TaxTMI 
TaxTMI 
2008 (3) TMI 671
X X X X Extracts X X X X
X X X X Extracts X X X X
....It filed its return of income for the assessment year 1994-95 declaring a loss of Rs. 5,63,990, which, inter alia, contained a claim of depreciation of Rs. 10,51,050 on two assets, namely, a Tata model 320 Crane and a Tata-Hitachi EX-300LC Excavator. According to the assessee, the said machines were purchased by it before 31-3-1994. Consequently it had become entitled to claim depreciation on both and accordingly, depreciation on both machines was taken in the return filed by it. The said machines were purchased from M/s. Tata Engineering & Locomotive Co. Ltd., Jamshedpur (hereinafter shall be referred to in short as "TELCO") on hire-purchase under a Hire Purchase Scheme. The order for excavator was placed by the assessee with TELCO on 22-3-1994 and the order for crane was placed with TELCO on 3/4-3-1994. The invoices filed by the appellant-assessee show that gatepasses for excavator was issued by TELCO on 26-3-1994 and for the crane was issued on 15-3-1994. According to the assessee these two machines ware actually delivered to the lessees/hirers of the assessee on or before 31-3-1994 and were commissioned by them in the same assessment year. The assessee relied on the aforesai....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as envisaged under section 271(1)(c) of the Act, by virtue of furnishing inaccurate particulars regarding the actual use of the aforesaid two machines, for which depreciation was falsely or wrongly claimed in the return. Assessee feeling aggrieved by the said order passed by the Assessing Officer, preferred to file appeal before the Commissioner of Income-tax (Appeals). The appeal of the assessee was allowed by the Appellate Authority, which gave rise to filing of the appeal by the revenue, against the said order, before the Income-tax Appellate Tribunal. The Tribunal has set aside and quashed the appellate order passed by the Commissioner of Income-tax (Appeals) and restored the order passed by the Assessing Officer, thus giving rise to filing of this appeal by the assessee under section 260A of the Act before us. 4. The appeal has been admitted on the following substantial questions of law :- 1.Whether on the facts and in the circumstances of the case, the Tribunal was justified in upholding the levy of penalty under section 271(1)(c) of the Act? 2.Whether on the facts and in the circumstances of the case, the claim for depreciation, when the machinery was purchased ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection, but since those are not required for the purposes of this case, the same have not been reproduced by us. 7. It is also pertinent to mention here that assessee had taken these two machines on hire purchase agreements having been entered into between the assessee and M/s. SRF Finance Limited for excavator and between the assessee and M/s. Cholamandalam Investment and Finance Company Limited for crane. Thus the price of these two machines was actually paid by the financiers of the asseasee-company to M/s. TELCO. In the invoices issued by TELCO the assessee has been described as hirer in the same. 8. It is further pertinent to point out here that there is no dispute by the revenue that for the purpose of taxation, the assessee has been treated as owner of these machines. 9. Before we proceed to decide the aforesaid questions of law, certain more facts and dates are required to be reiterated. Assessee had admittedly placed orders for the two machines, namely crane and excavator with TELCO on 3/4-3-1994 and 22-3-1994 respectively. As is evident from the invoices issued by the TELCO, gatepass for crane was issued on 15-3-1994 and the gatepass for excavator was issued on 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eatures of the case, the bona fides of the claim of the assessee for depreciation could not be doubted and in any case the assessee had not exposed itself for levy of penalty as contemplated under section 271(1)(c) of the Act. 11. Learned counsel for the appellant has cited various authorities. However, it is not necessary to deal with all the authorities, which have been cited before us. But reference to some of them is appropriate. (a) CIT v. Shaan Finance (P.) Ltd. [1998] 231 ITR 3081 (SC); -The question that arose for consideration in the above case was an assessee's entitlement to Investment Allowance under section 32A of the Income-tax Act, 1961. The assessee was a financial company which purchased machinery and hired out the same to manufacturers, under agreements of hire. The Court observed, while addressing the case-law, that when machinery is given on hire by the owner to the hirer on payment of hire charges, the owner is also entitled to depreciation on the machinery so hired out. That a transaction of hire is one of bailment of the machinery. There is no extinguishment of any right of the owner in the machinery. There is merely a licence given to the hire....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat the assessee had failed to establish the purchase and the claim for depreciation was rejected. On appeal to the Commissioner of Income-tax, the finding was set aside it was held by the Appellate Authority that the purchase was established and that the machines had in fact been leased to another and installed in their manufacturing unit. In a further appeal by the revenue, the Tribunal, while affiming the view of the Appellate Authority, following the decisions of the High Court of Delhi and the High Court of Kerala, held that since the assessee was engaged in the business of leasing, the machines must be deemed to have been used for its business no sooner the same were leased to the lessee. The Delhi High Court affirmed the view of the Tribunal and has held that once the machines are shown to have been handed over to the lessee, the same must be deemed to have been utilised for the business of the assessee especially, when the assessee is engaged in a leasing business. (d) CIT v. Raj Kumar Singh & Co. [2007] 295 ITR 811 (All.). -In this case, the asseasee was the owner of certain dumpers and tippers which it gave out on hire to contractors on a daily basis. The clai....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., as there was a difference between the value as determined by the registered Valuer and the District Valuation Officer and negating the reply of the appellant, penalty was imposed, which was unsuccessfully challenged before the Commissioner of Income-tax and the Income-tax Appellate Tribunal and the appellant was before the Supreme Court. 13. On an extensive reference to the decided case-law, the Supreme Court has opined as follows :- "Thus, it appears that there is a distinct line of authorities which clearly lay down that in considering a question of penalty, mens rea is not a relevant consideration. Even assuming that when the statute says that one is liable for penalty if one furnishes inaccurate particulars, it may or may not by itself be held to be enough if the particulars furnished are found to be inaccurate is anything more needed but the question would still be as to whether reliance placed on some valuation of an approved valuer and, therefore, the furnishing of inaccurate particulars was not deliberate, meaning thereby that an element of mens rea is needed before penalty can be imposed, would have received serious consideration in the light of a large numbe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of imposing mandatory penalty on persons who evade payment of tax should be read to contain mens rea as an essential requirement, was referred to a Larger Bench of the Supreme Court, in view of the conflict of opinion in the judgments of the Division Benches of the Supreme Court in Dilip N. Shroff's case (supra) and Chairman, SEBI v. Shriram Mutual Fund [2006] 68 SCL 216 (SC). But however, he would submit that on the facts and circumstances of the present case on hand, it cannot be said that the assessee was not entitled to claim depreciation and therefore, initiation of penalty proceedings was not warranted and would conclude that the questions of law be answered in favour of the assessee and against the revenue. 16. Per contra, Shri M.V. Seshachala, learned counsel appearing for the revenue submitted that the records would show that in any case assessee had not become the owner of the machines prior to 31-3-1994 as the same were commissioned much thereafter. It was further contended that unless the machines were actually put to use and until the assessee starts getting revenue from the said machines, it would not be entitled to claim depreciation on the same. He further co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see, the assessee submitted a letter stating that, as sufficient cash balance was not available to it on the dates of the transaction, it had obtained loans from friends as it expected to repay such loans within a short time, and therefore, no entries were made in the books of account in respect thereof and it also stated that since it was unable to furnish evidence for such loans, it offered the amount as additional income. The assessment was accordingly made treating the sum as unexplained investment. Penalty proceedings were then initiated against the assessee. The Assessing Officer found assessee's explanation in regard to the loans to be unacceptable. Applying Explanation 1(B) of section 271(1)(c), the Assessing Officer imposed a penalty. The appeal filed by the assessee was dismissed. In a further appeal, the Tribunal allowed the same. The questions arising thereof were placed for consideration before the High Court. The High Court having answered the question in favour of the revenue, the assessee was in appeal before the Supreme Court. The Supreme Court held that by virtue of notice under section 271, the assessee is put to notice that if he does not prove in the circumsanc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n was intentional or not. (d) Dy. CIT v. Yellamma Dasappa Hospital [2007] 290 ITR 3533 (Kar.). The question that arose was whether the assessee was entitled to the benefit of depreciation in terms of section 32 of the Act. The Assessing Officer found that the firm did not produce any evidence in respect of the claim for depreciation. In appeal, it was noticed by the Appellate Authority that the machinery was kept ready for use but, could not used and that therefore, the appellant was entitled for depreciation. The same having been challenged before the Tribunal, the same was partly allowed. This Court by its judgment held that the machinery being kept ready for use, would not enable the assessee to claim depreciation and if the machinery is not used, section 32 would not be applicable and hence the assessee cannot have benefit under the said section. (e) CIT v. Sree Valliappa Textiles [2007] 294 ITR 3221 (Kar.), wherein the revenue had questioned the order of the Tribunal setting aside the levy of penalty for concealment of income on the cost of purchase of machinery. It was held by this Court that the assessee had chosen to claim the benefit with regard to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s regard, he would point out that several cases cited at the bar would have to be addressed in relation to the facts and circumstances of the given cases and the line of cases dealing with lease of machinery in the course of business, being considered as use of that machinery and which would be applicable to the assessee ought to be taken note of. 19. In the light of the above contentions and a perusal of the record would further show that in this case also there was nothing to hold about the non-genuineness of the documents on which reliance has been placed by the assessee, nor the documents on which reliance has been placed by the assessee can be said to be sham or bogus. This finding has also not been recorded by the Tribunal in this regard. Thus we proceed on the assumption with regard to the correctness and genuineness of the documents. 20. Looking to the nature of business which the appellant has been carrying on, the actual user of the machines may not be necessary to be considered in this particular case. The actual user of the machines was by the hirers of the assessee who were handed over the respective machines at their work site for and on behalf of the assessee b....