Vildirect: IncomeTax-caselaws-1998-VIL-114-ITAT-MUM

1998-VIL-114-ITAT-MUM

Equivalent Citation: 1999 (68) ITD 117

Income Tax Appellate Tribunal MUMBAI

ITA No. 1988/Bom/1995

Date: 27.04.1998

SHRI ISHAR ALLOY & STEEL LTD.

ASSISTANT COMMISSIONER OF INCOME-TAX

For the Petitioner : M. C. Mehta, Shivprakash
For the Respondent : P. N. Prasad

BENCH

Vimal Gandhi (Vice President )And J. K. Verma (Accountant Member)

JUDGMENT

J. K. Verma (Accountant Member)

The assessee in this case is a limited company. Its previous year for this assessment year of 23 months ended on 31-3-1989. The assessee company had been carrying on the business of running a Steel Mill. During the relevant previous year, the assessee had undertaken a large scale expansion of its factory and as such, claimed to have constructed, purchased, installed and used buildings, plant and machinery at a substantial cost. It filed a return of income on 31-8-1990 declaring a total income of Rs. 1,19,65,385 for arriving at this figure the assessee had, inter alia claimed depreciation on assets as under :

(1)	On office & Factory Building at	Rs. 26,29,246
(2)	On plant & machinery at	Rs. 1,81,30,363
(3)	On furniture, vehicles & office equipment	Rs. 85,484
		Rs. 2,08,45,093

2. The company had also claimed investment allowance on plant and machinery amounting to Rs. 1,08,79,252 in respect of the new unit. The AO completed the assessment on 30-3-1992 on an income of Rs. 4,64,09,745. While assessing the income at this figure, the AO did not inter alia, allow the following claims of the assessee :

(1)	Depreciation on all the assets	Rs. 2,08,45,093
(2)	Investment allowance on new unit	Rs. 1,08,79,252
(3)	Investment allowance on additions	Rs. 4,65,036
	to old unit

3. In the concluding paragraph of his order, the AO made observation to the effect that the assessee had neither installed nor used the plant and machinery in the New Unit, its claim for depreciation & investment allowance was rejected and penalty proceedings for making false claim were initiated separately u/s. 271(1)(c).

4. Thereafter, the assessee passed through a series of income-tax proceedings including various rectifications u/s.154, appellate orders of CIT(A), orders being partly set aside by him, fresh assessments on that basis, further orders from CIT(A), appellate order of ITAT dated 10-8-1993 in which the Tribunal allowed depreciation on cranes, but rejected assessee’s claim of depreciation on UHP (Ultra High Power) Furnace. Since the Tribunal omitted to give decision regarding claim for depreciation on various other assets, the Tribunal’s order was recalled on 10-2-1995 and another order on the remaining issues was passed on 22-11-1995. Meanwhile on 27-4-1994 the AO passed a penalty order on the basis of Tribunal’s first order dated 10-8-1993, holding that the assessee had got relief only in respect of depreciation on cranes. The assessee came in appeal against that order before the CIT(A) and he vide his order dated 19-12-1994 confirmed imposition of penalty for making "wrong claim" for depreciation and investment allowance. Shri Mehta, pointed out and has filed a copy of CIT(A)’s order dated 1-2-1993 in which on p-5 para-10, he has allowed the relief of Rs. 26,29,246 to the assessee, which was not considered as allowed by CIT(A) in his appellate order dated 19-12-1994 against the imposition of penalty.

5. As we have mentioned earlier, the Tribunal passed a second order on 22-11-1995 and dealt with those issues which were left out by the Tribunal from being decided in its order dated 10-8-1993. In the second order the Tribunal allowed the entire claim of the assessee regarding depreciation except on UHP Furnace which had been rejected by the Tribunal and on cranes which had already been allowed by the Tribunal vide its order dated 10-8-1993. Further it allowed the entire claim of investment allowance including on UHP Furnace.

6. The sum and substance of all this narration is that whereas the AO had virtually disallowed the entire claim of depreciation and investment allowance on new unit, after the final order of the Tribunal and various orders of AO and CIT(A), the only disallowance which remains substained is regarding the claim of depreciation on UHP Furnace.

7. The ld.counsel for the assessee submitted that inspite of this, while recomputing the penalty after the relief allowed by the Tribunal in its second order, the AO in his order dated 30-10-1996 has still taken the income in respect of which inaccurate particulars have been filed at Rs. 2,63,97,203 and has computed tax on that at Rs. 1,41,73,532 and on that basis has worked out the minimum penalty at Rs. 78,91,702 (p.157 of paper book).

8. In this background, Shri Mehta submitted that since the AO had initiated the penalty proceedings only in respect of depreciation and investment allownce on plant and machinery of the new unit, there was no justification for his imposing the penalty with reference to the depreciation on other assets.

9. We have considered this submission of Shri Mehta and find force in it. However, since all other disallowances except depreciation on UHP furnace of the new unit, stand deleted, even on merits the penalty on the basis of disallowance of depreciation and investment allowance on other assets cannot be sustained.

10. Therefore, the only item which deserves our attention is assessee’s claim for depreciation on UHP furnace which stands finally disallowed by the Tribunal and the question whether penalty u/s. 217(1)(c) can be sustained on that basis.

11. Shri Mehta drew our attention to the first order of the ITAT and submitted that the AO and the CIT(A) had emphasised only those lines of their Tribunal’s order where it was held that the assessee had not substantiated its claim, but they had ignored the next following clarification given by the Tribunal to the effect that they were "not for a moment suggesting that the view taken by the department is unfallible or correct" (p.5 of the paper book). He further drew our attention to Tribunal’s observations in its second order where assessee’s claim of depreciation on various other assets had been allowed and even in respect of UHP furnace assessee’s claim for investment allowance had been allowed. The Tribunal (at pp-72-73 of the paper book) had held that "UHP furnace was clearly installed and it was ready for use before 31-3-1989".

12. Shri Mehta further drew our attention to various pieces of evidence which assessee had produced and which are discussed in both the orders of the Tribunal. He submitted that in the first order while rejecting assessee’s claim for depreciation on UHP furnace the Tribunal had found those pieces of evidence as unreliable, in the second order the Tribunal had given relief relying on same evidence. He submitted that the AO had stated in his order that the UHP furnace required two days for tempering, but in fact it required only 3½ hours and the assessee had run that furnace for 5 hour on 31-3-1989. For this purpose, he had furnished evidence in the form of his log book showing that production on 31-3-1989 was 224.519 tons out of which 17.208 M.T. was from new unit (p.109 of paper book). The assessee had filed a certificate from the Excise Deptt. dated 26-7-1989 to the effect that the assessee had done production of 17.208 tons from the new unit. A certificate from the assessee’s General Manager was filed (p.110 of paper book). It had also filed a copy of the Excise Register showing that there was production of 17.208 M.T. of ingots. He also referred to the certificate from the M.P.Electricity Board to the effect that there was a continuous supply of electricity to assessee for 24 hours on 30th & 31st March, 1989.

13. Shri Mehta submitted that from the two orders of the Tribunal it was clear that the assessee had installed and used all the machinery but it had only not been able to prove positively that it had done commercial user of the UHP furnace on 31-3-1989. At the same time the Tribunal had clearly held that the department had also not been able to prove its case. According to Shri Mehta, assessee’s failure to prove the user may lead to disallowance of depreciation but it cannot lead to imposition of penalty u/s. 271(1)(c).

14. In this context, the ld. counsel further submitted that the notice of the AO did not specify whether the proceedings were for "concealment" or for "filing inaccurate particulars" of income. He referred to some case law to plead that such circumstances the imposition of penalty should be quashed.

15. He also referred to a number of decided cases of various benches of the ITAT, High Courts and Supreme Court, photocopies of which have been filed before us, to canvass that in the facts and circumstances of assessee’s case, penalty u/s. 271(1)(c) cannot be sustained.

16. The ld. Departmental Representative, on the other hand, argued that user of the UHP furnace, as considered by the Tribunal in its detailed order dated 10-8-1993, was not proved. According to him, since as per p.109 of the paper book assessee’s production on 25-3-1989 was 265 MT, its production of 241 MT on 31-3-1989 did not conclusively prove that the UHP furnace had worked on that day. Regarding the certificate from Excise Deptt., he alleged that since the Excise Deptt. prepare its report on the basis of information furnished by the assessee, that could also not be a proof of assessee’s having actually worked the UHP furnace. Regarding the other certificates, the ld. Departmental Representative argued that if the assessee could manipulate its books of account, there was no reason why it could not manipulate certificates from interested parties or with whom it had close business dealings. Similarly, according to him, the certificate from the M.P. Electricity Board could not show that the UHP furnace was used on 31-3-1989 because it certified only the uninterrupted supply of electricity on 31-3-1989. He heavily relied on various arguments considered by the Tribunal in its order dated 10-8-1993 while rejecting assessee’s claim for depreciation on UHP furnace. He further submitted that the penalty notice was not a form prescribed by law and it would make no difference if the AO omits to tick either of "concealed" or "filed inaccurate particulars" of income in that form. He submitted, that in view of the detailed discussion in the assessment order, the assessee very well knew why the penalty proceedings were initiated and no legal flaw could be found in the order of AO for this reason.

17. Finally, the ld.Departmental Representative relied on the decision in the case of CIT v. Somnath Oil Mills (1995) 214 ITR 32 according to which the findings in the assessment order were good evidence for imposition of penalty u/s. 271(1)(c). He, therefore, argued that the penalty in so far as it pertains to those disallowances which have been sustained, upto the Tribunal stage, must be confirmed. He also referred to decisions in the cases of R.B.Shreeram Durga Prasad Fatechand Narsingdas v. CIT (1987) 168 ITR 619 (Bom.), A.K. Bashu Shaib v. CIT (1977) 108 ITR 736 (Mad.) and Thakur Veerpal Singh v. CIT (1988) 172 ITR 238 to canvass that the penalty in this case must be sustained.

18. We have carefully considered the rival submissions, the material on record and the case law cited from both the sides. In our considered opinion, in the facts and circumstances of the case, the scale clearly and positively titts in favour of the assessee and against the revenue. It is by now a settled law that whereas the onus of proving the claim for any deduction, exemption or allowance is on the assessee, the onus of proving that the assessee has concealed the income or has filed inaccurate particulars, always remains with the department. Even according to the provisions of Explanation 1 to sec. 271(1) (c), the burden from the assessee shifts to the department the moment the assessee is able to show that its claim was bona fide. In the instant case, we have given the various stages of assessment of assessee’s income to indicate that assessee’s claims were, in any case, such contentious issues that the various authorities could reject assessee’s claim after very detailed arguments and, yet, had to rectify the mistakes committed by them to give further relief to the assessee. Then the Tribunal in its order dated 10-8-1993 disallowed the claim of depreciation on UHP furnace, yet, allowed depreciation on cranes, the disallowance of which had been upheld by the authorities upto CIT(A)’s stage. Finally, the Tribunal vide its order dated 22-11-1995 allowed all the claims of the assessee regarding depreciation and investment allowace but refrained from touching the issue of depreciation on UHP furnace because it had already been decided against assessee by the Tribunal in its first order. Moreover, even in the order of the Tribunal dated 10-8-1993, as pointed out by Shri Mehta, the Tribunal had specifically mentioned that they were "not for a moment suggesting that the view taken by the department was infallible or correct". This would indicate that assessee’s claim for depreciation was disallowed because there were reasons to doubt as to whether the UHP furnace was really used on a commercial scale on 31-3-1989. But when it comes to imposition of penalty u/s.271(1)(c), which are quasi-criminal proceedings, penalty cannot be imposed on the basis of a doubt, howsoever strong, and the benefit of doubt has to be given to the assessee. In the penalty proceedings u/s.271(1)(c) the revenue has to prove that the asset was not used at all or could not have been used at all. The revenue has rejected the various certificates for disallowing the depreciation. But in order to sustain the penalty the revenue could have cross-examined or made further inquiries from those parties and then could have established that the certificates were false or facts certified therein were impossible of having existed. Further, in our view, the certificate from another Govt. department like Excise Deptt. cannot be lightly rejected for imposition of penalty by inferring that that department had given a specific certificate that the new UHP furnace had given a production of 17.208 MT, only on the basis of false and concocted information supplied by the assessee. In our view, the cases cited by the ld. Departmental Representative do uphold the proposition that penalty u/s.271(1)(c) can be imposed if it is held as a fact by the Tribunal in the quantum appeal that the information given in the return was false. But merely because any addition has been confirmed cannot lead to an automatic imposition of penalty u/s.271(1)(c). We may mentioned that for arriving at these conclusions, we are well supported by the decisions relied upon by the ld. counsel for the assessee. We may refer to the contents of only a few of them.

19. In the case of Madras Spinners Ltd. v. Dy. CIT (1993) 47 ITD 213 (Coch.) the circumstances were almost similar to assessee’s case. the AO disallowed assessee’s claim for depreciation and investment allowance on the ground that the relevant machinery had not been commissioned on or before 31-3-1986. That AO had also rejected the evidence in the form of log book, General Manager’s certificate (which is there in assessee’s case also) and technician’s report and also initiated penalty proceedings. It was held that assessee’s claim could not be disallowed. Again,the facts and circumstances in the case of Dy. Commissioner v. Texmo Industries (1995) 53 ITD 370 (Mad.) were similar. The Madras Bench of the Tribunal held that when assessee’s claim for depreciation and investment allowance were bona fide, mere refusal of allowance for want of conclusive proof that machines were installed on date in question, could not be a basis for imposition of penalty under section 271(1)(c). In the case of Smt. Ramilaben Ratilal Shah v. Asstt. CIT (1998) 60 TTJ (Ahd.) 171, the Ahmedabad Bench of the Tribunal held that notings in diary could be sufficient evidence for making additions but not for imposing penalty under section 271(1)(c). In the case of Kejriwal Bros. v. Asstt. CIT (1997) 60 ITD 502 (Pat.) where the assessee had agreed to an addition of Rs. 5 lakhs to its income, the penalty under section 271(1)(c) was cancelled by the Tribunal because the penalty order did not contain any independent finding based on valid inquiry regarding concealment of income by the assessee.

20. We may observe that in the case before us the situation, which emerges, can be put in a nutshell as follows :

The assessee believed that if it sets up a new plant and machinery by 31-3-1989 and uses it even for a day, it can get the benefit of deduction of depreciation and investment allowance in this year. The assessee admittedly started on this venture and adduced evidence, which it thought was sufficient to get the relief. The assessing authority and even the Tribunal did not find that evidence to be sufficient, However the Tribunal found that evidence to be insufficient in respect of only one machine out of a large number of machines and that too for the claim of depreciation only, although on same machine investment allowance was allowed. Yet, the AO could not establish that the evidence adduced by the assessee was false or the claim of the assessee was not bona fide. In our view, while this lack of sufficient evidence may lead to disallowance of assessee’s claim, in the absence of a positive finding regarding the falsity or impossibility of assessee’s claim having been established by the AO, even on the basis of preponderance of probability, penalty under section 271(1)(c) cannot be imposed. We would like to conclude by quoting from the judgment of the Supreme Court, cited by the ld. counsel for the assessee. Although it has been given in the context of M.P. Sales Tax Act, yet, in our opinion,the ratio would hold good in all the cases like the one before us also, where the question is as to whether a person can be penalised only because he has asked for a relief which it/he believes to be admissible to him according to law, but the administrator’s of that law reject the claim on the ground that it cannot be allowed on account of lack of sufficient and satisfactory evidence to prove it conclusively. In the case of Cement Marketing Co. of India Ltd. v. Asstt. CST (1980) 124 ITR 15, their Lordships observed on p-19 of the report as under :

". . . penalty is penal in character and unless the filing of an inaccurate return is accompanied by a guilty mind, the section cannot be invoked for imposing penalty. If the view canvassed on behalf of the revenue were accepted, the result would be that even if the assessee raises a bona fide contention that a particular item is not liable to be included in the taxable turnover, he would have to show it as forming part of the taxable turnover in his return and pay tax upon it on pain of being held liable for penalty in case his contention is ultimately found by the court to be not acceptable. That surely could never have been intended by the Legislature."

21. Taking into account all the facts and circumstances of the case as discussed above, we hold that the assessee had made bona fide claims for depreciation and investment allowance on its large number of items of plant and machinery and if depreciation on one item was not allowed at the Tribunal stage, against disallowance of both depreciation and investment allowance on all the items made by the AO, the assessee cannot be held to be liable for default under section 271(1)(c) even if it is read with Explanation 1 of that section. Since, we are cancelling the penalty on merits we do not consider it necessary to give our opinion regarding the legal implications of not specifying in the notice clearly whether the penalty was initiated for "concealment" or for "filing inaccurate particulars" of income.

22. Accordingly, the penalty under section 271(1)(c) imposed on the assessee is cancelled.

23. The appeal filed by the assessee is allowed.

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