Income Tax Appellate Tribunal - Madras
Southern Gas Fittings (P) Ltd. vs Deputy Commissioner Of Income Tax on 11 June, 2001
Equivalent citations: [2002]80ITD202(CHENNAI)
ORDER
Bhavnesh Saini, J.M.
1. This appeal by the assessee is directed against the order of the CIT(A) dt. 20th April, 1993 for the asst. yr. 1990-91 confirming the penalty imposed by the AO under Section 271(1)(c) of the IT Act.
2. We have heard the learned counsel for the assessee and the learned Departmental Representative. We have perused the material on record and gone through the case laws relied upon by both the parties. The assessee has filed this appeal mainly on the following grounds :
(1) The CIT(A) erred in confirming the penalty levied under Section 271(1)(c) of the IT Act.
(2) The CIT(A) has erred in his finding that the assessee has deliberately furnished inaccurate particulars of its income.
(3) The CIT(A) has failed to note that the assessee has never denied having commenced trial production during the asst. yr. 1990-91.
(4) The CIT(A) has failed to note that as a gesture towards avoidance of litigation, the assessee agreed to the disallowance of the depreciation and investment allowance claimed.
(5) The CIT(A) has failed to note that the claim of the assessee right from the beginning was that depreciation and investment allowance was claimed based on trial production commencement and this was not denied or withdrawn at any point of time by the assessee.
3. The learned counsel for the assessee besides relying upon the grounds of appeal, argued that even though quantum assessment was not challenged because of the reason that the assessment was made on a total income of Nil, the depreciation on machinery was claimed correctly and the other deduction in accordance with law. He further argued that the assessee used the generator for the purpose of production and also submitted that on 1st March, 1990, cheque for the payments were cleared and the record was kept for the scrutiny by the Department, in which it was clearly mentioned that initial production was stated and some sales were also made in March, 1990. It was further submitted that sales of scrap was done because of certain reasons as explained in the statement recorded by the Department. However, the AO was not satisfied with the submissions made by the assessee's representative.
4. The learned counsel for the assessee further submitted that the assessee had some production in the relevant accounting year and has not raised any false claims. He further argued that it was a case of difference of opinion and all the facts were brought to the notice of the AO. Therefore, there was no case of concealment of income or filing of any inaccurate particulars before the authorities below. He also placed reliance on the decisions in CIT v. M.P. Narayanan (2000) 244 ITR 528 (Mad), Addl. CIT v. Murugan Timber Depot (1978) 113 TTR 99 (Mad), Balaramakrishna Engg. Contrs. Corporation v. Dy. CYT (1996) 56 ITD 411 (Hyd) and Sir Shadilal Sugar & General Mills Ltd. v. CIT 171 (1987) 168 ITR 705 (SC).
5. The learned Departmental Representative, on the other hand, argued that the assessee did not challenge quantum assessment and filed inaccurate particulars of income and submitted that the assessment order under Section 143(3) was passed on merits and became final. He further argued that minimum penalty has been imposed in this case. He relied upon the decision of the Patna Bench of the Tribunal in the case of Asstt. CYT v. Sharma Cold Storage & Ice Factory (P) Ltd- (1998) 60 TTJ (Pat) (TM) 684 : (1998) 64 ITD 129 (Pat)(TM) and the decision of the Madras High Court in the case of P. Govindaswamy v. CIT (2000) 244 ITR 510 (Mad) and strongly relied upon the orders of the lower authorities and submitted that the appeal may be dismissed.
6. The facts as taken from the records are that in the assessment proceedings under Section 143(3) of the Act, accounts were examined and in the course of examination of the accounts, it was noticed that the assessee had not commenced commercial production during the previous year. However, the assessee had claimed that trial run production was carried out during the year with the help of hired generator and also sold out goods so manufactured during trial production. According to the AO, no record with regard to that was produced before him. Since no commercial production was started, the AO was of the opinion that the assessee was not entitled for deduction on account of depreciation and investment allowance. He, however, based the assessment order on the total income at Nil for the asst. yr. 1990-91. He also separately initiated proceedings under Section 271(1)(c) of the IT Act and in response to the notice, the assessee filed reply and pointed out that at the time of assessment, the assessee has filed a letter dt. 28th July, 1992 stating therein that during the previous year, the company made trial run production in March, 1990 and, therefore, the assessee issued 'No objection' in disallowing the loss as well as the depreciation claimed in the assessment. The assessee also explained in the reply, dt. 24th Sept., 1992 to the notice under Section 271(1)(c), requesting for dropping, of penalty proceedings on the ground that the assessee-company came forward voluntarily and in good faith made full disclosure and co-operated with the Department.
7. The AO did not agree with the contentions of the assessee and was of the view that the assessee deliberately furnished inaccurate particulars and made false claim of depreciation and investment allowance etc., and, therefore, these items were withdrawn. The AO, therefore, imposed penalty under Section 271(1)(c) of the Act. On appeal, the CIT(A) confirmed the order of the AO and sustained the penalty imposed by the AO.
8. We have bestowed our careful consideration and we do not subscribe to the view taken by the lower authorities. The learned CIT(A) mainly dismissed the appeal of the assessee, while going through the Director's Report, dt. 22nd June, 1990 annexed to the Annual Accounts, filed along with the return of income in which it was stated that commercial production was started in March 1990 and the CIT(A) further relied upon the letter of the assessee, dt. 28th July, 1992 which was filed before the AO. The CfT(A) further believed that since no commercial production was started, the assessee wrongly claimed depreciation and investment allowance.
9. The learned counsel for the assessee filed on record admission on oath given by Shri K, Mohanam Pillai and also filed a letter, dt. 27th July, 1995, issued the Dy. CIT., Spl. Range-XI, in which it was stated that books and documents impounded were retained by the Department till June, 1996. In the statement recorded by the Department, Shri K. Mohanam Pillai, who was the Principal Officer of the assessee, was asked to answer the questions put before him and his statement was recorded in the form of question and answer form and the assessee maintained during the question time that copies of sale invoices were maintained for March, 1990 and also admitted that sales were made in the year ending 31st March, 1990.
10. It was further claimed and explained that sales were shown as scrap as the assessee had informed the parties that they were not sure of how much pressure it can withstand and hence it should be used for low pressure application such as drain pipe, etc. Therefore, it was due to this that word 'scrap' has been mentioned to indicate it was of second quality. It was also answered that the assessee was not having own generator and had to hire it from some other party. It was also answered to a question that the AO told the authorised representative of the company that the commercial production had not started during the year and there was only a trial production. Therefore, the claim for depreciation and business loss should be withdrawn in which case, the matter shall be dropped. The assessee again replied to this question that because of the discussion of the authorised representative with the AO, letter dt. 28th July, 1992 was filed primarily to buy peace with the Department. It was also answered to a specific question that the assessee had documentary evidence to show that the assessee had commenced production on trial basis and the claim for depreciation etc., was withdrawn to buy peace.
11. It was also answered that the assessee had made two sales during the year; one on cash and the other on cheque and the cheque was encashed in the account of the assessee. The assessee also paid sales-tax due to the ST Department, which according to the assessee shows that some production activity was started and sales was also made. According to the assessee's explanation, a letter was filed withdrawing the claim primarily to buy peace as the assessee was also not going to suffer anything as the return was filed at loss, which was ultimately assessed at Nil income. Therefore, from the statement given before the authorities and explained in the letter, certain facts, in our opinion, have not been considered properly by the lower authorities and that there was some production in the accounting year and the machines were used. Sale of pipes as scrap was shown because of certain reasons as claimed in the statement and sales were made even through cheque and the statement given to the Department also shows that the claim was withdrawn during the assessment proceedings to buy peace with the Department. The learned CIT(A), in our view, was misled by the Director's Report about the production. But it was stated that the production was stopped to avoid loss due to generator expenses. Hence, even from the Director's Report or from the letter dt. 28th July, 1992, it is clear that at no point of time, the assessee claimed that there was no production at all; or that false claim was made with regard to depreciation or investment allowance or business loss.
12. The assessee was of the opinion that it is entitled to depreciation and investment allowance as it started trial production in March, 1990, but during the course of assessment proceedings, it was brought to its notice by the AO that since commercial production had not been started during the year, the claim for depreciation, investment allowance and business loss be withdrawn to close the matter. The assessee, accordingly did it and made a statement to that effect in its letter dt. 23th July, 1992 primarily to buy peace. So, it was clearly a case of difference of opinion and not of concealment of any fact. The assessee had never admitted that production had not started. The statement recorded by the Department, copies of which are available on record shows that bill, etc., were maintained, some sales were recorded and sales-tax was also paid. Therefore, in our considered view, all the particulars were given correctly to the authorities below and all facts were brought to the notice of the AO during the assessment proceedings itself and nothing was detected by the AO to show that the assessee had deliberately filed any false claim or filed inaccurate particulars of income.
13. The Hon'ble Supreme Court in the case of Sir Shadilal Sugar & General Mills Ltd. (supra) has dealt with the penalty proceedings and held as under;
"Penalty--Concealment of income--Assessee admitting that certain items of debit represented income--Agreeing to their addition to maintain good relations--Assessment completed under 1922 Act--Tribunal in penalty proceedings considering all facts including admission--Existence of evidence supporting Tribunal's conclusion that there was no concealment--Tribunal's findings not based on conjecture or surmises--High Court not entitled to take another view."
From the assessee's agreeing to the additions to its income, it does not follow that the amount agreed be treated as concealed income.
14. The Hon'ble Madras High Court in the case of CIT v. C.J. Rathnaswamy (1997) 223 ITR 5 (Mad) has held that :
"according to the facts arising in the present case, the assessee agreed for an addition of the undisclosed income, but did not agree for addition on the basis that the undisclosed income was his concealed income. It was also admitted that the Department had not brought any other material to show that the assessee had concealed the income or furnished inaccurate particulars so as to warrant penalty. The Tribunal was justified in cancelling the penalty."
15. The Hon'ble Madras High Court, in the case of M.P. Narayanan (supra) has held that "firm agreeing to addition of cash credit in its income--No evidence of concealment of income--Application for waiver of penalty would not amount to admission of concealment." The learned counsel for the assessee also relied upon the decision of the Madras High Court in the case of Addl. CIT v. Murugan Timber Depot (supra), in which it was held that "Quantum of penalty is dependent on tax payable" and further held that "Section 271(1) indicates that the penalty contemplated in all the three clauses is a measure of the tax payable by the assessee so that if no tax was payable by the assessee, there will be no penalty which can be levied on the assessee". The Hon'ble Madras High Court in the case of CIT v. V. Rasmaswamy Naidu has held that : "The fact that the assessee's explanation regarding a cash credit or other receipt is disbelieved and the amount is assessed in his hands, does not by itself justify the Department in imposing a penalty. The circumstances of the case must be such as to lead to the reasonable and positive conclusion that the amount represents the assessee's income."
16. The Full Bench of the Kerala High Court in the case of CIT v. India Sea Foods (1996) 218 ITR 629 (Ker)(FB) has held that :
"as there was no conscious concealment of income and as this was not a case where the Revenue through its machinery had unearthed the concealment and as the Tribunal on a consideration of the entire matter had found that there was no concealment as such by the assessee, it could not be said that the Tribunal's finding was perverse or legally wrong and, therefore, there was no point for reference."
17. The above referred cases are squarely applicable to the facts and circumstances of the case on hand. The learned counsel for the assessee further relied upon the decision of the Hyderabad Bench of the Tribunal, in the case of Balaramakrishna Engg. Contrs. Corporation v. Dy. CIT (supra), but this case is clearly distinguishable from the facts of the case on hand.
18. The learned Departmental Representative relied upon the decision of the Madras High Court in the case of P. Govindaswamy v. CIT (supra), but on facts, the same is distinguishable to the case under consideration, as in the case decided by the High Court, there was an admission by the assessee with regard to the concealment of income, but in this case, the assessee had never admitted that there was no production. Therefore, in our respectful view, the same is not applicable to this case. The learned Departmental Representative also relied upon the decision of the Tribunal, in Sharma Cold Storage & Ice Factory (P) Ltd.'s case (supra), in which it was held that penalty can be imposed even if toss is reduced. But, here in this case, facts are different and it is not clear whether the assessee claimed set off of loss in next year. Since the assessment was completed on Nil income, there is no question of setting off of toss in next year.
19. The learned CIT(A) relied upon many cases as listed out in the list submitted by the learned counsel for the assessee. A perusal of these cases reveal that these judgments are not having any bearing on the penalty proceedings under Section 271(1)(c) of the IT Act.
20. At the cost of repetition, we may mention here that from all the facts and circumstances of the case, it seems that it is a case of difference of opinion, as the claim for depreciation etc., was made by the assessee on the basis of trial production which was supported by record, but the stand of the Department was that since no commercial production was there, the assessee is not entitled for such claim. All the facts of the case were before the AO and as such, it cannot be said to be a case of filing inaccurate particulars or making any concealment before the AO. Even if the assessee would claim this depreciation etc., on merits and rejected by the AO, still law is clear that even if the explanation of the assessee is rejected, no case for imposition of penalty would be made out.
21. Keeping in view all the facts and circumstances of the case, we are of the considered view that the authorities below have acted wrongly and imposed penalty upon the assessee, without considering all the facts and circumstances of the case in its entirety. Accordingly, we set aside both the orders of the lower authorities and cancel the penalty levied under Section 271(1)(c) of the IT Act.
22. In the result, the appeal is allowed.