1996 (4) TMI 154 - AT - Income Tax

Tribunal cancels penalties for inaccurate sale value details; bogus depreciation claim set aside

The Tribunal canceled the penalty for furnishing inaccurate particulars of the sale value of cylinders, finding it was a bona fide mistake and not ... - Issues Involved:1. Furnishing of inaccurate particulars about the sale value of cylinders.2. Bogus claim of depreciation on computers.Issue 1: Furnishing of Inaccurate Particulars about the Sale Value of CylindersThe Assessing Officer (AO) levied a penalty on the assessee for furnishing inaccurate particulars about the sale value of cylinders, which led to an understatement of income by Rs. 37,44,795. The AO treated this as concealment of income and levied a penalty at twice the amount of tax on the concealed income. The CIT(A) upheld this penalty.The assessee argued that the error in the depreciation calculation was due to the new 'Block of asset' concept introduced that year. The assessee claimed that the mistake was bona fide and not due to any concealment of facts. The sale value of old cylinders was not shown in the depreciation chart because there was no written down value (WDV) for those cylinders. The entire sale proceeds were considered for determining the assessee's income, and the resultant figures were reflected in the profit and loss account and balance sheet.The Revenue argued that after the deletion of the word 'deliberately' from Section 271(1)(c) of the IT Act, the mental state of the assessee is not relevant, and mens rea is not essential. The Revenue contended that the assessee, being guided by tax experts, should have been aware of the new provisions and could not escape liability by claiming a clerical mistake.The Tribunal held that the deletion of the word 'deliberately' from Section 271(1)(c) did not shift the onus to the assessee. The burden remains on the Revenue unless the Explanation to Section 271(1)(c) is applicable, which was not invoked in this case. The Tribunal found that the incorrect claim of depreciation was due to a bona fide mistake by the person who prepared the return and not due to any intention to conceal income. Therefore, the penalty for furnishing inaccurate particulars of income under Section 271(1)(c) was not justified.Issue 2: Bogus Claim of Depreciation on ComputersThe AO also levied a penalty for a bogus claim of depreciation amounting to Rs. 37,69,273 on computers that were allegedly never owned, used, or leased by the assessee. The Tribunal, in the quantum appeal, upheld the disallowance of depreciation, concluding that the entire transaction was a mere paper transaction without any actual transfer of ownership or use of the computers.The assessee argued that it had purchased the computers, leased them out, and received lease rent, which was shown in the accounts and offered for tax. The assessee claimed that all relevant information was furnished to the AO and that any fraud, if committed, was by ALTOS and PCL, not by the assessee. The assessee also contended that the CIT(A) relied on statements recorded during search proceedings and submissions before the sales-tax authorities without giving the assessee an opportunity to cross-examine the deponents.The Revenue argued that the penalty was based on findings in the assessment proceedings, which were confirmed by the Tribunal. The Revenue contended that the claim of depreciation was fraudulent as the computers were not in existence, and the lease agreement was a paper transaction.The Tribunal held that the findings in the quantum appeal were sufficient for disallowing the depreciation claim but not for levying a penalty for concealment of income. The Tribunal noted that the assessee was not given an opportunity to cross-examine the deponents whose statements were relied upon by the CIT(A). The Tribunal set aside the penalty order and remanded the matter to the AO for fresh consideration, directing the AO to allow the assessee to cross-examine the deponents and to provide a certified copy of the complete statement of PCL before the sales-tax authorities.Conclusion:The Tribunal canceled the penalty for furnishing inaccurate particulars of the sale value of cylinders, holding that the incorrect claim of depreciation was due to a bona fide mistake. The penalty for the bogus claim of depreciation on computers was set aside, and the matter was remanded to the AO for fresh consideration after giving the assessee an opportunity to cross-examine the deponents and rebut the statements relied upon by the CIT(A). The assessee's appeal was deemed to be allowed for statistical purposes.