IN THE HIGH COURT OF DELHI AT NEW DELHI 
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  17.01.2011 
 Present:        None. 
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 +ITA No.44/2011 
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 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 2000-2001 (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, this interest had in fact been received by the Assessee, however, 
 Assessing Officer was of the opinion that 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.27,05,199/- 
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 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: 
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 ?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 
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 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 
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 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.? 
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 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. 
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 M.L. MEHTA, J. 
 JANUARY 17, 2011 
 DEV 
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