B.loganathan v. The Income Tax Officerward Viii(3)Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 07.02.2019 CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE MR.JUSTICE C.V.KARTHIKEYAN Tax Case Appeal No.120 of 2009 B.Loganathan ..Appellant/ Respondent Vs. The Income Tax OfficerWard VIII(3)Chennai. ..Respondent / Appellant ----- Tax Case Appeal filed under Section 260A of the IncomeTax Act, 1961 against the order of the Income Tax AppellateTribunal, Madras "A" Bench, in ITA No.2762/MDS/2004 dated13.6.2008 for the assessment year 2000-01 against theorder of Commisioner of Income Tax(Appeals)IX, Chennai. 34.in ITA NO.155/2003-2004 dated 18.08.2004 against theAssessment Order of Income Tax officer ,Business Ward -VIII(3), Chennai. Dated 22.09.2003 for PAN NO.AAAPL 5729 K forthe Assessment Year 200-2001. -----For Appellant : Mr.Kaushik For Mr.S.SridharFor Respondent : Ms.Premalatha Junior Standing Counsel ----- J U D G M E N T (Delivered by Dr.Vineet Kothari,J) The assessee has filed this appeal under Section 260Aof the Act, aggrieved by the order of the Tribunal dated13.6.2008 for the assessment year 2000-01, wherein theRevenue's appeal was allowed and the penalty under Section271(1)(c) of the Act was restored by the Tribunal settingaside the order passed by the Commissioner of Income Tax(Appeals) on 18.8.2004, by which the first AppellateAuthority Commissioner of Income Tax (Appeals) had setaside the penalty in question, in favour of assessee. https://hcservices.ecourts.gov.in/hcservices/ 2. The facts leading to the said order of theTribunal, in brief, are as under: The assessee purchased three Pay Loaders fromHindustan Motors Limited on the last day of previous year,that is on 31.3.2000 at Pondicherry and brought the same toPort Trust, Chennai, on the same day, where he wasundertaking certain works for the Port Trust and thequestion in the assessment proceedings arose as to whetherthe assessee could claim depreciation in respect of thesethree Pay Loaders for the assessment year 2000-01. TheAssessing Authority held that since the assessee had notactually put to use these three Pay Loaders during theprevious year, as the same were admittedly purchased on thelast date, namely 31.3.2000 and the place delivery of thePay Loaders, was either at Tiruvallur or Pondicherry, wasnot established and the three Pay Loaders could not havereached the work place at Chennai Port before the end ofthat date and therefore, the assessee was not entitled todepreciation. The penalty proceedings under Section 271(1)(c) of the Act for concealment of income and for filing ofinaccurate particulars were also initiated by the AssessingAuthority. 3. The Assessee, during the course of assessmentproceedings, claimed initially that the delivery of thesethree Pay Loaders was taken at Pondicherry at about 2.30and they were brought to Chennai Port by 9.30 PM andtherefore, the said three Pay Loaders were put to usebefore the end of the previous year on 31.3.2000 and thus,he was entitled to depreciation claim of Rs.14,79,000/-,but the assessee somehow gave up the claim of depreciationin respect of these three Pay Loaders and paid the tax dueto that extent forgoing his claim of depreciation, for theassessment year 2000-01. 4. The Assessing Authority, thereafter, by theimpugned order dated 22.9.2003, imposed penalty underSection 271(1)(c) on the assessee to the extent ofRs.4,88,070/-, being 100% of the tax leviable on the amountof depreciation in question. In the said penalty order, theAssessing Authority observed in paragraph 12 of the orderthat there was a conscious concealment on the part of theassessee and the assessee had intention to defraud therevenue by making false depreciation claim and therefore,the penalty in question was leviable. 4. The Assessing Authority, thereafter, by theimpugned order dated 22.9.2003, imposed penalty underSection 271(1)(c) on the assessee to the extent ofRs.4,88,070/-, being 100% of the tax leviable on the amountof depreciation in question. In the said penalty order, theAssessing Authority observed in paragraph 12 of the orderthat there was a conscious concealment on the part of theassessee and the assessee had intention to defraud therevenue by making false depreciation claim and therefore,the penalty in question was leviable. 5. The first Appellate Authority, Commissioner ofIncome Tax (Appeals), however, set aside the said penaltyby his order dated 18.8.2004 with the followingobservations: "The appellant is having a proprietaryconcern. He was present at the time ofhearing. He stated that he is not lookinginto each and every transaction of thebusiness as he had his own employees forthat. Concerning the delivery, he statedthat the vehicle was taken delivery atTiruvellore because it appears that whenthis survey operation took place, thevehicles were being delivered at Tiruvelloreand immediately he could not recollect theplace of delivery. Whenever questions areasked, he had taken the help of his auditorsor employees to answer the questions. Thatsuggests that each and every particular factwas not in his immediate knowledge. Theappellant further stated that he hadsubmitted positive evidences of thesevehicles being put into use in the PortTrust. According to the appellant, some ofthe positive evidences submitted by him insupport of his stand which are on record,were not considered and only some smallerrors in statement have beenn magnified notonly to make addition but also to levy thepenalty. The appellant along with hisauthorised representative personally statedthat they were not only forced to agree forthe addition but also forced to pay tax evenbefore the assessment order was passed. Theappellant had stated that they have paidRs.4 lakhs tax even before the assessmentorder was passed. To their shock even whenthey followed whatever the department hadwanted, prosecution proceedings were alsoinitiated against the appellant. I had gone through the assessmentrecords. There was a prima facie evidenceestablished by the assessing officerregarding the wrong claim of depreciation ofthe appellant. Since the appellant hadaccepted under whatever circumstances, thesame has been upheld by me vide my order inITA No.156/2003-04 dated 16.9.2004. Thatappeal was only filed when once the 271(1) (c) was initiated. (c) was initiated. In order to strengthen the case ofpenalty, it is merely not sufficient to takeadvantage of surrendering of the claim withfew inquiries. They are incomplete inquiriesand evidences. They cannot establish thatthe appellant had concealed true particularsof the claim of depreciation. The assessingofficer has to prove the concealment. Mererepetition of assessment order in penaltyproceedings is not adequate to sustain thelevy of penalty under section 271(1)(c). Toachieve this purpose, he has to makeadditional effort in establishing theconcealment of income. Concealment of incomecannot be inferred merely from assessmentorder. The burden is on the assessingofficer in penalty proceedings to establishdeliberate concealment which is notcompletely discharged. Mere agreeing fordisallowanceofdepreciationwithoutconclusive evidence gathered by assessingofficer does not warrant the inference thatthe appellant had deliberately concealedincome. Therefore on facts of this case andcircumstances in which the depreciationclaim is withdrawn, it is not possible tostate with certainty that withdrawal ofclaim would be "concealed income" of theappellant. Therefore the ingredients ofoffence as contemplated under section 271(1)(c) and propounded by various High Courtshad not been satisfied to impose penalty inthis case under section 271(1)(c). Thepenalty of Rs.4,88,070/- levied by theassessing officer is therefore cancelled. In the result, the appeal is allowed." 6. The Revenue took up the matter further before theTribunal, which allowed the appeal of Revenue and restoredthe said penalty with the following observations: "We also find that under similarcircumstances, when the Assessee has claimeddepreciation on the basis of factorymanager's certificate that machinery hadbeen received before the close of the yearand later on the claim for depreciation waswithdrawn, still penalty was held to be https://hcservices.ecourts.gov.in/hcservices/ leviable by the decision of the Hon'bleKarnataka High Court in the case of CIT v.Sree Valliappa Textiles (supra). In thatcase, the High Court has held that: "The Tribunal failed to notice thatwhen the claim was made on the basis ofinstallation, the machinery had noteven left the premises of the seller.The defence of the factory managercould not have been considered. TheAssessee was bound by the act of itsservants. Tax exemption, tax concessionand tax deduction have to be for bonafide reason and not for those who madefalse declaration for the purpose ofbenefit in terms of the statute.Section 271(1)(c) had to be strictlyapplied in the larger interest ofdiscipline in filing correct returns bythe Assessee." We further observe that the CIT (Appeals)has, without appreciating the factsproperly, has given a finding that theAssessing officer has not made sufficientenquiries, with which we do not agree. Inthese circumstances, and following thejudgment of the Hon'ble Karnataka High Court(supra), we set aside the order of the CIT(Appeals) on this issue and restore that ofthe Assessing Officer. The penalty levied bythe Assessing Officer is confirmed." 7. The Assessee has, thus, approached this Court byway of the present appeal under Section 260A of the Act.The appeal was admitted by a Coordinate Bench of this Courton 31.3.2009, on the following substantial question of law. "Whether the Appellate Tribunal iscorrect in law in sustaining the levy ofpenalty u/s 271(1)(c) of the Act on therejection of claim of depreciation which wassurrendered in the course of the assessmentproceedings and further on the claim ofcertain expenses which claim was reversed inthe same proceedings by the Appellant eventhough there was total violation of theprinciples of natural justice as well as theDoctrine of Fair Procedure?" 7. The Assessee has, thus, approached this Court byway of the present appeal under Section 260A of the Act.The appeal was admitted by a Coordinate Bench of this Courton 31.3.2009, on the following substantial question of law. "Whether the Appellate Tribunal iscorrect in law in sustaining the levy ofpenalty u/s 271(1)(c) of the Act on therejection of claim of depreciation which wassurrendered in the course of the assessmentproceedings and further on the claim ofcertain expenses which claim was reversed inthe same proceedings by the Appellant eventhough there was total violation of theprinciples of natural justice as well as theDoctrine of Fair Procedure?" 8. The learned counsel for the assessee, Mr.Kaushik,urged before us that the assessee was entitled to claimdepreciation in respect of the said three Pay Loaders eventhough they were purchased on the last date of the previousyear, namely on 31.3.2000. He relied upon several case lawsto support his contention, namely (i) CIT v. Geo Tech Construction Corporation [(2000)112 Taxman 373 (Kerala)], (ii) CIT v. Premier Industries (India) Ltd. [(2008)170 Taxmann 407 (MP)], (iii) Principal Commissioner of Income-tax v. Larsenand Toubro Ltd. [(2018) 98 taxmann.com 368 (SC)], (iv) Principal Commissioner of Income-tax v. Larsenand Toubro Ltd. [(2018) 89 taxmann.com 186 (Bom)], (v) Commissioner of Income Tax v. Refrigeration &Allied Industries Ltd. [(2000) 113 Taxman 103 (Delhi)], and (vi) National Thermal Power Corporation Ltd. v.Commissioner of Income-tax [(2012) 28 taxmann.com 89 (Delhi)]. 9. The learned counsel urged that though thedepreciation could have been allowed even if the plant andmachinery, namely three Pay Loaders in question were notactually used and even if they were ready to use or keptready for use, as per the judgments supra, the assessee wasentitled to claim deduction under Section 32 of the Act andmerely because the assessee gave up his claim to buy peace,it could not automatically entail the imposition of penaltyunder Section 271(1)(c) of the Act. 10. The learned counsel also submitted that there wasno concealment on the part of the assessee or filing ofinaccurate particulars, which is a ground for theimposition of penalty under Section 271(1)(c) of the Act.He also relied upon the Division Bench judgment of thisCourt in Commissioner of Income Tax v. Gem Granites(Karnataka) [(2014) 42 taxmann.com 493 (Mad.)], wherein,while dealing with the decision of the Supreme Court in thecase of Mak Data (P) Ltd. v. Commissioner of Income Tax[(2013) 38 taxmann.com 448 (SC)], which was relied upon bythe learned counsel for the Revenue also, it was held thatthe question would be whether the assessee had offered anexplanation for concealment of particulars of income orfurnishing of inaccurate particulars of income and the Explanation to Section 271(1) raises a presumption ofconcealment, when a difference is noticed by the AssessingOfficer between the reported and the assessed income. Theburden is then on the Revenue to show otherwise by cogentand reliable evidence once the initial onus placed by suchexplanation to Section 271(1)(c) has been discharged by theassessee, the onus shifts on the Revenue to show that theamount in question constituted their concealed income. 11. Similarly, in Commissioner of Income Tax v.Mahabaleshwar Gas & Chemical (P) Ltd. [(2008) 170 Taxman 38(Delhi)], a Division Bench of Delhi High Court held thatwhere the assessee's claim for depreciation was based onthe bona fide belief and disallowance of the said claim ona difference of opinion was made, the same could not betreated as concealment of income by the assessee,particularly when all particulars in respect of the saidclaim were fully furnished in his return of income. 11. Similarly, in Commissioner of Income Tax v.Mahabaleshwar Gas & Chemical (P) Ltd. [(2008) 170 Taxman 38(Delhi)], a Division Bench of Delhi High Court held thatwhere the assessee's claim for depreciation was based onthe bona fide belief and disallowance of the said claim ona difference of opinion was made, the same could not betreated as concealment of income by the assessee,particularly when all particulars in respect of the saidclaim were fully furnished in his return of income. 12. The Supreme Court, in the case of Commissioner ofIncome Tax v. Reliance Petroproducts (P) Ltd. [(2010) 189Taxman 322 (SC)] held that the penalty under Section 271(1)(c) of the Act cannot be imposed merely because theassessee had claimed an expenditure which claim was notaccepted or was not acceptable to the Revenue, that byitself would not attract penalty under Section 271(1)(c) ofthe Act. 13. The learned counsel for the Revenue, however,relied upon the following the judgments in Commissioner ofIncome Tax v. Zoom Communication Pvt. Ltd. [ITA No.07/2010dated 24.5.2010 - Delhi High Court] and Mak Data P. Ltd. v.Commissioner of Income Tax-II [SLP (C) No.18389 of 2013dated 30.10.2013], in support of her contention that thepenalty was rightly levied by the Assessing Authority andupheld by the Tribunal. 14. Relying upon Mak Data P. Ltd. supra, the learnedcounsel for the Revenue urged that the mere fact that theassessee had himself given up the claim of depreciationduring the assessment proceedings was enough to sustain thepenalty, as he could not establish that the delivery of thethree Pay Loaders in question was taken at Pondicherry andthat they were in fact brought to Chennai Port and were putto actual user and thus, in these circumstances, giving upof the claim amounted to furnishing of the inaccurate particulars attracting the penalty. 15. Referring to paragraph 8 of the decision in MakData P. Ltd, the learned counsel urged that where theassessee in that case had surrendered the additional sum asundisclosed income with a view to avoid litigation and buypeace, the Supreme Court had upheld the penalty underSection 271(1)(c) of the Act. 16. Similarly, relying upon the decision of the DelhiHigh Court in Zoom Communication Pvt. Ltd. supra, she urgedthat the Explanation to Sub-section (1) of Section 271 ofthe Act would be attracted where the assessee fails tooffer an explanation or offers an explanation which isfound to be false or offers an explanation which he is notable to substantiate and thus, in the instant case, theprovisions of Section 271(1)(c) clearly stood attracted. 17. Having given our thoughtful consideration to therival submissions made at the Bar, facts on record and thecase laws produced, we are of the considered opinion thatthe present appeal of the assessee deserves to be allowedand the substantial question of law deserves to be answeredin favour of the assessee and against the Revenue. Thereasons are as follows: 18. The penal provision under Section 271(1)(c)providing a harsh penalty of 100% of the tax held to beevaded is upon two tenets, namely (i) concealment on thepart of the assessee, and (ii) furnishing of inaccurateparticulars. Such a penalty, therefore, has to be basedupon the guilty animus or mens rea on the part of theassessee. A conscious concealment or a deliberate filingof inaccurate particulars is sine qua non to invoke thepenal provisions of Section 271(1)(c) of the Act. TheExplanation 1 of the said provision also can be invokedonly if the assessee fails to offer an explanation oroffers an explanation which is found to be false or theassessee is not able to substantiate the explanationfurnished by the assessee. 18. The penal provision under Section 271(1)(c)providing a harsh penalty of 100% of the tax held to beevaded is upon two tenets, namely (i) concealment on thepart of the assessee, and (ii) furnishing of inaccurateparticulars. Such a penalty, therefore, has to be basedupon the guilty animus or mens rea on the part of theassessee. A conscious concealment or a deliberate filingof inaccurate particulars is sine qua non to invoke thepenal provisions of Section 271(1)(c) of the Act. TheExplanation 1 of the said provision also can be invokedonly if the assessee fails to offer an explanation oroffers an explanation which is found to be false or theassessee is not able to substantiate the explanationfurnished by the assessee. 19. In the present case, we do not find anyconcealment on the part of the assessee at all. On thecontrary, the facts relating to purchase of three PayLoaders in question on the last date of the previous year https://hcservices.ecourts.gov.in/hcservices/ was categorically stated and supported by the productionof purchase invoices before the Assessing Authority. Thestatement of the assessee regarding the place of deliverywas recorded much after the said date of delivery, namely,during the course of assessment proceedings, which wasafter about three years. Even from the extract of thestatement produced in the assessment order, if it could beinferred that the assessee was confused about the place ofdelivery at Tiruvallur or Pondicherry, it could not be saidthat the statement of the assessee was false because thereis no rebuttal of the fact that the Pay Loaders wereavailable at Chennai Port before the last day was over on31.3.2000 and was kept ready for use. The assessee was ableto produce the relevant evidence before the AssessingAuthority as well as Commissioner of Income Tax (Appeals),who set aside the said penalty holding that the three PayLoaders in question were ready to be used on the last dateof previous year. The case laws cited by the learnedcounsel for the assessee clearly supports the contentionthat the depreciation in such cases could have been claimedas deduction under Section 32 of the Act and deserves to beallowed. 20. The words 'use' in Section 32 is not restricted toactual, full or continuous user of Plant and Machinery. Itincludes within its ambit the status of 'kept ready foruse' or 'ready for use' as well. A partial user is alsosufficient to apply Section 32 of the Act. For the reasonsbest known to the assessee, may be to buy peace and toavoid litigation or under pressure not knowing the correctlegal position, he gave up the said claim of depreciationunder Section 32 of the Act, but, that does not mean thatthe assessee admitted the guilt of giving a wrongexplanation or a false explanation or having concealed hisincome or filing inaccurate particulars. There was a totalabsence of mens rea or guilty animus on the part ofassessee in present case. Giving up of the claim ofdepreciation could not automatically entail the penaltyunder Section 271(1)(c) of the Act. The imposition ofpenalty is neither automatic nor is expected to be imposedeven if the bona fide explanation of the assessee is notfinally accepted by the statutory authorities of the Act.The burden of proving the guilty animus on the part of theassessee is on the Revenue, like on Prosecution in criminalcases and no such negative burden could be cast upon by theassessee himself. 21. We do not find any such material on record broughtby the Assessing Authority which would indicate, much less,prove the guilty animus on the part of the assessee in thepresent case. The Assessing Authority appears to be triggerhappy in imposing the penalty merely because the assesseegave up the claim of depreciation to buy peace. Instead ofgiving peace, a long chain of litigation was thrown uponthe assessee, invoking the penal provisions under Section271(1)(c) of the Act. Such casually and lightly invokedpenal provisions and impositions thereof in the taxjurisprudence was never the intention of the Parliament andlowers the morale of honest tax payers. Therefore, therestoration of penalty in the present case by the SecondAppellate Authority, Tribunal, should fall to the ground. 22. Accordingly, the appeal of Assessee is allowed andsubstantial question of law is answered question in favourof the Assessee and against the Revenue. The penalty underSection 271(1)(c) of the Act is set aside. The Assesseewill be entitled to refund, if the penalty has already beenrecovered, with interest, in accordance with law. No orderas to costs. Sd/-/- Assistant Registrar(CS) //True Copy// Sub Assistant Registrar kplTo 1. The Income Tax Officer Ward VIII(3), Chennai.2. The Commissioner of Income Tax (Appeals) Chennai. 3. The Income Tax Appellate Tribunal "A" Bench, Chennai. +1cc to Mr. S.Sridhar, Advocate SR.No. 11015+1cc to Ms.Premalatha , Advocate SR.No. 11633