Rane Madras Ltd v. The Deputy Commissioner Of Income Tax Company Circle V(3) Chennai – 600 034

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 17.3.2015 CORAM THE HON'BLE MR.JUSTICE R.SUDHAKARANDTHE HON'BLE MR.JUSTICE R.KARUPPIAH Rane Madras Ltd.61, Velacherry RoadChennai – 600 042 ...Appellant/AppellantVs. The Deputy Commissioner of Income TaxCompany Circle V(3)Chennai – 600 034. ...Respondent/Respondent PRAYER: Appeal under Section 260A of the Income Tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal, “B' Bench, Chennai,dated 12.1.2007 made in I.T.A.No.246/Mds/2004 for the assessment year1996-1997, against the order of Income Tax(Appeals) V, Chennai, inITA No. 187/2003-2004 dated 24.12.2003, against the proceedings ofthe Asst. Commissioner of Income Tax Company Circle - V (3), Chennai,made in GIR No. 53034-R/96-97 dated 28.05.2003 and 29.05.2003,against order of the Deputy Commissioner of Income Tax Department,Company Circle V (3) Chennai in PA No.AAACR4215M/53034-R dated08.11.2002 assessment year 1996-1997. For Appellant :Mr.Vijayaraghavanfor M/s. Subbaraya AiyarPadmanabhan & Ramanmani This appeal is filed by the assessee under Section 260A of theIncome Tax Act, 1961 against the order of the Income Tax AppellateTribunal, “B” Bench, Chennai, dated 12.1.2007 made in https://hcservices.ecourts.gov.in/hcservices/ I.T.A.No.246/Mds/2004 for the assessment year 1996-1997 and the samewas admitted on the following question of law:“Whether on the facts and circumstances of the case, theTribunal was right in law in holding that the claim ofdepreciation made under bona fide belief but withdrawnas soon as the assessee was aware that machineries havenot been actually put to use would amount to concealmentand furnishing of inaccurate particulars and, therefore,liable to penalty under Section 271(1)(c) of the Act?” 2. Here is a case where the assessee claimed depreciation oncertain machineries without verifying as to whether the same havebeen actually put to use or not. The excess claim of depreciationwas noted by the authorities of the Central Excise Department duringSeptember, 1999. Even though the assessee was in the know of theabove fact, they remained silent and did not file a revised return ofincome until the Income Tax Department issued notice on 5.3.2002,i.e. for more than two and half years. 3. A plea was made that the assessee engaged a Consultant forvaluation of plant and machineries and he was at fault for claimingsuch excess depreciation erroneously. The Original Authority as wellas the Commissioner of Income Tax (Appeals) and the Tribunal came tothe conclusion that there is an element of mens rea in the action ofthe assessee in claiming depreciation in respect of assets withoutthey being actually put to use for the purpose of business orprofession as contemplated under Section 32(1) of the Income Tax Act. 4. On the plea of the assessee that penalty under Section 271(1)(c) of the Act cannot be imposed on an erroneous claim made by theassessee, the Tribunal observed as under:“4.2. Upon a careful consideration of the issue, we findthat it is the assessee's plea that, upon noticing thatdepreciation has been claimed on assets without theirbeing put to use, it had appointed a Consultant andthereafter upon receipt of Consultant's Report it was inthe process of revising the claim of depreciation whenthe department initiated re-opening proceedings. Here,as pointed out by the learned Commissioner of Income Tax(Appeals), the correspondence with consultant engagedfor valuation of plant and machinery and the assessee,only revealed that it was the assessee only who providedthe consultant the details of assets on whichdepreciation was claimed without their actually beingput to use. This is very much evident in the letterdated 12.12.01 addressed to the consultant, copy of which has been submitted by the learned counsel of theassessee. Hence, the premise that the assessee wasawaiting Consultant's Report for revising the return isnot at all convincing. Moreover, the said Report cannotbe said to have confirmed the basis for revising thereturn. The assessee's letter to a statutory auditoragain dated 12.12.01 can only be said to be a self-serving statement. As a matter of fact, the contentsrather prove the claim of assessee hollow as in theletter itself the assessee has stated to the auditorsthat 'the fixed asset added in earlier years werecapitalized and depreciation claim before the same wereput to use in two years i.e. Previous year (PY) 1995-96and 1996-97.' Thus, the letter also corroborates thefact that assessee was well aware of the factualposition that excess claim of depreciation has been madeand the same has not been revised. 4.3. Hence, in a nutshell, it can be stated thatassessee was following an erroneous system whereby thedepreciation was being claimed on the assets after theirbeing received without a final verification as towhether the same has actually been put to use or not.Keeping this system in vogue itself can give an elementof mens rea in the assessee' action. As a result ofthis flaw in system, excessive depreciation was beingclaimed. The excess claim of depreciation was noted bythe Central Excise Authority as early as September,1999. Despite the above, the assessee chose to remainsilent and awaited the notice of the Income TaxDepartment dated 5.3.2002 to revise the return. Herealso, after having been made aware that excessive/falseclaim of depreciation has been made, the assessee didnot revise the return till the receipt of notice fromIncome Tax Department. The plea that the assessee hadappointed a consultant and was awaiting his report torevise the return clearly lacks cogency as discussed inprevious paragraph. This clearly exhibits element ofmens rea in the action of the assessee. Moreover, thesystem being followed by the assessee was automaticallydesigned to claim wrong amount of depreciation and tothis extent also the assessee can be held to be liablefor action u/s 271(1)(c).” On this plea, the Tribunal relied upon a decision of the SupremeCourt in K.C.Builders and another v. ACIT, (2004) 265 ITR 562 andupheld the order of penalty and dismissed the appeal filed by the assessee. 5. Aggrieved by the said order, the present appeal is filed bythe assessee raising the question of law, referred supra. 6. The main plea canvassed by the learned counsel for theassessee is that there is no concealment of particulars and,therefore, the penalty imposed under Section 271(1)(c) of the Actshould be set aside. 7. Before adverting to the merits of the case, it would beapposite to refer to Section 271(1)(c) of the Act, which reads asunder: “Section 271. (1) If the Assessing Officer or theCommissioner (Appeals) or the Commissioner in the courseof any proceedings under this Act, is satisfied that anyperson- (c) has concealed the particulars of his income orfurnished inaccurate particulars of such income, or Explanation 1.- Where in respect of any facts materialto the computation of the total income of any personunder this Act,- (A) such person falls to offer an explanation or offersan explanation which is found by the Assessing Officeror the Commissioner (Appeals) or the Commissioner to befalse, or (B) such person offers an explanation which he is notable to substantiate and fails to prove that suchexplanation is bona fide and that all the facts relatingto the same and material to the computation of his totalincome have been disclosed by him, (c) has concealed the particulars of his income orfurnished inaccurate particulars of such income, or Explanation 1.- Where in respect of any facts materialto the computation of the total income of any personunder this Act,- (A) such person falls to offer an explanation or offersan explanation which is found by the Assessing Officeror the Commissioner (Appeals) or the Commissioner to befalse, or (B) such person offers an explanation which he is notable to substantiate and fails to prove that suchexplanation is bona fide and that all the facts relatingto the same and material to the computation of his totalincome have been disclosed by him, Then, the amount added or disallowed in computing thetotal income of such person as a result thereof shall,for the purposes of clause (c) of this sub-section, bedeemed to represent the income in respect of whichparticulars have been concealed." (emphasis supplied) 8. In the case on hand, the finding rendered by the Tribunaland the authorities below is that the assessee has cautiously madeconcealment and furnished inaccurate particulars. A bare perusal of the orders of the authorities below shows that despite theirbeing knowledge from September, 1999, the assessee took no steps tofile a revised return up to 2002. Thereafter, on issuance of noticeby the Income Tax Department, the assessee filed revised return. Itis, therefore, clear that the assessee has not filed revised returnvoluntarily and had filed it only after the department issued noticeafter finding that depreciation has been claimed on assets withoutthe same being put to use. It is the bounden duty of the assesseeto verify as to whether the machineries have been put to use beforemaking a claim for depreciation. The conduct of the assessee inmaking a claim for depreciation without actually putting themachineries to use tantamounts to furnishing inaccurate particularsattracting the rigours of Section 271(1)(c) of the Act. 9. The only plea raised by the assessee that the said delay infiling revised return was on account of delay in obtaining theConsultant's Report was rejected by all the authorities below and wefind no reason to differ with the finding rendered by them in viewthe reasoning give above. We find that the assessee has furnishedinaccurate particulars and the explanation offered by them also isuntenable and not bona fide. In our considered view, the conduct ofthe assessee attracts the provision of Section 271(1)(c) of the Act. For the foregoing reasons, we have no hesitation to hold thatthe order of the Tribunal is justified. This appeal is dismissed andthe substantial question of law is answered against the assessee andin favour of the Revenue. No costs. Sd/-Assistant Registrar(CS-IV) //True Copy// sasi To 1. The Assistant Registrar, Income Tax Appellate Tribunal Chennai Bench "B", Chennai. 2. The Secretary, Central Board of Direct Taxes, New Delhi. of Direct Taxes, New Delhi. 3. The Commissioner of Income Tax (Appeals) - V Chennai. Chennai. 4. The Deputy Commissioner of Income Tax Company Cirlce-V(3), Chennai. 5. The Assistant Commissioner of Income Tax, Company Circle V (3) Chennai. Company Circle V (3) Chennai. 1CC to Mr.T.Ravikumar, Advocate SR 14940 T.C.(A).No.1129 of 2007 AK PSI 27.03.2015