1992 (8) TMI 119 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of depreciation and investment allowance for machinery.
2. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation and Investment Allowance for Machinery:

Generator Set:
The primary issue was whether the generator set purchased by the assessee was put to use before 31-3-1986, making it eligible for depreciation and investment allowance. The Assessing Officer (AO) concluded, based on various reports and statements from service representatives and suppliers, that the generator was commissioned only after 31-3-1986. The AO noted discrepancies in the log book entries and other documents, suggesting that the generator was not used within the relevant financial year.

However, the Tribunal found that the generator was indeed put to use before the end of the financial year. The Tribunal considered the log book entries, the statement of the Electrical Engineer, and the production records. The log book entries, despite being initially doubted, were deemed contemporaneous and genuine. The production records indicated that the production increased in the latter half of March 1986, despite the failure of the old generator, supporting the contention that the new generator was used. The Tribunal concluded that the generator was used, albeit unofficially, before 31-3-1986, and thus, the assessee was entitled to depreciation and investment allowance.

LR High Speed Comber:
The AO concluded that the comber was put to use only on 3-4-1986 based on the weekly reports of the technicians. The AO rejected the assessee's claim that the comber was operational from 29-3-1986, citing that the trial run was only on 2-4-1986.

The Tribunal, however, found disparities between the AO's extracts and the actual technician reports. The Tribunal noted that the first trial run was conducted on 31-3-1986, as per the technician's report, and the machine was put to use, albeit briefly, within the relevant financial year. Therefore, the assessee was entitled to depreciation and investment allowance for the comber.

2. Levy of Penalty Under Section 271(1)(c) of the Income-tax Act, 1961:

The AO levied a penalty under section 271(1)(c) for concealment of income, based on the disallowance of depreciation and investment allowance claims. The Tribunal examined whether the assessee had deliberately claimed erroneous deductions.

For the Comber:
Since the Tribunal held that the comber was used within the relevant financial year, the claim for depreciation and investment allowance was valid. Consequently, the penalty for concealment of income concerning the comber was deleted.

For the Generator Set:
The Tribunal found that the generator was used before 31-3-1986, and thus, the claim for depreciation and investment allowance was justified. The Tribunal also noted that the assessee had provided a plausible explanation supported by circumstantial evidence. The Tribunal emphasized that there was no mens rea (intention to deceive) in the assessee's conduct. Therefore, the penalty under section 271(1)(c) was not sustainable.

Conclusion:
The Tribunal allowed the appeals, granting the assessee the depreciation and investment allowance for both the generator set and the comber. The penalties levied under section 271(1)(c) were also cancelled, as the claims for deductions were substantiated and there was no intention of concealment of income.