9911796707
TMI Blog1990 (2) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Speed Draw Frames from Lakshmi Machine Works Rs. 2,33,121 ----------------------- Total Rs. 7,65,705 ----------------------- 3. The Income-tax Officer found that the said machinery were not installed during the accounting year and that the assessee was not entitled to depreciation and investment allowance in respect of the same, as claimed by it. He therefore disallowed the said claims of the assessee and determined the assessee's total income at Rs. 5,39,390 under section 143(3) of the Income-tax Act and initiated penalty proceedings under sec. 271(1)(c) of the Act for alleged concealment of income by the assessee for making claims for deduction of investment allowance and depreciation amounting in all to Rs. 3,54,980. This assessment order was passed by the Income-tax Officer on 11-1-1983. 4. Subsequently, the IAC (Assessment), Range-II, Coimbatore by his order dated 29-3-1985 imposed a penalty of Rs. 2,38,832 under sec. 271(1)(c) of the Act. This penalty was levied by the I.A.C. for the reason that the assessee had deliberately with intention, made false claim of depreciation, investment allowance and erection charges totalling to Rs. 3,54,980 and that therefore penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and had accepted the disallowance of investment allowance and depreciation before the assessing officer. It was therefore argued that it could not be said that the appellant had consciously concealed particulars of income or facts, that the conduct of the appellant should not colour the issue, as the department should appreciate whether there was any mens rea on the part of the appellant to conceal any particulars. It was submitted that at best it could only be said that a wrong claim was made by the appellant on an erroneous appreciation of law and that the same could not be equated with a case where there was deliberate and wanton suppression of facts and figures. The learned counsel relied on the decision of the Madras High Court in the case of CIT v. J.K.A. Rajappa Chettiar [1985] 153 ITR 215/23 Taxman 350 and submitted that if the principles laid down in this decision were kept in mind, there would be no justification for levy of penalty in the instant case, as admittedly no facts had been concealed, nor any particulars suppressed from the department. The assessee also relied on the decision of the Delhi High Court in the case of Addl. CIT v. Delhi Cloth & General Mills Co. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot installed at all and even then it had claimed depreciation and investment allowance. The Commissioner held that the material facts available in the records clearly indicated that the assessee was fully aware and conscious of the claim of depreciation and investment allowance even without commissioning and installing the machineries and that it was aware of the fact that it had claimed excessive relief not warranted by actual facts. The Commissioner also held that even though the return was filed on 8-1-1981 the appellant admitted the mistake in claiming depreciation in respect of two items of machinery only on 21-9-1981, that too after the I.T.O. had started detailed enquiries and that even in this letter the admission was half-hearted and the assessee still wanted to take a change and get away with a wrong claim. The Commissioner next pointed out that when the I.T.O continued his enquiries relentlessly, the appellant came forward with another letter dated 10-2-1982 to the effect that even though the first item of machinery was erected, the same was not commissioned and therefore depreciation and investment allowance had wrongly been claimed. The Commissioner held that there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal to the Tribunal. 9. Shri K.R. Ramamani, the learned counsel for the appellant took us through the assessment order dated 11-1-1983 for the assessment year 1980-81 to explain the circumstances in which the disallowances of the assessee's claim for investment allowance and depreciation came to be made. He next adverted to the two letters written by the assessee on 21-9-1981 and 10-2-1982, wherein the appellant had agreed to the disallowance of its claim for investment allowance and depreciation in respect of these machineries and pointed out that it was not a case of any false or bogus claim put forward by the assessee, but was a case of a wrong claim made for statutory allowances of depreciation and investment allowance under an erroneous impression of law. The learned counsel pointed out that the findings of the Commissioner (A) clearly established that the appellant had placed all the materials relating to the purchase of these machineries before the departmental authorities and had not withheld any particulars that were called for by the I.T.O. from time to time in the course of the assessment proceedings and that when it realised that the claim made by it for these allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee in the course of the assessment proceedings should be taken into account in order to judge whether there was any mens rea on the part of the assessee to hold that the penal provisions of sec. 271(1)(c) of the Act are attracted. Finally, the learned counsel relied on the decision of the Delhi High Court in Delhi Cloth & General Mills Co. Ltd.'s case and submitted that the disallowance of a claim for expenditure would not by itself lead to the inference that the assessee had furnished inaccurate particulars in regard to an item to merit the imposition of a penalty. The learned counsel therefore submitted that in the light of the authorities and on the materials already on record, no penalty under sec. 271(1)(c) of the Act was exigible and that the same should be deleted. 11. Shri V.P. Tyagi, the learned departmental representative opposed these contentions of the learned counsel for the appellant and argued that the findings recorded by the departmental authorities in the course of the assessment proceedings and in the penalty order and the appellate order of the CIT (Appeals) clearly established not only mens rea on the part of the appellant, but also gross or wilfu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He further argued that the decision in K.P. Kandasami Mudaliar & Sons' case was a case of cash credits which were added in various years on the basis of a settlement under sec. 271(4A) of the Act and therefore the said decisions would not apply to the facts of the present case. He next submitted that in the case of Cement Distributors (P.) Ltd. there was a claim for bogus loss which was disallowed by the departmental authorities and upheld by the High Court and therefore the said decision also would not apply to the facts of the present case. He also argued that the decision in the case of Rajpal Automobiles was a case where no explanation was offered by the assessee for the omission to mention the amount in the return or in the column meant for the same and therefore the said decision also would not apply to the facts of the present case. The learned counsel submitted that the assessee's case was not one of gross or wilful neglect nor of any fraud, as contended by the revenue. He pointed out that all the facts relating to this claim were placed by the assessee before the departmental authorities in the course of the assessment proceedings under the genuine belief that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking any penal action. We regret for the inconvenience caused to you. This is in continuation of our earlier letter accepting the non-erection of Simplex and Cone Winding machine, total four machines. " A perusal of these two letters would show that the appellant had purchased these four items of machinery in the year ended 31-3-1980 relevant for the assessment year 1980-81 and had accounted for the same in its books of accounts. It had also claimed depreciation and investment allowance in respect of these machineries in its return of income, but subsequently it did not press these claims as the machines were not erected in the year under appeal. From this and also from the fact that the assessee had claimed erection charges which were debited in the repairs account, the Income-tax Officer drew the inference that the erection of machinery in the year of account was clearly a fabricated one. It is with reference to these findings of the ITO that it is sought to be held that the assessee had furnished inaccurate particulars of its income in the year under appeal. In fact, the revenue's case is that it is a case of false claim for allowance of depreciation, investment allowance an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f which has been filed before us by the assessee's learned counsel. Further, the claims for depreciation and investment allowance are statutory allowances allowed by the Income-tax Act in respect of new machinery installed and used by an assessee in his business subject to the various conditions specified in the relevant provisions of law. Apparently, two of the items of machineries were erected in the year under appeal, while the other two were erected in the next year, but all the four items of machinery were put to use only in the accounting year ended 31-3-1981 relevant for the assesssment year 1981-82. We are unable to see what is the falsity of the claim put forward by the assessee in respect of this new machinery, as the assessee's claim has been fully accepted and allowed in the next assessment year. In fact, the assessee became entitled to additional depreciation in respect of the very same machinery, which has also been allowed by the I.T.O., which means the assessee stood to gain more by making the claim in the next assessment year. This, in our view, rules out any mens rea on the part of the assessee, to justify the conclusion that the appellant had deliberately put for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarding its income for the year under appeal, as it would have least anticipated that in later years it would be incurring losses. Actually the assessment order for 1981-82 shows that there was a profit of Rs. 67,308 as per the profit and loss account for the year ended 31-3-1981. It is only after making the adjustments for depreciation and a portion of the investment allowance as discussed above that the assessee's total income was reduced to nil and the appellant was declared 'NA' for that year. This shows that the assessee's claim was a bona fide one, but was made in the wrong assessment year under an erroneous impression of the legal position. 17. As pointed out by their Lordships of the Madras High Court in the case of J.K.A. Rajappa Chettiar, we have to take into account the conduct of the assessee in the course of the assessment proceedings. At page 218 of the reports, their Lordships of the Madras High Court have held as follows : " Section 271(1)(c), on the contrary, enables the officer to levy penalty only if he is satisfied, in the course of any proceedings, that the assessee has concealed particulars of his income. The section does not particularly focus the penali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Tribunal. We find that the assessee admitted that these were the incomes of the assessee but that was not an admission that there was deliberate concealment. From agreeing to additions, it does not follow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission, i.e., when the assessee realises the true position, it does not dispute certain disallowances but that does not absolve the Revenue from proving the mens rea of a quasi-criminal offence. " 19. The decision of the Delhi High Court in the case of Delhi Cloth & General Mills Co. Ltd. holds that penalty for concealment of income can be imposed only if there is conscious and deliberate concealment on the part of the assessee and the mere fact that a claim for expenditure stands disallowed, it does not by itself lead to the inference that the assessee had furnished inaccurate particulars in regard to that item. 20. When we examine the facts of the present case in the light of the ratio of the aforesaid three decisions, we find that there could be no levy of penalty for any concealment of income, much less for furnishing of any inaccurate particulars of such income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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