TaxTMI 
TaxTMI 
1996 (4) TMI 154
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....sessee prepared two P&L a/cs--one for the period 1st Jan., 1987 to 30th June, 1988, and second for 1st July, 1988 to 31st March, 1989. Statement of total income was made out considering profit and loss of both the periods. Accordingly, the return declaring net taxable income of Rs. 23,74,987 was filed. In the statement of income the assessee claimed depreciation amounting to Rs. 1,97,51,631. The depreciation chart filed by the assessee along with the return, copy of which is placed at page 22 of the paper book reads as under: Description WDV as on 1-1-87 Addition Sales Total Depreciation for 27 months WDV as on 31-3-89 1 2 3 4 5 6 7 Ist Block (10%) 4,54,321.00 7,25,473.53 -- 11,79,794.53 1,34,284.44 10,45,510.09 FactoryBuilding . . . . . . Building Filling Station . . . . Furniture & Fixture . . . . . . 2nd Block (33.33%) 28,18,765.00 91,88,788.55 1,45,500.00 1,18,62,053.55 85,01,648.00 33,60,405.55 Plant & machinery Plant & machinery (Breating apparatus) . . . . . Electric Installation . . . . . . Trollies . . . . . . Tanks . . . . . . DG Set . . . . . . Office equipment . . . . . . Fire exti....
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....87 shown in the original statement. The difference between the two statements was Rs. 37,44,795. The AO treated it as concealment of income by the assessee on account of furnishing of inaccurate particulars of sale value of cylinders. He levied penalty at twice the amount of tax on the said concealed income. The same is upheld by the CIT(A). Hence, this appeal by the assessee. 8. At the time of hearing before us the learned counsel for the assessee argued at length. His arguments may be summarised as under: (i) It was the first year, when the entire law relating to depreciation allowance was changed. From this year the new concept of "Block of asset" was brought into statute book. Similarly, depreciable assets were made liable to capital gain tax under s. 50 of the IT Act. (ii) That there was some error in the working of the depreciation but it was not on account of concealment of any fact by the assessee. The assessee bona fide believed that working of depreciation made by its counsel who prepared the return is correct. (iii) That all the relevant information were furnished by the assessee. In the depreciation chart assessee has shown sale of cylinders at Rs. 20,38,608, becaus....
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....ssee is a company, it is guided by tax experts. Therefore, it cannot plead not being properly conversant with the new provision. Moreover, the assessee had claimed depreciation as per amended law which clearly establishes that assessee was fully aware of the new provision. (iii) That the assessee has pleaded there was clerical mistake in working of depreciation. However, it has not specified which clerk committed the mistake, and under which circumstances mistake was committed. No affidavit of clerk/chartered accountant who committed the mistake is filed at any stage. Moreover, the return was signed by Managing Director, therefore, the assessee cannot escape from liability merely by saying clerical mistake. (iv) The assessee has shown inaccurate particulars of sale. It was substitution of one sale figure by another. That there was no scope of committing such error unless the assessee had intention of reducing its income by claiming higher depreciation. That to claim high depreciation is the easiest way of reducing income. (v) That the assessee did not show its correct income as long as it could do so. He submitted that why the mistake could not be realised so long and it was rea....
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.... The effect of above Explanation would be that the assessee would be deemed to have concealed the particulars of income if the returned income was less than 80% of assessed income. There is exception to this deemed concealment, i.e., the expenditure incurred bona fide by the assessee which is disallowed shall not form part of total income for the purpose of deemed concealment. Further, there will be no deemed concealment if assessee establishes that such variation between income returned/assessed was not on account of fraud or any gross or wilful neglect. To put it differently even in a case where the Explanation is applicable, no penalty will be levied if the assessee was not guilty of committing fraud or gross/wilful neglect. 11.3 Now if we accept the interpretation put forth by the learned Departmental Representative, that even in substantive provision onus is upon the assessee to prove that he is not guilty, necessity of bringing the "Explanation" into existence cannot be understood. The purpose of Explanation is to shift the burden upon the assessee in certain specified cases. The CBDT itself in its Circular No. F.58/19/66 IT (Inv.) No. 29(D-XIV-22) of 1966 dt.3rd Oct., 1966(....
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..... No one who has not done any such thing and if any such thing is done unknowingly or inadvertently should be subjected to penalty. If only on the basis of assessment of escaped income or on the basis of later disclosure of some income by the assessee, it has to be inferred that he has infringed the requirements of law, there will be no purpose of a separate penalty proceedings. The very fact that penalty proceedings are separately taken out and an opportunity is given to the assessee to show cause and produce evidence, etc., must assume that before inflicting penalty, it should be examined whether there is a deliberate concealment of income by the assessee of particulars of income or deliberate furnishing of inaccurate particulars of income." 12. Now we come to the facts of this case. It is an admitted fact that the assessee made incorrect claim of depreciation and he filed the revised statement of income long after the enquiries were made by the AO in this respect. However, the material question for the purpose of levy of penalty under s. 271(1)(c) is whether the incorrect claim of depreciation was on account of fraud or gross negligence of the assessee or was it a bona fide mis....
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....r. 1989-90 Particulars Cost WDV on 30-6-88 Dep. written back Sale Loss/profit 5,773 cylinders 56,35,645.12 Ni 35,97,037.12 81,60,677 25,25,031.88 Vehicles . . . . . Car MPH-2909 10,000.00 97.54 9,902.46 40,000 30,000.00 Car DIC-4072 65,000.00 45,500.00 19,500.00 63,000 (-)2,000.00 Truck DEG-1413 2,14,727.42 38,698.92 1,76,028.50 42,000 (-)1,72,727.42 Moped DEI-7257 3,531.00 1,012.49 2,518.51 500 (-)3,031.00 . 59,28,903.54 . 38,77,169.45 83,06,177 (-)1,47,758.42 . . . . Total 23,77,273.46 In the above chart sale value of cylinders at Rs. 81,60,677 was shown. Had the assessee intentionally shown incorrect sale value of cylinders in depreciation chart, before furnishing correct sale value of cylinders, it would have revised its statement of net income. But on the other hand, the assessee's counsel even after furnishing correct value of cylinders tried to justify its stand and reconcile how he made working of depreciation. Moreover, after furnishing of above chart, which depicted correct sale value of cylinders the AO also could not prima faciecome to conclusion that the assessee had made incorrect claim of depreciation by showing ....
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....on15th March, 1989. He also noted that the computers involved were claimed as manufactured by ALTOS which sold the computers to PCL. The AO noted that the Chairman of PCL Shri Bhai, was a Director of ALTOS. He also noticed that though the assessee claimed to have taken delivery of the computers from PCL, there was no such evidence and on the contrary the delivery of the computers was taken by ALTOS itself from PCL, yet the computers continued to remain with PCL who, on subsequent enquiry informed the AO that the same were sent to their Calcutta office. The AO made enquiries atCalcuttaoffice and found no such computers existing at the premises of PCL as claimed. He further noted that on enquiry and verification distinct identification numbers of computers as given in the invoice as also per Schedule to the agreement between the assessee and ALTOS simply did not physically exist. Still further he made enquiries from PCL as to how and when the computers were sent toCalcutta. PCL in turn sent the AO the photostat copies of six air consignment notes with its letter dt.20th Feb., 1992. On going through these notes the AO found the same irrelevant as also noted discrepancy in the date of ....
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....h March, 1992, and found no satisfctory reply coming from Shri Goel. He thus held that the assessee's claim was devoid of merit. He also held that the agreement with ALTOS was shown when the computers involved simply did not exist which, according to the AO, mean that the same were not even manufactured and therefore, there was no ownership of computers by the assessee. He, therefore, concluded that the money paid by the assessee was only towards financing recoverable in 36 monthly instalments @ Rs. 92,845 p.m. in all Rs. 33,42,420. He rejected the assessee's contention that it was a normal business transaction when the assessee had duly paid the money for computers at Rs. 50,26,200 and the amount collected by way of security, i.e., Rs. 25,12,100 was properly disclosed in the balance sheet and the assessee in fact had received rental of Rs. 92,845 for the month of March, 1989, in terms of the agreement dt.18th March, 1989." In quantum appeal, disallowance of depreciation was upheld by the Tribunal with the following observations: "11. In order to successfully claim depreciation, burden lay on the assessee to prove "ownership" and "user" of the assets, i.e., computers. So far the ....
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....ods have reached the place of origination throwing great suspicion on the origination itself." The AO mainly relying upon the above finding of the Tribunal came to the conclusion that the assessee made bogus claim of depreciation on computers. He accordingly levied penalty twice the amount of tax on the sum of Rs. 37,69,273. On appeal, the CIT(A) upheld the levy of penalty. While upholding the penalty he also relied upon the statement of Shri Dhadon Bhai recorded during the course of search proceeding at their premises, and the petition of M/s Pertech Computers Ltd. (hereinafter shall be referred to as "PCL") before Addl. CST. 14. At the time of hearing before us the learned counsel for the assessee argued at length. His arguments are summarised as below: (i) That the assessee purchased 15 computers from PCL for Rs. 50,26,200 vide proforma invoice No. Comp./89/105, dt.15th March, 1989. The assessee made payment of entire purchase price as under: On 20th March, 1989, by pay order No. 157302 Rs. 25,13,100 On30th March, 1989, by cheque No. 865487 Rs. 25,13,100 . Rs. 50,26,200 (ii) Computers were leased out to M/s ALTOSIndia(hereinafter shall be referred to as "ALTOS") vide l....
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....e financier and lease rent and interest, etc., to banks are being allowed." (viii) In alternate he submitted that in any case assessee bona fide purchased computers, made payment for it, leased it out, received hire charges and shown the same as its income not only in this year but also in subsequent years. He submitted all the relevant information to the AO. Therefore, if at all any fraud was played, it was played by ALTOS and PCL upon the assessee. The assessee is not the party to such fraud, if any, but the victim. (ix) That the CIT(A) has first time relied upon the statement of Shri Dadanbhai of PCL/ALTOS, recorded at the time of search at their premises. That the assessee was not given opportunity to cross examine those persons and, therefore, such statement cannot be used against the assessee. Similarly, the CIT(A) also relied upon the submission made by PCL before CST. In this respect he submitted that the assessee was supplied only the extract of the PCL's statement before sales-tax authorises and not entire statement. Moreover, the extract supplied was unauthentic. Therefore, it has no evidentiary value, and has to be ignored. In view of above, he submitted that penalty ....
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....ver, the AO has levied penalty only at twice of the tax sought to be evaded as against maximum of thrice of tax. Therefore, there is no justification for reduction of penalty. He submitted that penalty cannot be reduced merely because it is harsh. 16. We have carefully considered the arguments of both the sides and have perused the material placed before us. For levy of penalty, the Revenue has relied mainly upon the finding in assessment proceedings, which was ultimately affirmed by the Tribunal. From the said order, we find that the Tribunal has held that to successfully claim depreciation burden is upon the assessee to prove ownership and user. After appreciating the facts and arguments of both the sides, it was concluded that the assessee under the circumstances cannot be said to have satisfied the conditions of ownership of computers and claim of depreciation was rightly denied. While reaching to above conclusion, the learned Members also took into consideration the normal human behaviour and observed "We fail to understand why a manufacturing concern would take its own manufactured computers on lease and would pay a heavy hire charges." 16.1 These findings were good enough ....
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.... the opportunity to cross examine Shri Dadan Bhai. The CIT(A) has also relied upon the statement made by the PCL before the sales-tax authorities. Copy of such statement was supplied to the assessee and a photocopy of the same finds place at pages 265 and 266 of the paper book. The assessee's counsel has objected to the consideration of this statement on two grounds, one, it is not the authentic copy of the statement made by PCL and secondly, it is not a complete statement but only some part thereof. After going through the photocopy of the statement placed at pages 265 and 266 of the paper book we find that the submission of the assessee's counsel is correct. It is not the full statement but it is only some extract from the statement of Dadan Bhai. Moreover, it does not bear the signature of anybody. There is no certification from anybody that it is a certified true copy from the original statement of facts submitted by the PCL to the CST. In our opinion, the statement of Shri Dadan Bhai and the statement of PCL before sales-tax authorities are very important piece of evidence for deciding the issue under appeal. However, the assessee was not given adequate opportunity to cross-ex....