TaxTMI 
TaxTMI 
2004 (9) TMI 320
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.... date of commissioning as 8th Oct., 1990. (ii) On the facts and in the circumstances of the case, the claim of deduction under ss. 32 and 32A of the IT Act, 1961, on incorrect facts by the assessee-company, amounts to concealment as the scheme of law as envisaged in s. 271(1)(c)(iii) with its Expln. 1 clearly fits into the facts and circumstances of assessee's case and penalty rightly imposed. (iii) The learned CIT(A) is not justified in law and on facts in relying on the decision of the Orissa High Court in the case of CIT vs. Indian Metals & Ferro Alloys Ltd. (1994) 117 CTR (Ori) 378 : (1995) 211 ITR 35 (Ori) when the said decision had applied pre-amendment concealment penalty law to distinguishable set of facts and circumstances whereas the relevant penalty law, i.e., cl. (B) under Expln. 1 to s. 271(1)(c) has undergone radical amendment w.e.f. 10th Sept., 1986. (iv) The learned CIT(A) is not justified in law and on facts in ignoring the clear finding of the Cuttack Tribunal in ITA No. 615/Ctk/1992, ITA No. 621/Ctk/1992, i.e., the very same case that the machinery in question had been commissioned on 8th Oct., 1990 and installed on 28th Oct., 1991, well after the relevant ....
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.... (b) Terms and conditions as specified by Orissa State Electricity Board in the permission letter should be adhered to. The assessee-company was accorded permission by the OSEB on 19th May, 1987 under s. 44 of the Electricity (Supply) Act, 1948, to install a 1150 KVA DG set. While granting permission, certain terms and conditions were specified some of which are reproduced as under: Condition No. 4: The installation should be subject to inspection by the respective field Superintendent Engineer, Electrical/EE, Electrical Inspector, Orissa, Bhubaneswar or their Authorised Representatives and to comply with the requirements as indicated by them. Condition No. 6: The energy meter duly tested should be installed near the diesel engine for recording the energy generated and consumed. The meter should be duly sealed by the concerned Assistant Electrical Inspector. Condition No. 7: The installation should be energised only after written permission of Electrical Inspector, Orissa or his Authorised Representative. Condition No. 8: The installation drawing should be approved by the Electrical Inspector before actual installation of the set. 5. After conducting the above en....
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....ive and the AO on various dates of hearing. The point for determination is whether the appellant has concealed the particulars of income or furnished inaccurate particulars of such income. For this purpose, the Expln. 1 to s. 271(1)(c) of the Act is to be examined in depth keeping in view the law laid down by the various Courts particularly the jurisdictional Tribunal and Orissa High Court. The Hon'ble Orissa High Court in the case of CIT vs. Indian Metals & Ferro Alloys Ltd. (1994) 117 CTR (Ori) 378 : (1995) 211 ITR 35 (Ori) has upheld the order of the Tribunal, Cuttack Bench, Cuttack, in deleting the penalty under s. 271(1)(c) of the Act. The facts of the Indian Metal & Ferro Alloys' case is similar to that of the appellant. In the said case, in the financial year ending 31st Dec., 1973, the assessee (IMFA Ltd.) claimed commissioning of certain new plant and machinery on 27th Dec., 1973, and claimed depreciation and development rebate. The AO after investigation found that the actual commissioning of the plant was not during the said accounting year and accordingly depreciation and development rebate claimed were disallowed. The said disallowances were also upheld by the appellat....
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....bunal was justified in concluding that assessee's claim was bona fide and, notwithstanding disallowance of the claims during the assessment, penalty was not imposable. The Hon'ble Orissa High Court, therefore, decided the case in favour of the assessee. This means under similar facts and circumstances as that of the appellant, Hon'ble Tribunal, Cuttack Bench, Cuttack, has held that there was no concealment of income nor furnishing of inaccurate particulars of income. In the appellant's case, it has been claimed that the DG set was commissioned on 30th March, 1990, and the same was put to use on 30th and 31st March, 1990. Accordingly depreciation and investment allowance were claimed. The AO found that the permission for energisation of DG set was given by OSEB on 8th Oct., 1990 and accordingly held that without such permission DG set could not have been put to use. Both the claim of depreciation and investment allowance were disallowed and penalty proceedings were initiated ending with levy of penalty. The appellant's case is exactly similar to that of Indian Metal & Ferro Alloys Ltd.. As in the case of IMFA it can be said that the appellant has made a claim although the AO has d....
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....al aspect or the core issue of installation. Only minor issues have been pointed out for rectification. (6) Running of the generator pending receipt of the permission from the Chief Electrical Inspector. The above facts which were submitted by the appellant before the AO at the time of assessment and penalty proceeding have not been held to be bogus or false. The appellant has claimed that it has run the generator in the last two days of the year and the power has been fed to the system for use. This is supported by internal reports, consumption of fuel, record in the log book, note of the technical personnel and audit report. The appellant has also informed the Electrical Inspector that due to severe power restriction imposed by OSEB it has become essential to run the generator set pending completion of formality. These facts have not been found to be false. The AO has held that the generator has not been put to use as statutory clearance has not been given. The appellant has never stated before the AO that final clearance has been given during the year. It was contended before the AO that it has used the generator even without permission and this has been duly informed to the....
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....aid that the appellant is not guilty of concealing the particulars of its income or furnishing of inaccurate particulars of such income. The AO is therefore not justified to levy concealment penalty. Penalty imposed at Rs. 58,08,600 is accordingly deleted". 8. Aggrieved by the above order of the learned CIT(A), the Department approached us for further adjudication. 9. It was vehemently argued by the learned CIT (Departmental Representative) that the most crucial document placed on record, i.e., letter dt. 20th March, 1990, from Shri P.K. Patel, Superintendent (electrical) of the assessee-company to the Dy. Electrical Inspector, Government Testing Laboratory, clearly establishes that testing of the correctness of the meter is required before the commissioning of the DG set and this is assessee's own admitted position. Hence, the pertinent question is when did the assessee know the correctness of the meter from the Dy. Electrical Inspector? For an answer, he referred to pp. 96 and 97 of the assessee's paper book and stated that these two pages contain the test report for the electricity meter in question. This report says that the meter was tested on 29th March, 1990 but the repo....
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....the assessee has misleadingly stated on p. 211 of his paper book under entry dt. 20th April, 1990 that the assessee had informed the competent authority about the installation and commissioning of the DG set in the letter dt. 20th April, 1990. He further submitted that the assessee's letter dt. 20th April, 1990 talks of the approval of electrical drawing for the DG set. Thereafter, this letter uses the words "this job" which would mean and refer to electrical drawing in the context. Thereafter it envisages about the jobs carried out in connection with the DG set listing items 1 to 6. In this list, the word "installation" has been used, but there is absolutely no specific mention of any commissioning or trial run. Thereafter, in the last para, it alleges severe power restrictions imposed by OSEB and states that in view of such restriction it has become "essential" to run the set provisionally, that too if the electrical authorities allow for the same. It is not strange that even in a letter dated as late as 20th April, 1990, there is not even a whisper of any trial run. It is the assessee's claim that the DG set had run on 30th March, 1990 and 31st March, 1990. As per learned CIT (D....
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....tter dt. 19th May, 1987 from Shri B.P. Mishra, Chief Engineer and Member (TDC), OSEB, Bhubaneswar, to the assessee. As per learned CIT (Departmental Representative), this document listed three very critical and important conditions as follows: (i) The installation should be subject to inspection by the Electrical Inspector, Orissa, Bhubaneswar or their Authorised Representatives and should comply with the requirements as indicated by them. (ii) The set will work as a stand-by set only and may be run during power failure/restrictions only. (iii) The installation shall be energised only after written permission of Electrical Inspector, Orissa, or his Authorised Representatives. 14. In view of the above, the learned CIT (Departmental Representative) submitted that the electricity authorities had made installation subject to their inspection. The first inspection by the electricity authorities occurred on 21st April, 1990. In the fact of this critical precondition and fact, as per learned CIT (Departmental Representative), it cannot be said that the equipment in question had been installed by 31st March, 1990. As per learned CIT (Departmental Representative), if we say so, we r....
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.... power, he tried to emphasise that there had been no power restriction or power cut during March, 1990, so as to persuade the assessee to commence the generating set for generation of deficit power. 17. The learned CIT (Departmental Representative) also highlighted the invalidity of the erection and commissioning certificate dt. 9th Sept., 1992 as given by M/s Kanubhai Engineers Ltd., by submitting as follows: "The learned Authorised Representative of the assessee has made great play of the erection and commissioning certificate dt. 9th Sept., 1992, as given by Kanubhai Engineers Ltd. to the effect that the DG set in question had been erected by them and commissioned on 30th March, 1990. Unfortunately for the assessee, this certificate is invalid and untenable in law for the following reasons: (a) Vide Annex. 4, which is a document containing details of plant and machinery on which investment allowance was claimed for the relevant assessment year as submitted by the assessee in the course of assessment proceedings. Serial No. 1 gives details and break up of the total cost of the DG set in question, i.e., Rs. 67,23,333. Under serial No. 1, item No. (viii) (high lighted) lists ....
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....n) against the items listed at (i) to (iv), the corresponding parties' invoice numbers have been given, but against item No. (viii) (i.e. erection commissioning charges) the corresponding party's invoice number has not been given. Similarly against items Nos. from (ix) to (xi), no invoice number has been given. These are described as running bills. All these reinforce the inference of falsity of the assessee's claim that the DG set had been erected and commissioned by 31st March, 1990. 19. It was further vehemently argued by the learned CIT (Departmental Representative) that it is the assessee's case that the handing over report in respect of the new DG set had been signed on 30th March, 1990, and handed over to M/s Kanubhai Engineers Ltd., that once flawless performance is established, the assessee-company was to issue handing over certificate to M/s Kanubhai Engineers this is extracted from the assessee's written arguments, i.e., 3c. In this context, the most crucial document is Annex. 1 to the letter of intent for turnkey erection. Annex. 1 is described 'guarantee—performance/parameters of the diesel generating set'. It is in place to extract certain very material and vital ....
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....he machine had been installed and commissioned by 31st March, 1990. 20. The learned CIT (Departmental Representative) further contended that in the penalty proceedings, the assessee had offered its explanation under Annex.-1. The AO examined the assessee's explanation in depth in the light of the legal provision, i.e., Expln. 1(B) under s. 271(1)(c) of the IT Act, 1961, and came to the conclusion that levy of penalty was attracted to the case. Accordingly, the AO levied the maximum penalty of 300 per cent, i.e., Rs. 58,08,600. In the first appeal by the assessee, the CIT(A) deleted the penalty. The CIT(A) completely misdirected himself in interpreting the penalty law and entirely misconceived the Expln. 1(B) under s. 271(1)(c). The CIT(A)'s order is perversity writ large which is evident as under : (i) Contrary to the intent and purport of Expln. 1(B) under s. 271(1)(c), he put the cart before the horse by placing the initial burden on the AO to prove falsity and concealment which is evident in his language such as : the assessee's claim of installation supported by various facts has not been proved to be bogus or false; even though the depreciation and investment allowance hav....
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....den, the presumption that he had concealed the income or furnished inaccurate particulars thereof is available to be drawn." "The principal logical import of the explanation is to shift the burden of proof from the Revenue on to the assessee. The rebuttal must be on materials relevant and cogent. It is plain on principle that it is not the law that the moment any fantastic or unacceptable explanation is offered, the burden placed would be discharged and the presumption rebutted. As pointed out by the apex Court in CIT vs. Mussadilal Ram Bharose (1987) 60 CTR (SC) 34 : (1987) 165 ITR 14 (SC), the burden placed upon the assessee is not discharged by any fantastic explanation." "A further condition was imposed w.e.f. 10th Sept., 1986, with which we are not concerned." It was observed in the said case that the onus can be discharged by a preponderance of probabilities. The learned Departmental Representative further submitted that unfortunately, both the CIT(A) and the learned Authorised Representative of the assessee have been misdirected and unwittingly considered the issue of concealment under Expln. 1(A). It is only under Expln. 1(A) that an AO has to necessarily find an expl....
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....ate intent would be contradictory and tantamount to invoking the ratio in the case of CIT & Anr. vs. Anwar Ali (1970) 76 ITR 696 (SC) long since held by the Hon'ble Supreme Court as bad in law. (f) In fact, all the legal decisions cited by the learned Authorised Representative of the assessee in two bulky volumes are entirely inapplicable to the case in hand since all these cases pertain to the pre-amendment period, i.e., before the amendment came into effect from 10th Sept., 1986. Hence, it would be totally redundant and a meaningless exercise to discuss any of the cases cited by the learned Authorised Representative. In fact, the learned Authorised Representative has repeatedly made misleading attempts to assert that the amendments made in 1964 and 1976 are similar to the amendment made w.e.f. 10th Sept., 1986. It may be appreciated that the language "fails to prove that such explanation is bona fide" brought into Expln. 1(B) w.e.f. 10th Sept., 1986, is radically different from the language used in the amendments brought about in 1964 and 1976. 21. The learned CIT (Departmental Representative) further submitted that in the present case, the assessee grossly failed to meet the....
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....condition for commissioning, as explicitly admitted by the assessee in its letter dt. 20th March, 1990 (vide p. 94 of paper book index of papers) that one cannot conceive of even passive user of the machine unless and until the meter was fixed to make the machine complete. Since the electricity authorities prepared the test report of the meter only on 12th April, 1990, it would be inconceivable that the meter could have been used before that date, i.e., 12th April, 1990. In its explanation that the DG set had been commissioned by 31st March, 1990, the assessee, by way of justifying circumstances, had time and again insisted that severe power restrictions compelled them to run the DG set on 30th March, 1990 and 31st March, 1990. But, this plea of severe power restriction is completely belied by the details of monthly purchases of power as well as details of monthly own generation of power as brought out in the foregoing para Nos. 11 and 12. In support of its explanation that the DG set had been commissioned by 31st March, 1990, the assessee has brandished a letter dt. 20th April, 1990 saying, without any basis discernible in the letter itself, that it had informed in the said letter....
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....ns three times either withdrawing some wrong claim or making some omitted claim. In the present case, the assessee has not filed any revised returns. (c) In that case, the fact of trial production had been reflected in the annual general report of the company. This particular fact had weighed a lot with the Judges. But, in the present case, there is not even a whisper of any kind about the 1150 KVA DG set. (d) In that case, the assessee, in one of the revised returns, had withdrawn the claim of deduction under s. 80J after realising that such claim was erroneous. This fact had also impressed the Judges. The present case is totally devoid of any such feature. (e) As far as facts are concerned, the assessee in that case had put all the cards before the authorities, but in the present case, the assessee's conduct in furnishing facts and explanations to the authorities has been the reverse of the bona fide as brought out in the foregoing paragraphs numbered 34 to 39. (f) In fact, the CIT(A) has made a very perverse observation that the AO had assumed that the DG set cannot be run without permission from the OSEB. In actual fact, it is the CIT(A) who has completely ignored the O....
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....ioning thereof was proposed by them to be completed by 9th March, 1990. As per the learned Authorised Representative the new KWH metre for the DG set was sent by the assessee-company for testing to Dy. Testing Inspector, Government Testing Laboratory, Bhubaneswar on 20th March, 1990. He has also drawn our attention to the installation drawing for DG set sent by the assessee-company for approval to the Electrical Inspector, Government of Orissa, Angul, on 24th March, 1990. Our attention was also drawn to the test report of electrical metre for the new DG set received by the assessee-company from the Government of Orissa on 29th March, 1990. The learned Authorised Representative submitted that the installation drawing approved by the office of the Electrical Inspector, Government of Orissa, Angul, was received by the assessee-company dt. 30th March, 1990. Our attention was also drawn to the photocopy of the inventory register maintained by the assessee-company showing installation and commission of the new DG set on 30th March, 1990. Our attention was also drawn to the photocopy of the log book showing trial run of the DG set on 30th March, 1990. The learned Authorised Representative....
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....ments and written submissions, the learned Authorised Representative submitted that letter of OSEB dt. 19th May, 1987 has not been violated by the assessee-company. The last condition appearing in the said letter, the installation shall be energised only after written permission of Electrical Inspector, Orissa or his Authorised Representative relates to "commercial running" of the new DG set, as is clearly evident from the remarks column appearing in the first inspection report dt. 21st April, 1990 made by the Electrical Inspector as also from the second paragraph of the letter dt. 28th Oct., 1991 issued by the Chief Electrical Inspector, Orissa which clearly used the expression, the date of "energisation for commercial operation". It is nowhere stated in the conditions set out in the permission letter dt. 19th May, 1987 issued by OSEB that permission is required even for trial run of the DG set. As per the learned Authorised Representative no permission of OSEB was required for trial run of the DG set and no inspection of the DG set can at all be effectively carried out, unless the installation and trial run of the DG set is already carried out by the concerned user. The assessee-....
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....rther submitted that the jurisdictional High Court in case of CIT vs. Indian Metal & Ferro Alloys Ltd. on almost identical facts had confirmed the deletion of penalty under s. 271(1)(c), Expln. 1. He further submitted that the learned Departmental Representative is not correct in stating that the law considered by the Hon'ble Orissa High Court was different insofar as what is contained in para B of Expln. 1 (as amended in the year 1986) was already part of the statute book in the form of the proviso appearing under Expln. 1 as inserted by the Amendment Act, 1975. 25. After citing various judgments including the judgment of jurisdictional High Court, the learned Authorised Representative submitted that instant decision of CIT(A) quashing the penalty levied by the AO does not require any interference. He, therefore, requested to dismiss the Departmental appeal in toto and to allow the cross-objection filed by the assessee-company. 26. We have considered the rival contentions carefully. We have also heard in detail the representatives of the Department and the assessee. We have also gone through minutely the detailed paper book filed by the assessee as well as notes on arguments g....
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....l, 1990 before giving permission for energisation and running the generator pending receipt of permission from the Chief Electrical Inspector. The CIT(A) also observed that the assessee's claim that it has run the generator in the last two days of the year and the power has been fed to the system for use is also supported by internal reports, consumption of fuel recorded in the log book, note of the technical persons and audit report. The CIT(A) has also observed that the appellant-company had also informed the Electrical Inspector that due to severe power restriction imposed by OSEB it has become essential to run the generator set, pending obtaining of formal approval. All these explanations and supporting evidences were not found to be false by the AO. The CIT(A) further observed that the appellant-company never stated before the AO that final clearance has been given during the year. The assessee has also stated before the AO that it has used the generator even without permission and this has been duly informed to the Chief Electrical Inspector. The CIT(A) found that these facts are neither incorrect nor bogus. The CIT(A) also found that the AO has declined the claim of deprecia....
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....and 31st March, 1990? (III) Whether trial run of DG set amounts to putting to use for the purpose of substantiating bona fide of assessee's claim of depreciation so as to take the assessee outside the purview of Expln. 1(B) below s. 271(1)(c)? (IV) Whether the formal permission for commissioning operation issued by the OSEB on 8th Oct., 1990, belie the bona fide of assessee's explanation regarding trial run of DG set on 30th and 31st March, 1990? 29. After carefully going through various documents filed before the AO and which is also placed on the paper book, we find that the assessee-company after obtaining permission from OSEB vide their letter dt. 19th May, 1987, had placed the letter of intent and the purchase order for purchase of German manufactured new DG set upon M/s Kanubhai Engineers Ltd., Calcutta. The responsibility for entire installation, erection and commissioning of new DG set was on M/s Kanubhai Engineers Ltd., Calcutta (hereinafter referred to as KE). As per assessee's letter dt. 24th March, 1990 the scope of work of KE was set out in the bar chart. The Electrical Inspector of OSEB had also approved the installation drawings on 30th March, 1990. Office of C....
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....documentary evidence, the assessee-company has clearly demonstrated before the lower authorities that erection and commissioning of the new DG set was the responsibility of KE which fact is evident from the letter of intent dt. 28th Aug., 1988 converted to purchase order dt. 17th Sept., 1988 issued by the assessee-company to KE. The assessee has also paid an aggregate sum of Rs. 1,33,000 against bill of Rs. 1,64,099.58. The details of the payment by account payee cheques were also furnished before the lower authorities along with certificate issued by the Central Bank of India confirming the clearance of impugned cheques through the clearing house of Canara Bank on behalf of KE. Even though the entire erection and commissioning of the DG set was assigned to KE, however, a part of electrical instruments had also been supplied by M/s Kanubhai Switch Gears (P) Ltd., a sister-concern of KE. There was some typographical error in putting the name of Kanubhai Switch Gears (P) Ltd. against the heading "erection and commissioning charges" in the statement referred to by the learned CIT (Departmental Representative). However, such typographical mistakes do not amount to falsity in assessee's....
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....d to be false by the AO. Thus, we find that this is not a case falling under Expln. 1(A) to s. 271(1)(c). We also find that the assessee has also not fallen under Expln. 1(B) to s. 271(1)(c), insofar as Expln. 1(B) requires the assessee to substantiate its explanation with evidence to prove the bona fide thereof and also to disclose all the relevant facts in relation thereto. 34. Let us now examine the case laws cited by the learned Departmental Representative in the case of K.P. Madhusudhanan. In this case, the penalty was cancelled by the Tribunal on the ground that in the notice initiating penalty proceedings, the assessee was not intimated about the proposed action under Expln. 1(B). Under these circumstances, the Hon'ble Supreme Court observed that Explanation to s. 271(1)(c) is a part of s. 271 and when the ITO or the AO issues a notice under s. 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation, by reasons of the Explanation, where the total income returned by the assessee is less than 80 per cent of the total assessed under s. 143(3) or 144 or 147, reduced to the extent therein provided, the as....
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....ty because the assessee had not been able to discharge his onus which lay on it under the said Explanation in the light of interpretation of the said Explanation as given in CIT vs. Mussadilal Ram Bharose (1987) 60 CTR (SC) 34 : (1987) 165 ITR 14 (SC). However, in the instant case, we find that the assessee-company had discharged its initial onus by furnishing its bona fide Explanation and also documentary evidence to support its explanation. Thus, the ratio of B.A. Balasubramaniam's case is not applicable to the facts and circumstances of the instant case. 36. Penalty proceedings are distinct and different from assessment proceedings. Findings in the assessment proceedings are not conclusive. The entire material available should be considered afresh by the authorities before imposing penalty under s. 271(1)(c). The Explanation to s. 271(1)(c) provides a rule of evidence raising a rebuttable presumption in certain circumstances. No substantive right is created or annulled thereby. The substantive law relating to levy of the penalty is preserved. The initial burden of proof is cast on the assessee to establish the presumption arising in certain cases. The assessee can discharge th....
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....e of the assessee. No penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that the amount does not represent concealed income with the hypothesis that it does. It was also observed that if the assessee gives an explanation which is unproved but not disproved, i.e., it is not accepted but circumstances do not lead to the reasonable and positive inference with the assessee's case fails, the explanation cannot help the Department because there will be no material to show that the amount in question was the income of the assessee. Where the circumstances do not lead to the reasonable and positive inference that the assessee's explanation is false, the assessee must be held to have proved that there was no mens rea or guilty mind on his part. It was also observed that the explanation alone cannot justify levy of penalty. Absence of proof acceptable to the Department cannot be equated with fraud or wilful default. 38. There are also plethora of judgments to the effect that findings recorded or conclusion drawn in deciding the quantum appeal, are neither conclusive nor binding. For this proposition reliance may be placed on the judgment of Ho....