It is not thepayment for a purpose which is prohibited by law.The said payment is not for contravention of anystatutory provisions and is merely compensatory innature. So, the addition made by AO on aboveaccount is deleted.” 6. In our considered opinion, when the amount has beendeposited in the account showing it as notional income,subsequently when it is waived, the finding recorded by both theauthorities 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. B.M.G/Gourav/25 (K.S.JHAVERI),J.