Vildirect: IncomeTax-caselaws-1989-VIL-94-ITAT-

1989-VIL-94-ITAT-

Equivalent Citation: ITD 040, 070, TTJ 044, 583

Income Tax Appellate Tribunal BOMBAY

Date: 31.05.1989

ASSOCIATED CEMENT COMPANIES LIMITED.

DEPUTY COMMISSIONER OF INCOME-TAX.

BENCH

Member(s) : U. T. SHAH., B. M. KOTHARI.

JUDGMENT

Per Shri U.T. Shah, Vice-President--In this appeal the assessee is contesting the penalty of Rs. 2 crores imposed under section 271(1)(c) of the Act.

2. The assessee is a well known public limited company engaged in the cement industry. The assessment year is 1984-85 and the relevant previous year ended on 31st July, 1983.

3. The penalty proceedings were initiated against the assessee on the ground that it had made false claim of higher depreciation in respect of the following:

(1) Extra Shift Allowance (ESA) on electrical Installations.

(2) Pollution Control Equipment.

(3) Dumpers.

4. Before we go further into the matter, it would be necessary to mention certain undisputed facts borne out from the material already available on record :

(a) The assessee has its Head Office in Bombay with Branch Offices at various places in the country.

(b) The assessee has 23 units of production and 17 factories spread all over the country.

(c) The assessee has a clean record inasmuch as all along in the past, there were no serious disputes regarding depreciation claimed/allowed except perhaps, certain minor routine ones.

(d) The assessee was all along been furnishing the depreciation chart as a whole and it was for the first time that in the year under consideration the Assessing Officer asked for factory wise depreciation chart.

(e) The accounts of the assessee are computarised but on certain urgent occasions adjustment in the accounts are carried out manually, mainly to save time.

(f) On 29-6-1984 the assessee had filed its return of income, wherein it had claimed depreciation of Rs. 53.57 crores. However, in the revised return(s) as well as by letters addressed to the Assessing Officer from time to time the depreciation claimed by the assessee stood at Rs. 47.15 crores.

(g) The Assessing Officer took up the assessment only in 1987 by issuing a Notice on 21-4-1987.

(h) The first questionnaire was issued on 4-5-1987.

5. In order to better appreciate the rival stand of the parties, it would be necessary to mention at the outset, the basic facts regarding depreciation claimed/allowed as a whole and more particularly about the 3 items in question:

A. Depreciation claimed/allowed Rs. (In crores) Depreciation claimed in the original return 53.57 Depreciation withdrawn prior to 21-4-1987 :

(a) in respect of interest capitalisation Rs. 4.16 crores.

(b) in respect of Gagal Plant (ESA) 2.26 ,, 6.42

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47.15

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Depreciation allowed in the assessment. 48.33

B. Depreciation claimed/allowed in respect of three items Rs. (In crores) value ESA claim

(a) Electrical Installations

1. Claimed in return Opening Block 14.87 2.23 Additions 11.18 -----

2. Letter dt. 15-12-1987 Opening Block 5.66 0.85 Additions 8.58 1.29

3. Letter dated 28-12-1987

(Kept in abeyance)

(b) Pollution Control Equipments value Depre.

1 . Claimed in return Opening Block ---- --- Additions 2.90 2.18

2. Letter dated 28-12-1987 Opening Block 1.56 0.93 Additions 2.46 1.67

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4.02 2.60

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3. Allowed by the Revenue Opening Block 1.43 0.85 Additions 2.46 1.67

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3.89 2.52

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1. Claimed in return 2.64 0.99

2. Letter dated 28-3-1988 2.20 0.83

3. Allowed by the revenue 2.20 0.83

4. Eligible claim 2.20 0.99

6. At the outset, the learned counsel for the assessee was very fair and frank enough to state that the assessee could have avoided the situation in which it is placed if it had been careful enough in selecting/employing knowledgeable and efficient staff. Giving the background of the assessee-company, he stated that it is made up of number of companies amalgamated/taken over from time to time and has a vast net work throughout the country. Earlier, persons were taken in employment not strictly on merits but on various other consideration. Even at present also some of such employees are in the employment of the assessee-company. The assessee is not in a position to get rid of such persons at one stretch due to various reasons. However, quite a few of them have been retrenched with a Golden Shake hand. He further stated that over the years, a sort of rapport had developed between the assessee and the revenue in respect of the depreciation claimed/allowed. In this connection, he stated that the assessee had 33 units and 17 factories throughout the country and in order to work out depreciation one has to consider over 150 items in the depreciation rate schedule. Since the rate of tax applicable to the assessee remained mostly constant and since the assessee was entitled to 100% deduction by way of depreciation over the years, some sort of complacency had crept in on both sides. The degree of complacency was to such an extent that most of the time the assessee had failed to claim full depreciation to which it was entitled. Inviting our attention to pages 25 and 26 of the compilation 1 [being the statement of fact filed before the CIT(A)], he pointed out the following two such instances :

" (a) The assessee-company is a very large manufacturing company, in which not only the manufacturing and selling operations are spread out at various locations (thirty-three) but also the accounting systems are decentralized. Hence, the job involved in preparing the Return of Income is quite voluminous where certain errors could creep in, which in any case, are totally unintentional.

(b) As in this year, where due to certain mistakes the assessee-company had preferred higher depreciation claims in the original return of income (which in any case, were brought to the attention of the Assessing Officer and also withdrawn by the assessee-company suo motto), the company had also made mistakes in the past by claiming lower depreciation which had resulted in payment of higher taxes. Some such instances are :

(i) The company had reclassified during the accounting year 1983-84 certain buildings into plant and machinery retrospectively from the assessment year 1983-84 (Accounting year 1981-82). Although assessment for the year 1983-84 was not complete when such reclassification was done, the company erroneously did not prefer the claim for enhanced depreciation, in the assessment. The assessee-company found out this mistake only during the course of assessment proceedings for the assessment year 1984-85, and it preferred the claim for higher depreciation for the assessment year 1984-85 only. The claim which the assessee-company could have preferred in the year 1983-84 amounting to Rs. 1,33,96,621 has not been preferred till date.

(ii) The enhanced rate of depreciation in respect of Pollution Control Equipment was effective from assessment year 1983-84. Although the assessee-company was entitled to this enhanced rate of depreciation on all Pollution Control Equipments which were in use, at the time of assessment for the year 1983-84, the company did not erroneously prefer a claim for Rs. 89,75,040. However, it preferred a claim in respect of such assets only from the assessment year 1984-85. "

7. In the aforesaid background, the learned counsel for the assessee stated that it would be his endeavour to impress upon us that there was no justification on the part of the Revenue to invoke the provisions of section 271(1)(c) of the Act and impose penalty of Rs. 2 crores. The learned counsel for the assessee thereafter took us through the entire proceedings right from the date of filing of the return on 29-6-1984 till the date on which the assessment was framed, viz., 31-12-1987 and stated that the assessee had not only fully co-operated with the assessing authority, but the latter was equally considerate in his approach. In this connection, he further stated that this was one of the initial years where a senior officer of the rank of Inspecting Assistant Commissioner was entrusted with the assessment and, therefore, he had very rightly made detailed scrutiny before finalising the assessment. In fact, the scrutiny made by the IAC had come as a blessing in disguise to the assessee as it had to reclassify various items of plant/machinery and rework depreciation allowable thereon. In that process, the assessee not only got more depreciation than claimed for in the year under consideration (see para 5 above), but it was able to streamline the whole aspect of maintaining depreciation record which was in "a complete mess" as was rightly observed by the IAC (Assessment) in his order.

8. The learned counsel for the assessee reiterated his submissions made before the income-tax authorities and strongly urged that since there was no mala fide intention in claiming higher depreciation originally, the penalty imposed under section 271(1)(c) of the Act, should be set aside. Inviting our attention to the data (summarised in para 5 above), the learned counsel for the assessee was fair enough to state that it cannot be disputed that originally the assessee had claimed depreciation of Rs. 53.57 crores. However, he hastened to state that this was revised to Rs. 47.15 crores much before the Assessing Officer took up the assessment on 21-4-1987. Further, he highlighted the fact that in the assessment framed on 31-12-1987, the IAC has worked out the depreciation of Rs. 48.33 crores allowable to the assessee. In respect of the three disputed items, the learned counsel for the assessee pointed out that the assessee had given up its ESA claim on electrical installation in entirety, even though it cannot be disputed that the assessee was entitled to such claim both in respect of a part of the Opening Block as well as the addition made during the relevant previous year. The assessee took this decision inter alia on the ground that it would have spent more time, energy and man-hours in support of its claim. In this connection, he pointed out that ESA is not allowable on all electrical installations but it is allowable on such installations which are in the factory premises. On the contrary, there would not have been any loss to the assessee as it would get 100% deduction by way of depreciation over the years. As the rate of tax applicable to the company remains more or less constant, there would not have been much consequence. As regards the Pollution Control Equipment, he pointed out that as against the original claim of Rs. 2.18 crores made by the assessee, the depreciation allowed by the Assessing Officer was to the tune of Rs. 2.52 crores. As regards the Dumper, he stated that even though the assessee was eligible to claim depreciation of Rs. 0.99 crores based on a decision of the High Court in the case of Orissa Minerals Development Co. Ltd. v. CIT [1979] 117 ITR 434 (Cal.), it had claimed deduction of Rs. 0.83 crores and the same was accepted by the Assessing Officer. He also pointed out that as the records of the assessee in respect of the depreciation were in a mess, the Assessing Officer was fair enough to call upon the assessee to file a certificate of its auditor regarding the depreciation allowable to the assessee under the Act. According to the learned Counsel for the assessee, all this would clearly show that the original claim of depreciation made by the assessee was due to inadvertence or oversight and lack of proper application of mind. Otherwise, nobody in his senses would claim depreciation only on the Opening Block (as in the case of electrical installations) or only on the addition as in the case of Pollution Control Equipment but not on both. He also pointed out that even though the assessee was entitled to claim higher depreciation in respect of the Pollution Control Equipment in the assessment year 1983-84, the same was not claimed due to inadvertence/oversight. The learned Counsel for the assessee, therefore, fervently argued that on due and proper appreciation of the facts and circumstances obtaining in the instant case, we should hold that there was no justification in invoking the provisions of section 271(1)(c) of the Act. He made a reference to the decision in the cases of Narendra Kumar Rajendra Kumar Jain v. CIT [1988] 174 ITR 479 (MP) and Mahadeswara Movies v. CIT [1983] 144 ITR 127 (Kar.). Finally, he also made a reference to the order of the Tribunal in the case of Patel Engg. Co. v. ITO [1988] 39 Taxman (Mag.) 236 (Ahd.), to which one of us was a party.

9. The learned representative for the Revenue also took us through the entire record and highlighted the material aspect to impress upon us that all was not well with the assessee and that but for the thorough scrutiny made by the IAC (Assessment), the assessee would have got away with deduction of more depreciation than what was due to it. Taking us through the relevant portion of the order sheet entries, he pointed out that once the assessee was placed in a tight corner, it had no option but to give away its claim for higher depreciation. In this connection, he stressed the point that the assessee had revised its claim for depreciation not once or twice but as many as 7 times and ultimately, having found in a hopeless situation, it gave up its claim for higher depreciation. According to the learned representative for the Revenue, the attitude of the assessee was very much relaxed if not careless and negligent. He futher submitted that since it was not obligatory on the part of the assessee to claim depreciation, it is of no consequence that in the earlier years or even in the year under consideration depreciation was not claimed by the assessee on certain items even though it was eligible for such depreciation. In view of the decision of the Hon'ble Bombay High Court in the case of CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. [1989] 43 Taxman 76, depreciation cannot be foisted on the assessee. He further contended that since the mens rea has not to be established by the Revenue before imposing penalty under section 271(1)(c) of the Act, the burden was squarely on the assessee to prove that its case could not be brought within the mischief of section 271(1)(c) of the Act read with the Explanation thereto. He also submitted that in the matter of penalty, the assessee cannot take advantage of compensatory mistakes. According to him, since the assessee had not offered any explanation as to why it had claimed higher depreciation than that due to it in the Return originally filed, the income-tax authorities were fully justified in imposing penalty under section 271(1)(c) of the Act. In support of his various submissions, he relied on the decision in the cases of Gujarat Travancore Agency v. CIT [1989] 177 ITR 455 (SC), Vishwakarma Industries v. CIT [1982] 135 ITR 652 (Punj. & Har.) (FB), Chuharmal v. CIT [1988] 172 ITR 250 (SC), CIT v. Patram Dass Raja Ram Beri [1981] 132 ITR 671 (Punj. & Har.) (FB), CIT v. Drapco Electric Corpn. [1980] 122 ITR 341 (Guj.), CIT v. Bala I.M. Rao [1989] 177 ITR 114 (Mad.), CIT v. T.K. Manicka Gounder [1989] 178 ITR 274 (Mad.), CIT v. Durga Prasad More [1971] 82 ITR 540 (SC), CIT v. Varkey Chacko [1980] 126 ITR 469 (Ker.) and the order of the Tribunal in the case of ITO v. Geep Industrial Synticate Ltd. [1982] 23 ITD 448 (All.).

10. The learned counsel for the assessee, in his reply, once more invited our attention to the data summarised at para 5 above and pointed out that the assessee was granted more depreciation than it had claimed prior to the notice issued on 21-4-1987. Again, in respect of the 3 disputed items, the assessee gave up the first even though it was entitled to ESA on some of the electrical installation while in respect of the 2 other items the assessee got more depreciation than that claimed in the original return. Therefore, according to the learned counsel for the assessee none of the reported decisions relied on behalf of the revenue would be of any help in deciding the point at issue. Further, according to him, in the instant case, there was no question of invoking the provisions of the Explanation to section 271(1)(c) of the Act.

11. We have carefully considered the rival submissions of the parties and the voluminous material to which our attention was drawn by the parties. In our view, this is not a fit case for imposing penalty under section 271(1)(c) of the Act. In our opinion, on the appreciation of the facts and circumstances obtaining in the instant case in proper perspective the action of the income-tax authorities imposing penalty under section 271(1)(c) of the Act would not stand the scurity of a common man with a sound common sense leave apart a judicial mind trained in equity, justice and fair play. The purpose of the penal provision in the statute is well known, viz., to punish an erring assessee who tries to hoodwink the Revenue by concealing his income or furnishing inaccurate particulars thereof. In the instant case, the charge against the assessee is that it had claimed more depreciation than what was due to it. However, the factual position is altogether different. Let us examine the same one by one:

(a) Overall depreciation

It is no doubt true that in the return originally filed, the assessee had claimed depreciation of Rs. 53.57 crores. However, much before the Assessing Officer had taken up the assessment by issuing a notice on 21-4-1987, the assessee had revised its claim for depreciation to Rs. 47.15 crores. In other words, the assessee had let go its claim for depreciation to the tune of Rs. 6.42 crores. Out of this amount, Rs. 4.16 crores pertained to interest capitalisation. Even though certain High Court decisions are in favour of the assessee on this issue, it withdrew the claim just to avoid unproductive litigation. The balance of Rs. 2.26 crores pertained to Gagal Plant. Here also, the assessee withdrew the claim, as it was of the view that the same was not due to it in the year under consideration.

(b) ESA on Electrical Installations

Here, it would be seen that in the Return originally filed, the assessee had claimed ESA on the Opening Block only, even though it was entitled to ESA on the additions also. This is a clear case of inadvertence or a mistake which could have been rectified or remedied. It cannot be denied or disputed that the assessee was in fact entitled to ESA to the tune of Rs. 2.14 crores as per its letter dated 15-12-1987. However, as the information called for by the Assessing Officer was not readily available and that to collect and collate the same much time would have been consumed, the assessee decided not to claim the same. Surely for this act of the assessee, there cannot be any question of invoking the provisions of section 271(1)(c) of the Act.

Here also it would be worthwhile noting that the assessee claimed depreciation only on the additions made during the relevant previous year even though it was entitled to depreciation on the Opening Block also. This is yet another instance of inadvertence or mistake which could have been rectified or remedied. The Assessing Officer was fair enough to allow the assessee to revise its claim in this regard. The original claim was of Rs. 2.18 crores and the revised claim was of Rs. 2.60 crores, while the depreciation allowed was Rs. 2.52 crores. This also clearly establishes that no motive whatsoever could be attributed to the assessee so as to bring its case within the purview of section 271(1)(c) of the Act.

(d) Dumper

At the outset, it would be worthwhile observing that the issue as to whether the dumpers are "earth-moving machinery used in open cast mining" is highly debatable and the only reported High Court decision on this issue, at the relevant time, was in favour of the assessee. In this view of the matter, the assessee was eligible to claim depreciation of Rs. 0.99 crores. However, with a view to avoid time consuming litigation, the assessee revised the claim to Rs. 0.83 crores. Surely for this act of the assessee also there cannot be any question of invoking the provisions of section 271(1)(c) of the Act.

12. In view of the aforesaid discussion on the factual aspect of the matter, we do not deem it fit to advert to the reported decisions relied on by the either parties. Suffice it to say that these decisions support their respective stand. Resting our decision on the appreciation of the facts already available on record and discussed above, we hold that the income-tax authorities were not justified in imposing penalty under section 271(1)(c) of the Act. The same is, therefore, cancelled.

13. Before we part with this order, we would like to mention that both the learned counsel for the assessee as well as the learned representative for the Revenue have placed their respective stand forcefully and objectively. We very much appreciate the manner in which they took us through the entire record, the case law on the issue involved and satisfactorily replying to the queries raised by us during the course of hearing.

14. In the result, the appeal is allowed

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