DEPUTY COMMISSIONER OF INCOME TAX v. SARAYA INDUSTRIES LTD
[Citation -2006-LL-0808]

Citation 2006-LL-0808
Appellant Name DEPUTY COMMISSIONER OF INCOME TAX
Respondent Name SARAYA INDUSTRIES LTD.
Court ITAT
Relevant Act Income-tax
Date of Order 08/08/2006
Assessment Year 1990-91
Judgment View Judgment
Keyword Tags disallowance of depreciation • 100 per cent depreciation • rebuttable presumption • commercial production • imposition of penalty • erroneous impression • mala fide intention • concealed income • burden of proof • quantum appeal • initial burden • end product • mens rea • plant
Bot Summary: According to the assessee, the physical possession of this plant was handed over by the contractors to the assessee on 20th March, 1990 and the plant was immediately put to use on 21st March, 1990 by filling the main reactor with water, thus providing media to injecting seeds material and development of biocell for methane gas generation. Even though the disallowance of depreciation during the year was confirmed by the CIT(A) and Tribunal, the facts remained the same that the assessee s explanation was not found to be false or not bona fide during the course of penalty proceedings. If an assessee gives an explanation which is unproved but not disproved, i.e., it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee s case is false, the Explanation cannot help the Department because there will be no material to show that the amount in question was the income of the assessee. Treating the Explanation as dealing with both the ingredients and above, where the circumstances do not lead to the reasonable and positive inference that the assessee s explanation is false, the assessee must be held to have proved that there was no mens rea or guilty mind on his part. Explanation 1(A) clearly requires the AO to prove the explanation given by the assessee to be false, where the assessee concerned offers explanation. Explanation 1(B) talks about the situation, where the assessee offers explanation, which he is not able to substantiate. In view of the above discussion, we are persuaded to agree with learned senior Authorised Representative, Shri K. Sampath that as per findings recorded by the CIT(A) which is as per material on record, the explanation offered by the assessee with respect to claim of depreciation during the year under consideration was neither found to be false nor untrue, therefore no interference is required in the order of the CIT(A).


R.C. SHARMA, A.M.: This is appeal filed by Revenue against order of CIT(A), dt. 13th Jan., 2003 for asst. yr. 1990-91 in matter of imposition of penalty under s. 271(1)(c) of Act. only grievance of Revenue relates to action of CIT(A) for deleting penalty of Rs. 88,40,715 imposed by AO under s. 271(1)(c). Rival contentions have been heard and record perused. In respect of assessee s claim for depreciation, which was not found to be allowable, AO imposed penalty of Rs. 80,37,014 under s. 271(1)(c) which was enhanced to Rs. 88,40,715 by passing order under s. 154. facts in brief are that assessee claimed 100 per cent depreciation amounting to Rs. 1,48,83,369 on biogas plant, which was disallowed by AO on ground that this plant has not started giving end product, i.e., biogas during year. Since plant started giving biogas only from subsequent year, i.e., 1991-92, 100 per cent depreciation was allowed in subsequent year. order of AO for asst. yr. 1990-91, disallowing depreciation in instant year was confirmed by CIT(A) and in second appeal by Tribunal. AO accordingly, on receipt of order from Tribunal, imposed penalty under s. 271(1)(c) on account of above disallowance of depreciation holding that appellant has reduced its tax liability by furnishing inaccurate particulars of income. By impugned order, CIT(A) deleted penalty after having made following observation: "In instant case, appellant has claimed depreciation as according to appellant it was put to use once effluent starts collecting in reactor for production of biogas. However, AO denied depreciation in year under consideration on ground that there was no commercial production of biogas during year but allowed same in next year when actual commercial production of biogas started. facts on record clearly establish that there was no furnishing of inaccurate particulars on part of assessee to merit imposition of penalty. At best it was case of rejection of assessee s explanation offered for claim of depreciation and rejection of appellant s claim under bona fide impression. case would be covered by proviso to Expln. 1 to s. 271(1)(c). But since claim was bona fide one made in wrong assessment year under erroneous impression of legal position, it could not be said that assessee had consciously concealed particulars of its income or facts. In my view, it is only case of difference of opinion and not of any concealment or filing of inaccurate particulars of income. Under circumstances and in view of various judicial decisions relied on by appellant as also on other decisions quoted above, I am of opinion that, in instant case, appellant has proved beyond doubt that claim of depreciation made during year on biogas plant was bona fide and not with any mala fide intention and has thus discharged onus cast on it under Expln. 1 to s. 271(1)(c). On other hand, AO has not brought on record any material which would establish that claim was mala fide. There is no finding to this effect. Under circumstance, imposition of penalty in this case, is not justified and is hereby cancelled." We have considered rival contentions, gone through orders of authorities below and also deliberated on case laws cited by learned Authorised Representative in context of factual matrix of case. From record, we found that assessee-company has distillery unit at village and post office, Sardarnagar, Distt. Gorakhpur, U.P. As per provisions of Water (Prevention & Control of Pollution) Act, 1974, it is mandatory for distillery to treat its effluent before discharging same on ground or drain/rivers. assessee-company found that Swiss technology was available for treatment of distillery effluent. Side by side Swiss technology also helps in producing biogas which is useful as fuel for boiler used for process of main product of distillery. According to assessee, physical possession of this plant was handed over by contractors to assessee on 20th March, 1990 and plant was immediately put to use on 21st March, 1990 by filling main reactor with water, thus providing media to injecting seeds material and development of biocell for methane gas generation. Side by side, required quantity of sludge, i.e., industrial waste was also added from time to time. Being biological and i.e., industrial waste was also added from time to time. Being biological and highly technical process, it took time to stabilize biological reactions. ratio of seed material to volume of liquid plays important role. As such rate of feed had to be regulated accordingly and kept limited to only about 5 per cent spent wash initially so that system could be stabilized in steps. During these operations different parameters like PH and temperature of feed as well as that of reactor had to be monitored carefully and optimized at various loads of feed. Biogas plant so installed was having dual purpose, first to treat water effluent of assessee s distillery and second was to produce biogas out of such treatment of effluent. To produce biogas minimum level of sludge/effluent/water is required in reactor. Industrial waste and water started pouring into reactor tank w.e.f. 21st March, 1990 but as reactor tank was huge, it took time to fill upto minimum level required for production of biogas during year, which has been achieved only in subsequent year, i.e., asst. yr. 1991-92. Therefore, actual commercial production of biogas started from asst. yr. 1991-92. assessee has claimed depreciation on ground that since effluent started collecting in tank plant has been put to use for business purposes irrespective of time taken for actual production of biogas. According to appellant plant was put to use w.e.f. 21st March, 1990. According to AO depreciation can be allowed only when biogas is produced. This was mere difference of opinion. Even though disallowance of depreciation during year was confirmed by CIT(A) and Tribunal, facts remained same that assessee s explanation was not found to be false or not bona fide during course of penalty proceedings. There is no dispute to well-settled legal proposition that penalty proceedings are distinct and different from assessment proceedings. Findings in assessment proceedings are not conclusive. entire material available should be considered afresh by authorities before imposing penalty under s. 271(1)(c). Explanation to s. 271(1)(c) provides rule of evidence raising rebuttable presumption in certain circumstances. No substantive right is created or annulled thereby. substantive law relating to levy of penalty is preserved. initial burden of proof is cast on assessee to establish presumption arising in certain cases. assessee can discharge onus either by direct evidence or circumstantial evidence or by both. cumulative effect of all facts should be taken into consideration. During course of penalty proceedings, assessee is entitled to show and establish by material and relevant facts, which may go to affect and having direct bearing on liability for penalty. Whether there is concealment to make penalty exigible is normally question of fact. Where burden of proof in given case has been discharged on set of facts, is also question of fact. burden is cast on assessee to offer bona fide explanation. There are also plethora of judgments to effect that findings recorded or conclusion drawn in deciding quantum appeal, are neither conclusive nor binding. For this proposition reliance may be placed on judgment of Hon ble Kerala High Court in case of CIT vs. Pawan Kumar Dalmia (1987) 66 CTR (Ker) 167: (1987) 168 ITR 1 (Ker) and judgment of Hon ble Allahabad High Court in case of Banaras Textorium vs. CIT (1988) 67 CTR (All) 191: (1988) 169 ITR 782 (All) and also judgment of Hon ble Delhi High Court in case of CIT vs. Chetan Dass Lachhman Dass (1995) 214 ITR 726 (Del). considerations in penalty proceedings are different from those in quantum proceedings. It is trite law that merely because addition has been made and confirmed in appeal, levy of penalty is not automatic. In National Textiles vs. CIT (2000) 164 CTR (Guj) 209: (2001) 249 ITR 125 (Guj), Gujarat High Court held that it is not enough for purpose of penalty that amount has been assessed as income, circumstances must show that there was animus, i.e., conscious concealment or act of furnishing inaccurate particulars on part of assessee. In present case, appellant s conduct and explanation offered by it shows that there was no conscious or intentional act of appellant to conceal or furnish inaccurate particulars of income. In order to justify levy of penalty, two factors must co-exist, (i) there must be some material or circumstances leading to reasonable conclusion that amount does represent assessee s income. It is not enough for purpose of penalty that amount has been assessed as income, and (ii) circumstances must show that there was animus, i.e., conscious concealment or act of furnishing of inaccurate particulars on part of assessee. Explanation has no bearing on factor No. 1 but it has bearing only on factor No. Explanation has no bearing on factor No. 1 but it has bearing only on factor No. 2. Explanation does not make assessment order conclusive evidence that amount assessed was in fact income of assessee. No penalty can be imposed if facts and circumstances are equally consistent with hypothesis that amount does not represent concealed income as with hypothesis that it does. If assessee gives explanation which is unproved but not disproved, i.e., it is not accepted but circumstances do not lead to reasonable and positive inference that assessee s case is false, Explanation cannot help Department because there will be no material to show that amount in question was income of assessee. Alternatively, treating Explanation as dealing with both ingredients (i) and (ii) above, where circumstances do not lead to reasonable and positive inference that assessee s explanation is false, assessee must be held to have proved that there was no mens rea or guilty mind on his part. Absence of proof acceptable to Department cannot be equated with fraud or willful default. Now we examine legal position as to whether assessee has been able to escape from Explanation contained below s. 271(1)(c)(iii). Explanation 1(A) clearly requires AO to prove explanation given by assessee to be false, where assessee concerned offers explanation. Explanation 1(B) talks about situation, where assessee offers explanation, which he is not able to substantiate. In instant case, explanation offered by assessee-company before AO was clearly substantiated by various documents, and explanation and same was not found to be false by AO. Thus, we find that this is not case falling under Expln. 1(A) to s. 271(1)(c). We also find that assessee has also not fallen under Expln. 1(B) to s. 271(1)(c), insofar as Expln. 1(B) requires assessee to substantiate its explanation with evidence to prove bona fide thereof and also to disclose all relevant facts in relation thereto. Department itself allowed assessee s claim in very next year when production of biogas started. Under these circumstances assessee-company cannot be alleged with charge of concealment or furnishing of inaccurate particulars of income. Undisputedly, action of assessee was bona fide, even though its claim was not allowed during year under consideration but was allowed in very next year. Deeming fiction contained in Expln. 1 to s. 271(1)(c) that addition/disallowed amount represent income in respect of which particulars have been concealed will not apply if explanation that was given by assessee for quantum proceedings, which he could not substantiate in those proceedings, was bona fide and if he had disclosed all facts relating to same and material to computation of his total income. When explanation was offered but was rejected by AO, as it could not be substantiated by assessee, there would arise no presumption for concealment of particulars of income that was added or expenses disallowed and such assessee can show that said explanation offered by him was bona fide and that he had disclosed all facts relating to such explanation and material to computation of his total income. In instant case, undisputedly, assessee has offered explanation that plant was treated as put to use since effluent started collecting in tank, and which was not found to be untrue by lower authorities by bringing n y positive material on record. Therefore, as per our considered view, no penalty was imposable by invoking Explanation to s. 271(1)(c). Furthermore, provisions of Act with regard to levy of penalty should not be construed in manner to make them instrument of oppression. levy of penalty is to be seen in backdrop of nature and reason for which penalty is imposed. Thus, we do not find any infirmity in order of CIT(A) for deleting penalty of Rs. 88,40,715. In view of above discussion, we are persuaded to agree with learned senior Authorised Representative, Shri K. Sampath that as per findings recorded by CIT(A) which is as per material on record, explanation offered by assessee with respect to claim of depreciation during year under consideration was neither found to be false nor untrue, therefore no interference is required in order of CIT(A). In result, appeal of Revenue is dismissed. *** DEPUTY COMMISSIONER OF INCOME TAX v. SARAYA INDUSTRIES LTD.
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