1993 (11) TMI 15 - HC - Income Tax

Assessment Year, Bona Fide, Depreciation And Development Rebate, Income Tax Act, Levy Of Penalty, Plant And Machinery

Summary

Issues Involved:
1. Whether the claim of deduction under sections 32 and 33 of the Income-tax Act on incorrect facts amounts to concealment to attract section 271(1)(c) of the Income-tax Act.
2. Whether the Tribunal was justified in concluding that the assessee's claim was bona fide and, therefore, penalty was not imposable.

Issue-wise Detailed Analysis:

1. Claim of Deduction Under Sections 32 and 33:
The assessee, a company engaged in the manufacture of ferro silicon, established a second unit with machinery installed by September 11, 1973, and electric connections provided on December 27, 1973. For the assessment year 1974-75, the assessee claimed to have started production in 1973 but due to minor rectifications and delay in power supply, commercial production commenced on February 7, 1974. The assessee filed multiple revised returns showing varying losses, with the final return indicating a loss of Rs. 81,79,380. The Inspecting Assistant Commissioner (IAC) disallowed the loss claimed and initiated penalty proceedings under section 271(1)(c) of the Act, concluding that the new unit had not been put to either commercial or trial production during the relevant assessment year. The IAC found that there was no consumption of electricity or raw materials during the claimed period and imposed a penalty of Rs. 1,50,00,000, later reduced to Rs. 91,64,923 by the Commissioner of Income-tax (Appeals).

2. Tribunal's Justification of Bona Fide Claim:
The Tribunal found that the assessee's new furnace was ready by December 27, 1973, and some power was consumed, indicating partial use. The assessee's claims for depreciation and development rebate were based on the use of the plant in December 1973. The Tribunal held that the claim did not indicate an entitlement but was a matter for the IAC to decide. The Tribunal concluded that the assessee did not conceal any income by making these claims, as they were based on the belief that the plant was used during the year. The Tribunal also found that the claims for guarantee commission and interest were bona fide, as they were based on the mercantile system of accounting and were capitalized by the Commissioner of Income-tax (Appeals). The Tribunal referenced the Supreme Court decision in Cement Marketing Co. of India Ltd. v. Assistant Commissioner of Sales Tax, Indore, distinguishing between a false return and a bona fide return.

Conclusion:
The High Court modified the question to reflect the essence of the dispute: "Whether the Tribunal was justified in concluding that the assessee's claim was bona fide and, therefore, notwithstanding disallowance of the claims during assessment, penalty was not imposable?" The Court noted that depreciation is allowable on machinery even if used passively and that the law allows for making an election by the assessee regarding development rebate. The Court found that the assessee's claims were based on various decisions and a view of the Tribunal, making them bona fide. The Tribunal's conclusion that there was no concealment or furnishing of inaccurate particulars was based on factual aspects, and no question of law arose from its order. Therefore, the answer to the reframed question was in the affirmative, in favor of the assessee and against the Revenue. Both references were disposed of accordingly.