TaxTMI 
TaxTMI 
1990 (2) TMI 148
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....hinery 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 s. 143(3) of the IT Act and initiated penalty proceedings under s. 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 ITO on 11th Jan., 1983. 4. Subsequently, the IAC (Asst), Range-II, Coimbatore by his order dt. 29th March, 1985 imposed a penalty of Rs. 2,38,832, under s. 271(1)(c) of the Act. This penalty was levied by the IAC 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 under s. 271(1)(c) was clearly leviable. The IAC relied on two letters written by the assessee on 21st Sept., 1981 and 10th Feb., 1982. He, however, rejected the assessee's reply dt. 2nd March, 1985 to the....
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....t 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 vs. J.K.A. Rajappa Chettiar (1984) 38 CTR (Mad) 321 : (1986) 153 ITR 215 (Mad) 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, and 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 vs. Delhi Cloth & General Mills Co. Ltd. (1984) 42 CTR (Del) 188 : (1986) 157 ITR 822 (Del) and contended that the disallowance of the claim of an assessee of an expenditure would not automatically lead to the conclusion that the assessee had furnished inaccurate particulars with ....
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....he 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 8th Jan., 1981 the appellant admitted the mistake in claiming depreciation in respect of two items of machinery only on 21st Sept., 1981, that too after the ITO had started detailed enquiries and that even in this letter the admission was half-hearted and the assessee still wanted to take a chance and get away with a wrong claim. The Commissioner next pointed out that when the ITO continued his enquiries relentlessly, the appellant came forward with another letter dt. 10th Feb., 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 not even an iota of evidence in the records to show that the surrender by the assessee had been voluntary. He was of the view that th....
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....the asst. yr. 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 21st Sept., 1981 and 10th Feb., 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 ITO from time to time in the course of the assessment proceedings and that when it realised that the claim made by it for these allowances were inadmissible in the year of account, as the machinery were not installed nor put to use, he withdrew such claim and requested the....
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....to hold that the penal provisions of s. 271(1)(c) of the Act are attracted. Finally, the learned counsel relied on the decision of the Delhi High Court reported in (1984) 42 CTR (Del) 188 : (1986) 157 ITR 822 (Del) 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 s. 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(A) clearly established not only mens rea on the part of the appellant, but also gross or wilful neglect and also indicated the making of a fraudulent claim for allowances of depreciation and investment allowance and erection charges. Shri Tyagi submitte....
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....arious years on the basis of a settlement under s. 271(4A) of the Act and, therefore, the said decision would not apply to the facts of the present case. He next submitted that in the case of Cement Distributors P. Ltd. vs. CIT 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 would be entitled to these deductions having regard to the fact that the machineries were purchased during the yea....
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....inding 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 31st March, 1980 relevant for the asst. yr. 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 ITO 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 and erection charges which would attract the penal provisions of s. 27(1)(c) of the Act. 14. From the papers placed before us we find that in the next asst. yr. 1981-82 the assessee's....
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....espect 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 31st March, 1981 relevant for the asst. yr. 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 ITO 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 forward a false claim for these statutory allowances in the year under appeal. Even a portion of the expenses spent on erection of these machineries has been capitalised to the extent of Rs. 6,664,....
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....rch, 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 CIT vs. 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: "Sec. 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 penalising officer's attention to the assessee's return of income alone. Mark the words "in the course of any proceedings". The officer has to work on a larger canvass as it were, of the whole gamut of the assessment proceedings, in order to be able to spell out concealment. H....