Orissa High Court
Commissioner Of Income-Tax vs Indian Metals And Ferro Alloys Ltd. on 9 November, 1993
Equivalent citations: [1995]211ITR35(ORISSA)
Author: A. Pasayat
Bench: A. Pasayat
JUDGMENT A. Pasayat, J.
1. These two reference applications are interlinked and are therefore disposed of by this common judgment.
2. Pursuant to the direction given by this court, on being moved by the Revenue under Section 256(2) of the Income-tax Act, 1961 (in short, "the Act"), the Income-tax Appellate Tribunal, Cuttack Bench (in short, "the Tribunal"), has referred the following question for opinion :
"Whether, on the facts and in the circumstances of the case, the claim of deduction under Sections 32 and 33 of the Income-tax Act on incorrect facts by an assessee which is a company registered under the Companies Act, amounts to concealment to attract Section 271(1)(c) of the Income-tax Act ?"
3. The background facts as indicated in the statement of the case are as follows :
Messrs. Indian Metals and Ferro Alloys Limited (hereinafter referred to as "the assessee") is a company registered under the Companies Act, 1956, and carries on the business of manufacture of ferro silicon. A second unit was established by it consisting of 24,000 KVA furnace for manufacture of ferro silicon. Plant and machinery were installed by September 11, 1973. The actual electric connections were provided on December 27, 1973. For the assessment year 1974-75, corresponding to the accounting year ending December 31, 1973, the assessee made a claim that it had started production in the calendar year but due to some minor rectifications and delay in supply of electric power, there was no commercial production. The necessary power supply was started from January 19, 1974. and commercial production was commenced on and from February 7, 1974. For the assessment year 1974-75, the assessee filed its return of income on August 1, 1974, showing a loss of Rs. 79,54,164. Subsequently, a revised return was filed on March 30, 1976, disclosing a loss of Rs. 86,27,350. It was indicated that the filing of the revised return was necessary because an additional claim of Rs. 6,59,172 was by mistake included in the statement for the subsequent year ending on December 31, 1974. Another revised return was filed on June 15, 1976, showing loss of Rs. 87,80,210. This was stated to be necessary mainly due to increase in the claim for development rebate. Further a revised return was filed on November 8, 1977, showing loss of Rs. 81,79,380 and the decrease in loss was explained to be mainly due to withdrawal of the claim for relief under Section 80J of the Act.
4. The assessee was at the relevant point of time assessed to income-tax by the Inspecting Assistant Commissioner of Income-tax (Assessment), Bhubaneswar. Originally, the assessment was completed ex parte on March 22, 1977, under Section 144 of the Act, and the loss claimed was disallowed. Subsequently, the assessee filed an application under Section 146 of the Act for reopening the assessment, which was accepted. The assessment was cancelled and was reopened on April 15, 1977. By order dated October 30, 1979, the assessment was completed by the Inspecting Assistant Commissioner under Section 143(3) of the Act. He was of the view that certain amounts claimed by the assessee as rebate were not allowable. Accordingly, they were disallowed and included in the income of the assessee. Penalty proceedings under Section 271(1)(c) of the Act were initiated. The assessee submitted its reply in respect of the following claims which were the subject-matter of controversy :
Rs.
(i) Development rebate (at the rate of 25 per cent, of Rs. 2,53,74,964) as on December 31, 1973 63,43,741
(ii) Depreciation 41,36,208
(iii) Guarantee commission 89,794
(iv) Interest accrued but not due for installation of plant No. II 89,893
5. In the course of the assessment proceeding as well as the penalty proceeding, the Inspecting Assistant Commissioner found that the new plant, i.e., the second unit was not really commissioned in the accounting year ended December 31, 1973, and had not given any production during the corresponding assessment year 1974-75. The assessee, however, made categorical statements, basing upon its various letters and reports, that the company charged the raw materials into the furnace and put the raw materials handling system and the furnace, etc., in use for the purpose of the business of the company on December 27, 1973, and, accordingly, claimed depreciation and development rebate. It was stated that plant and machinery were used during the year. A trial production was made on December 27, 1973. This was also reflected in the annual general report of the company, the statements, etc., accompanying the return of income. The Revenue's stand, however, was that the assessee had not commenced production before February, 1974. The assertions made by the assessee were scrutinised by the Inspecting Assistant Commissioner, who found that there was neither consumption of electricity nor raw materials as seen from the meter readings, raw materials consumption register and the furnace log book. It was concluded that the new unit had not been put to either commercial production or trial production during the concerned assessment year. The production register and the raw material consumption register were examined and it was found that 5 tonnes of quartz and 1 tonne coke were fed into the furnace only on January 19, 1974, i.e., 19 days after the close of the accounting period.
6. Considering the explanation, the Inspecting Assistant Commissioner held that the material facts were not correctly disclosed. The electricity meter readings obtained right from its inception, i.e., December 12, 1973 to March 31, 1974, showed that even on January 1, 1974, there was no consumption of electricity, which was claimed to have been made during the relevant accounting year. The consumption of electricity as shown in the electric meter was so small that it was impossible to hold that the plant and machinery were used during the year under consideration. The assessee's claim for interest as well as guarantee commission was also not made bona fide. It was concluded that the assessee either concealed or furnished inaccurate particulars of four items, namely, those relating to development rebate, depreciation, interest and guarantee commission. The assessee replied that it did not conceal or furnish any inaccurate particulars regarding the aforesaid items and those claims were made in the bona fide belief that they were admissible deductions while computing its business income. The plea was not accepted, and by order dated March 29, 1982, it was concluded that this was a fit case for imposition of penalty. It was abundantly clear that the assessee by making false claims of depreciation, development rebate, interest accrued but not due and guarantee commission has misguided the public in general, the shareholders, to be more specific, and the Income-tax Department in particular, so as to gain substantial tax relief by concealing particulars of its income and also by furnishing incorrect particulars of such income through a bogus and inappropriate claim. The income in respect of which incorrect particulars were held to have been furnished and concealment made was calculated at Rs. 91,64,923 in respect of plant No. II. The minimum and maximum penalties were observed to be Rs. 91,64,923 and Rs. 1,83,29,846 respectively. However, a sum of Rs. 1,50,00,000 was imposed as penalty. The assessee filed appeals before the Commissioner of Income-tax (Appeals), Orissa (in short, 'CIT(A)'), and contended that the imposition of penalty was not justified. The Commissioner of Income-tax (Appeals) did not accept the plea. However, he reduced the quantum of penalty to Rs. 91,64,923. The matter was brought in appeal before the Tribunal by both the assessee and the Revenue. The assessee's challenge was to the legality of the order of imposition of penalty, while the Revenue assailed the reduction in the quantum.
7. The Tribunal found that the assessee had installed a new furnace for 24,000 KVA which was ready in all respects by December 27, 1973, when the assessee even got the electric connection. The assessee pleaded that the plant was used partially and this fact was indicated even in the directors' report. The said report was based upon consumption of power of 14.4 MW. Once the plant was put to use, the assessee was entitled for depreciation and development rebate. The claim made by the assessee was based upon the use of the plant in December, 1973. The claim did not indicate that the assessee was entitled for depreciation and development rebate, but only indicated that it was a mere claim before the Inspecting Assistant Commissioner (Assistant), who was to decide whether the claim of the assessee was entertainable or not. The fact that it was open for the decision of the Assessing Officer could not be said to be false when the assessee got the electric connection during the previous year and some power was also consumed by it. The assessee was conscious of the legal position that in the above circumstances it cannot claim relief under Section 80J because no manufacturing took place during the previous year and, consequently, it withdrew its claim under Section 80J which was claimed in the original return by it. Therefore, the claim for depreciation and development rebate was made by the assessee on the use of the plant and machinery which was installed during the assessment year 1974-75, and by claiming the amount of depreciation and development rebate the assessee did not conceal any income.
8. Similar is the position with regard to the claim of guarantee commission and interest. The assessee was following the mercantile system of accounting. The assessee obtained loan on deferred basis from the Norway party. The loan was guaranteed by the Industrial Credit and Investment Corporation of India Ltd., and the guarantee commission was payable to the said Corporation, whereas the Norway party was entitled to interest. According to the assessee, the plant was put to use during the assessment year 1974-75, and the guarantee commission and interest accrued during the year under appeal. This fact was accepted by the Commissioner of Income-tax (Appeals), who allowed the assessee to capitalise the expenses. The order of the Commissioner of Income-tax (Appeals) on the quantum has become final and, therefore, when the claim was made by the assessee for guarantee commission and interest, it was according to law who had accepted the verdict of the Commissioner of Income-tax (Appeals) to capitalise the expenditure on the ground that its plea that the plant was used during the year was not accepted (sic). Therefore, the assessee even did not conceal the amount of guarantee commission and interest. It was the plea of the assessee that there was no concealment of the amount of depreciation and development rebate nor the amount of guarantee commission and interest and, therefore, penalty was not justified. The assessee's plea further was to the effect that on the given facts it could not use the plant and machinery which were ready for commencement due to non-availability of power and under the circumstances, it was under passive use and, accordingly, the assessee claimed depreciation and development rebate. Under the above circumstances the claim was made, and it cannot be said that the claim was false. The assessee was following the mercantile system of accounting and, therefore, the claim of the assessee was not incorrect. It was a different matter whether the claim of the assessee should be allowed as revenue or capital expenditure. Therefore, there was no concealment and the claim of the assessee was bona fide. It was pleaded that even if the assessee made a legal claim, however foolish it may be, penalty cannot be sustained on making such a claim. The claim was a legal one. The assessee was of the opinion that the plant and machinery had been put to use during the year and it had liability for guarantee commission and interest on that very plant which was imported from Norway. The assessee made this claim before the Assessing Officer and by merely putting the claim it cannot be said that the assessee made a false claim. Reliance was placed on several decisions. The Tribunal held that it would suffice to refer to the decision of the Supreme Court in Cement Marketing Co. of India Ltd. v. Assistant Commissioner of Saks Tax, Indore, [1980] 124 ITR 15, wherein a distinction was made between a false return and a bona fide return. The assessee's case was also highly debatable as to whether it could be allowed development rebate and depreciation during the year under consideration. If depreciation and development rebate was allowable on the plant and machinery, the assessee was entitled to deduction for guarantee commission and interest. Therefore, it cannot be said that there was concealment of income by the assessee or it filed inaccurate particulars thereof.
9. The further question was whether the penalty was sustainable in view of the Explanation to Section 271(1)(c). The final claim of the assessee was made for Rs. 91,64,923. The negative onus was upon the assessee. The question was whether the assessee discharged such onus. It was noticed that for the subsequent year depreciation and development rebate had been allowed to the assessee by the Assessing Officer. Therefore, the negative onus which was upon the assessee was held to have been duly discharged by putting up the legal claim before the Assessing Officer. It was ultimately concluded that the assessee neither concealed nor filed inaccurate particulars of income.
10. The prayer for reference under Section 256(1) to this court was turned down, and on being moved by an application under Section 256(2) of the Act, the Tribunal was directed to refer the question for adjudication.
11. Learned counsel for the Revenue submitted that even if a legal claim is made, it has its foundation on the factual position. The claim of the assessee was made by furnishing inaccurate particulars and by falsely making the claim and, therefore, the Tribunal erred by merely considering the contention relating to a legal claim. On the contrary, the claim as put forth by the assessee was factual and it had taken different pleas before different authorities which cannot be considered in isolation. Without going into the factual aspects of the claim, the conclusion of legal aspects should not have been arrived at by the Tribunal. The assessee had initially taken the plea that the second unit had started production during the accounting year ending December 31, 1973. However, when it was pointed out after necessary investigations that no production could have commenced as the plant was not commissioned, it took the plea that there was a trial production and when the futility and absurdness of the claim was confronted, it took refuge under the plea that it was passive user.
12. Learned counsel for the assessee, however, supported the order stating that the Tribunal has made an elaborate analysis of the fact situation to conclude that there was no concealment and/or furnishing of inaccurate particulars.
13. Learned counsel for the parties agreed that the question referred needs slight modification, and accordingly prayed that it be modified. In our view, the following question reflects the true essence of the dispute:
"Whether, the Tribunal was justified in concluding that the assessee's claim was bona fide and, therefore, notwithstanding disallowance of the claims during assessment, penalty was not imposable ?"
14. Coming to the claim made by the assessee it is to be noted that the claim for depreciation and development rebate was made relying on Sections 32 and 33 of the Act. Depreciation is allowable on machinery even if it is used at any time, however short during the accounting year. The word "used" embraces passive as well as active user. Depreciation can also be allowed in certain cases, even if the machinery has not been actually worked during the accounting year. Under Section 33 of the Act, development rebate can be allowed in a previous year in which the machinery or plant was installed or when the machinery or plant was first put to use in the immediately succeeding year, then, in that previous year. Thus, law allows for making an election by the assessee. In the present case, the assessee claimed depreciation and development rebate in the year of installation. The word "installed" used in the statute means to induct or introduce or place an apparatus for service or use. The assessee felt that its claim was supportable by various decisions, for example, CIT v. Vayithri Plantations Ltd. [1981] 128 ITR 675 (Mad), Capital Bus Service (P.) Ltd. v. CIT [1980] 123 ITR 404 (Delhi), at pages 413 and 414, Whittle Anderson Ltd. v. CIT [1971] 79 ITR 613 (Bom) and CIT v. Viswanath Bhaskar Sathe [1937] 5 ITR 621 (Bom). Reliance was also placed on a decision of the Tribunal in the case of Hindustan Aluminium Corporation Ltd. v. ITO in I.T.A. No. 1752 (Cal) of 1976-77. It was held in that case that when power was not available though the plant was ready for commencement of business, the claim for depreciation and development rebate was allowable. The Revenue's reference applications under Sections 256(1) and 256(2) were rejected by the Tribunal and the Calcutta High Court, respectively. When a claim is made with reference to several decisions and a view of the Tribunal, it cannot be said that the claim was not bona fide. The assessee claimed the expenses' as revenue expenditure because, according to it, the second unit went into production during the previous year. The income-tax authorities, however, did not accept the plea and directed these expenses to be capitalised. Whether the assessee is entitled to claim the expenses as revenue expenditure or capital expenditure is a legal claim and simply because the legal claim has not been accepted, it cannot be said that the assessee concealed any income without furnishing any proof. The Tribunal has recorded a positive finding that the claim was bona fide and there was no concealment or furnishing of inaccurate particulars. The conclusions essentially have their foundation on factual aspects.
15. If in the facts and circumstances of a particular case and on the materials before it, the Tribunal reaches the conclusion that there was no concealment and/or furnishing of inaccurate particulars, it is a conclusion on facts and no question of law arises from the order of the Tribunal in that regard. The expressions "has concealed the particulars of income" and "has furnished inaccurate particulars of income" have not been defined either in Section 271(1)(c) or elsewhere in the Act. One thing is certain that these two circumstances are not identical in detail although they may lead to the same effect, namely, keeping off a certain portion of income. The former is direct and the latter may be indirect in its execution. The word "conceal" is derived from the latin concelare which implies to hide. Webster in his New International Dictionary equates its meaning "to hide or withdraw from observation, to cover or keep from sight ; to prevent the discovery of ; to withhold knowledge of". The offence of concealment is thus a direct attempt to hide an item of income or a portion thereof from the knowledge of the income-tax authorities. In furnishing its return of income, an assessee is required to furnish particulars and accounts on which such return income has been arrived at. These may be particulars as per its books of account, if it has maintained them, or any other basis upon which it had arrived at the returned figure of income. Any inaccuracy made in such books of account or otherwise which resulted in keeping off or hiding a portion of its income is punishable as furnishing inaccurate particulars of its income. Whether the burden of proof in a given case has been discharged on a set of facts is a question of fact. A finding of fact arrived at by the Tribunal will not be disturbed unless it is based on no material or is perverse or is based on irrelevant, extraneous or inadmissible considerations or is arrived at by the application of wrong principles of law. Change of perspective in viewing a thing does not transform a question of fact into a question of law. Whether there was concealment or not is, ordinarily, a question of fact. Where a fact-finding body bearing in mind the correct principles comes to the conclusion that the assessee has discharged the onus, it becomes a conclusion of fact. Similarly, whether the explanation offered by the assessee was bona fide or not is a question of fact.
16. Judged in that background it cannot be held that the order of the Tribunal raised any question of law. In that view of the matter, the answer to the refrained question, which is essentially one of fact, is in the affirmative, in favour of the assessee and against the Revenue.
17. Both the references are disposed of accordingly.
R.K. Patra, J.
18. I agree.