TaxTMI 
TaxTMI 
2006 (7) TMI 155
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....stion of law is referred for the opinion of this court: "(a) Whether the Appellate Tribunal is right in law and on facts in cancelling the penalty referable to income of Rs. 1,00,112/-?" The brief facts giving rise to the present reference are as under: 3. The assessee is a private limited company carrying on the business of manufacturing and selling chemicals, sodium benzoate and benzoate and benzoic acid at Baroda. The assessment year involved is 1980-81 for which the accounting period ended on June 30, 1979. Before a few days from the close of its accounting period on June 30, 1979, a fire broke out in the assessee's factory resulting in destruction of and/or substantial damage to its building, plant and machinery and finished or semi-finished goods, all insured. The assessee claimed (i) a sum of Rs. 1,83,492/- from the insurance company on account of loss and damage to its plant and machinery on replacement cost basis and (ii) a sum of Rs. 1,00,112/- on account of loss to its finished or semi-finished goods. The insurance company, however, paid, in the month of November/December, 1979, a sum of Rs. 84,462/- in respect of the former claim and a sum of Rs. 56,1....
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....under section 271(1)(c) of the Act for the assessee's furnishing inaccurate particulars of its income and thus concealing its income in respect of the two amounts of Rs. 1,83,492/- and Rs. 1,00,112/-, as stated above. The assessee contested the notice with the contention that the difference in income as returned by it and as finally assessed arose from the wrong interpretation of the effect of loss of assets in fire, given in the assessee's books of account, and resulted from circumstances beyond the control of the assessee. It denied the presence of any fraud or any gross or, wilful neglect on its part in furnishing the particulars of its income in the return and further contended that it entertained a bona fide belief that the loss in fire, caused to its assets and stock, would be admissible in law. In support of such explanation the assessee had mainly relied upon the Supreme Court decision in the case of CIT v. Anwar Ali [1970] 76 ITR 696. The Income-tax Officer did not feel satisfied with this explanation and rejecting the same, he held that the assessee had unsuccessfully attempted to conceal the particulars of its true income and had furnished inaccurate particulars ....
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....ost basis", the assessee-company had not only chosen to claim deduction of Rs. 1,83,492/- but had also insisted upon such a claim at the assessment and the appellate stages of the proceedings knowing or having reasons to believe its claim to be untrue. In respect of the penalty referable to Rs. 1,00,112/-, i.e., the amount of loss sustained by the assessee-company to its stock by fire, it was submitted on behalf of the Revenue that the claim for double deduction was deliberate and had not resulted from any clerical mistake or oversight on the part of the chartered accountant of the assessee-company. 9. The Tribunal, after considering the argument of the respective parties, came to the conclusion that the provisions of the Explanation to section 271(1)(c) were not applicable to the instant case as they have not been applied by the income-tax authorities. The Tribunal, therefore, proceeded on the footing that the burden to prove that the conduct of the assessee-company was contumacious or dishonest and it had acted in defiance of law in the discharge of its obligation and had accordingly, concealed its income or had furnished inaccurate particulars of its income was on the Revenue....
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....es in estimating its loss at those figures and could have, therefore, legitimately claimed these amounts as deductions. He has further submitted that the chartered accountant has audited and certified the loss in fire to the extent of Rs. 1,83,492/- for the loss of plant and machinery, building, electrical installation etc., and a sum of Rs. 1,00,112/- on account of loss of stock of finished goods in fire during the year ending June 30, 1979. He has further submitted that under the advice of the chartered accountant the said loss has been adjusted in the books of account by giving necessary effect and the same to the profit and loss account and the balance-sheet. He has further submitted that there was nothing mala fide in all that on the part of the assessee. He has further submitted that even in the quantum appeal, the learned Commissioner of Income-tax (Appeals) had deleted the addition, as made by the Income-tax Officer on account of terminal allowance or profit under section 41(2) and had further directed the Income-tax Officer to consider the amount of Rs. 90,259/- as the written down value of the destroyed capital assets and not to charge any tax on Rs. 84,362/-, the amount ....
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.... claim which was indemnity or compensation for the loss. The payment by the insurance company was not in consideration of the property taken over by the insurance company. The court therefore held that the amount received from the insurance company was not capital gains and was not chargeable to tax under section 45. 13. Mr. Patel has further submitted that the decision of Vania Silk Mills P. Ltd. v. CIT [1991] 191 ITR 647 (SC) has come up for consideration before the hon'ble Supreme Court in the case of CIT v. Mrs. Grace Collis [2001] 248 ITR 323, wherein it is held that the definition of "transfer" in section 2(47) clearly contemplates the extinguishment of rights in a capital asset distinct from and independent of such extinguishment consequent upon the transfer thereof. It is not correct to view the expression "extinguishment of any rights therein" as not extending to mean the extinguishment of rights independent of or otherwise than on account of transfer. To read so is to render the expression ineffective and its use meaningless. The expression includes the extinguishment of rights in a capital asset independent of and otherwise than on account of transfer. The court t....
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.... order to justify the levy of penalty, two factors must co-exist, (i) there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee's income. It is not enough for the purpose of penalty that the amount has been assessed as income, and (ii) the circumstances must show that there was animus, i.e., conscious concealment or act of furnishing of inaccurate particulars on the part of the assessee. The court further held that where the circumstances do not lead to the reasonable and positive inference that the assessee's case is false, the assessee must be held to have proved that there was no mens rea or guilty mind on his part. Even in this view of the matter the explanation alone cannot justify levy of penalty. Absence of proof acceptable to the Department cannot be equated with fraud or willful default. 17. Mr. Patel has further relied on the decision of this court in the case of Sarabhai Chemicals P. Ltd. v. CIT [2002] 257 ITR 355, wherein it is held that deeming fiction contained in Explanation 1 to section 271(1)(c) of the Income-tax Act, 1961, that the added/disallowed amounts represent the income in respec....
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....ling in his income-tax return would not necessarily amount to an intention to commit a come punishable under section 276C of the Income-tax Act, 1961. This court has herd that the return that was filed on June 30, 1980, pertained to the accounting period which ended on June 30, 1979. It would, therefore, reflect the picture of the company's finance and the company's affairs between the period July 1, 1978, and June 30, 1979. A thing which transpired in December, 1979, namely, reimbursement by the insurance company would not be reflected in such a return because it was an event which had taken place subsequently. Moreover, this would have been discovered. The Income-tax Officer with his powers of reassessment would have found out about the reimbursement of loss. Ultimately, it would not have resulted in any advantage to the assessee. The court therefore held that the prosecution was not valid and was liable to be quashed. Mr. Patel has submitted that these observations are quite important for the purpose of cancellation of penalty levied under section 271(1)(c) of the Act. 20. Mr. Patel has further relied on the decision of this court in the case of CIT v. Milex Cable Ind....
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....behalf of the Revenue, on the other hand supported the view taken by the Tribunal. So far as it relates to confirmation of levy of penalty referable to the disallowance of loss of Rs. 1,83,492/- is concerned, Mr. Vyas has submitted that the penalty proceedings under the Act are in the nature of quasi-criminal proceedings and that should not be equated with criminal proceedings for the purpose of standard of proof and discharging burden of such proof. He has further submitted that in the criminal proceeding the prosecution has to prove the guilt of the accused beyond reasonable doubt whereas quasicriminal proceedings are to be decided on the basis of preponderance of probability as these proceedings are of civil nature. He has further submitted that the burden on the Department in penalty proceedings was not such as can never be discharged, provided the Department is not required to prove the impossible. He has further submitted that the assessee very well knew that the fire had destroyed its capital assets for which the assessee had lodged its claim with the insurance company for their reimbursement on "replacement cost basis". The assessee has not only chosen to claim deduction of....
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....asons to believe the same to be false and untrue insisting upon its acceptance as true by the authorities concerned, the assessee had certainly exhibited conduct contumacious and dishonest. Mr. Vyas, therefore, submitted that the penalty was wrongly deleted by the Tribunal in relation to disallowance of loss of Rs. 1,00,112/-. He has, therefore, submitted that the questions referred to by the Tribunal at the instance of the assessee and the Revenue should be answered in favour of the Revenue and against the assessee. 26. We have considered the arguments canvassed by the learned advocate Mr. R.K. Patel, appearing for the assessee, and learned standing counsel Mr. D.D. Vyas appearing for the Revenue. We have gone through the orders passed by the authorities below. The authorities cited before the courts by both the sides and referred to in the orders under challenge are considered and examined in the light of the facts found on the record of this case. We found ourselves in agreement with the Tribunal's finding so far as it relates to the quashing of penalty relatable to disallowance of loss of Rs. 1,00,112/-. We, however, express our inability to agree with the finding arrive....