Bombay High Court

Orion Travels (P) Ltd vs Astt. Cit on 1 August, 2003

Equivalent citations: (2004) 87 TTJ Mumbai 246

ORDER

B.L. Chhibber, A.M.

These cross appeals arise out of the order of the learned Commissioner (Appeals) C-V, Mumbai.

2. The grievance of the assessee is that the learned Commissioner (Appeals) is not justified in upholding the levy of penalty under section 271(1) (c) of the Income Tax Act, 1961, while that of the revenue is that the learned Commissioner (Appeals) is not justified in reducing the levy of penalty from 200 per cent to 100 per cent.

3. The facts of the case in brief are that in the return of income filed for the assessment year under appeal, the assessee had claimed depreciation of Rs. 3,50,000 on imported cars. During the course of the assessment proceedings, the assessing officer noted that the assessee purchased two imported cars. The assessee had shown total hire charges of Rs. 62,651 which included an amount of Rs. 49,000 being hire charges receivable from M/s Harshad S. Mehta for use of car No. BLX7186 for the period from 5-12-1989 to 31-3-1989. The balance amount was shown as hire charges for airport duty etc. Accordingly, the assessing officer noticed that the assessee was not entitled to claim depreciation on imported cars because the second proviso to section 32 clearly provided that no deduction shall be allowed under this clause in respect of motor car manufactured outside India, where such motor car is acquired by the assessee after 28-2-1975, and is used otherwise than in a business running it for hire of Tourists. The assessee explained before the assessing officer that as per r. 5, depreciation is to be claimed on block of assets as per the rates given in the 2nd column of Table in Appendix-1. As per Appendix-1 the depreciation on motor taxis used in the business of running them on hire, the depreciation is allowable at 40 per cent. It was claimed that cars were given to M/s Harshad M. Mehta on a monthly basis and that the same cars were also used for giving on hire. The word "tourist" has not been defined in the Income Tax Act and the cars were used on week days for airport duty, it was claimed that depreciation was allowable. However, the assessing officer rejected the explanation given by the assessee, in view of the specific proviso in the Act relating to the running of motor cars for "tourists" for airport duty only. He, therefore, rejected the claim of depreciation.

4. This issue was agitated in appeal before the learned Commissioner (Appeals) the learned Commissioner (Appeals) confirmed the order of the assessing officer observing as under :

"The only point for consideration before me is whether the appellant- company has fulfilled the requirements to claim depreciation. Of course, it is owning foreign cars, but there is no material to substantiate the claim that the cars in question, were being used only for the purpose of foreign tourists. It has not been proved that the cars were hired to another agency for being used for foreign tourists. Since there is nothing to suggest that the cars were used in the business of running on hire for foreign tourists, no depreciation is allowable. The disallowance, is therefore, confirmed."

5. In the meanwhile, while completing the assessment, the assessing officer initiated penalty proceedings under section 271(1) (c) read with Expln. 1 of the Income Tax Act, as according to him the assessee made bogus claim of the depreciation and had not furnished accurate particulars of income. An explanation was furnished to the show cause notice, the crux of which was that the claim made was bona fide and was based on the fact that the cars were also used for airport duty, i.e., for tourists purpose also. The assessing officer held that the assessees intention was to furnish inaccurate particulars of income and thus avoid payment of tax for which the assessee was liable to penalty for furnishing inaccurate particulars under section 271(1) (c) read with Expln. 1 of the Income Tax Act. He therefore, levied the penalty of Rs. 4,53,600 which works out to 200 per cent of the tax sought to be evaded as against the maximum leviable of Rs. 6,80,400.

6. On appeal the learned Commissioner (Appeals) confirmed the penalty in principle partly because the claim for depreciation had already been upheld by his predecessor while deciding the appeal against the assessment order and partly because the assessee made a false claim and tried to defraud the revenue. Further he was of the view that the penalty levied 200 per cent was on the higher side. He reduced it to Rs. 2,26,800, i.e., 100 per cent of the tax sought to be evaded by observing as under :

"I have considered this submission. Having regard to the facts of the case and nature of issue involved, I am of the opinion that penalty @ 100 per cent of the tax sought to be evaded, would meet the ends' of the justice. Therefore, the penalty levied under section 271(1) (c) is reduced from Rs. 4,53,600 to Rs. 2,26,800.

7. Shri V. Mehta, the learned counsel for the assessee submitted that the learned Commissioner (Appeals) failed to appreciate that the assessing officer has never concluded that there was a prima facie case to issue notice under section 271(1) (c) of the Income Tax Act, 1961 and erred in holding that the assessing officer has rightly levied the penalty under section 271(1) (c) of the Income Tax Act, 1961. He further submitted that the learned Commissioner (Appeals) failed to appreciate that the penalty proceedings and assessment proceedings are two different and independent proceedings under the Income Tax Act, 1961 and erred in upholding the action of the assessing officer in imposing the penalty under section 271(1) (c) of the Income Tax Act, 1961. He submitted that the assessing officer has not detected any concealment on account of particulars of the income or furnishing of inaccurate particulars of such income because the assessee had furnished all the details before the assessing officer and this fact is acknowledged by the assessing officer at p. 3 of the assessment order where he has stated that "Shri K.A. Shetty, C.A. attended on behalf of the assessee-company and filed necessary details as called for. The case was discussed with him from time to time. " He further drew our attention to the explanation furnished before the assessing officer' which the assessing officer has reproduced at p. 6 of the assessment order. As per this explanation the case of the assessee before the assessing officer was that the cars were partly used on hire for tourists and partly were let out on a monthly basis. According to the learned counsel for the assessee nothing was concealed from the assessing officer and the assessee knew the law but he could not interpret it correctly. He drew our attention to ledger account of Hire Charges at p. 25 of the paper book and submitted that the cars were used for airport duty obviously to bring tourists. He drew our attention to the order of the Tribunal Mumbai Bench "A" relating to the assessment year under appeal and submitted that though the assessee's appeal was rejected but it was rejected on the ground that "the fact remains that the cars were mainly and substantially used for letting out on monthly basis". The learned counsel for the assessee submitted that simply because the explanation of the assessee was rejected there is no ground for levy of penalty. In support of this contention he relied upon the following authorities :

(i) ITAT "E", Bench; Kishan Gupta v. Income Tax Officer (1989) 31 ITD 448 (Del)

(ii) CIT v. Indian Metals & Ferro Alloys Ltd. (1994) 117 CTR (Ori) 378

(iii) ITAT Delhi Bench "C"; Smt. Shanta Kumar v. ITO (1991) 38 TTD 175 (Del)

(iv) CIT v. University Printers (1991) 188 ITR 206 (All)

8. The learned departmental Representative strongly supported the order of the assessing officer. He submitted that the assessee had made false claim before the assessing officer and the disallowance made by the assessing officer has been upheld by the Commissioner (Appeals) and the Tribunal. Arguing the appeal of the revenue, he submitted that the learned Commissioner (Appeals) is not justified in reducing the quantum of penalty from 200 per cent to 100 per cent because the maximum penalty leviable was Rs. 6,80,400 and the assessing officer had levied the penalty at Rs. 4,53,600.

9. We have considered the rival submissions and have perused the facts on record. It is noted that the assessee filed full details about the purchase of cars and full particulars were furnished in support of its claim of depreciation. An explanation was furnished before the assessing officer but the assessing officer rejected the explanation. The explanation of the assessee before the assessing officer was that the cars were partly used on monthly hire charges and partly for airport duty for the facility of the tourists. On this bona fide belief the assessee made claim before the assessing officer. The assessing officer rejected the claim and the learned Commissioner (Appeals) and Tribunal concurred with the findings of the assessing officer but that alone is, not sufficient for levy of penalty. Penalty proceedings are penal in nature. The elementary principles of criminal law will apply. It is a quasi-criminal proceeding. There should be conscious concealment. Penalty proceedings are distinct and different from assessment proceedings. The entire material should be considered afresh by the authorities below before imposition of the penalty. Even under Explanation to section 271(1) (c) conscious concealment is necessary. The Explanation provides only a rule of evidence raising rebuttable presumption in certain circumstances. No substantive right is created or annulled, The substantive law relating to penalty is preserved. If the assessee was acting honestly or genuinely then no penalty could be imposed.

10. Coming to the facts of the case the assessee furnished all the details in support of its claim of depreciation on imported cars. The explanation of the assessee before the assessing officer was that cars were given on hire but also used on week days for airport duty for the benefit of the tourists. Nothing was concealed from the eyes of the assessing officer. It is also seen from the records that the cars were used partly for airport duty and this fact has been accepted by the Tribunal in quantum appeal in the last paragraph which reads as under :

"Now, the question remains whether the assessee is in the business of running the cars on hire for tourists. From the details of car hire charges furnished before us, we find that on some days the assessee has received car hire charges. However, the major amount received is from monthly hire charges. it is admitted by the assessee's representative that the monthly hire charges were received from companies belonging to Harshad Mehta Group. Admittedly, letting out of the cars to those companies cannot be said to be running of cars for tourists. Out of total hire charges of Rs. 62,650, the monthly hire charges amount to Rs. 54,600 and only balance of Rs. 8,050 was received from different persons. From whom the balance hire charges were received and whether it was received from tourists or not is not clear. However, even assuming that the balance of hire charges of Rs. 8,050 was received from tourists, the fact remains that the cars were mainly and substantially used' for letting out on monthly basis. May be in the beginning for some period, they were run on hire for tourists but thereafter it mainly utilized the cars for letting them out on monthly basis. Therefore, in our opinion, it cannot be said that the cars were used in the business of running them on hire for tourists. We, therefore, find no infirmity in the order of the Commissioner (Appeals). The same is sustained."

11. Under these circumstances, the benefit of doubt must go to the assessee and accordingly, we hold that taking into consideration the totality of the facts penalty is not leviable in this case. We accordingly delete the penalty sustained by the learned Commissioner (Appeals). As regards the revenue's appeal in view of our findings in the assessee's appeal (supra) it has become infructuous and is dismissed.

12. In the result, the assessee's appeal is allowed and revenue's appeal is dismissed.