ORDER
M.M. Cherian, Accountant Member
1. This is an appeal directed against the order of the CIT (Appeals), Coimbatore in the case of M/s. Kalyani Enterprises, R.G. Street, Coimbatore, confirming the levy of penalty under Section 271(1)(c) of the I.T. Act, 1961 for the assessment year 1989-90. The only ground raised by the assessee in this appeal is that the CIT(A) erred in confirming the levy of penalty of Rs. 49,890 on the ground of concealment of income.
2. The assessee is a partnership firm deriving income from business in the sale of cotton, yarn, etc. For the assessment year 1989-90 the assessee firm filed the return declaring a total income of Rs. 2,12,478. In computing the income the assessee claimed deduction of Rs. 1,97,996 as depreciation on a Canter Eicher Mitsubishi Van. In the assessment the Assessing Officer did not allow the claim of depreciation and he proceeded to complete the assessment on a total income of Rs. 4,40,340.
Penalty proceedings were initiated under Section 271(1)(c) of the Act on the ground that the assessee had concealed the particulars relating to the income assessable for the assessment year 1989-90.
The view taken by the Assessing Officer was that the assessee was making a false claim of depreciation on the vehicle as it had not been put to use for the purpose of the business in the previous year ending on 31-3-1989. The Assessing Officer noticed that the assessee had purchased the Van from M/s. Eicher Motor Ltd., Indore as per Invoice No. 006700 dated 30-3-1989 and that the vehicle was actually despatched from Indore only on 31-3-1989. As the assessee was carrying on business at Coimbatore the Assessing Officer concluded that in the previous year ending on 31 -3-1989 the vehicle could not have been used for the purpose of the assessee’s business and so, there could be no allowance of depreciation in computing the income for the assessment year 1989-90. Though the assessee had credited in the accounts for the year ending on 31-3-1989 a sum of Rs. 450 as Van hire receipt, the Assessing Officer found that there was no evidence to show that the vehicle had been actually hired out during the previous year. In response to the show-cause notice issued by the Assessing Officer the assessee gave the explanation that they had not concealed any particulars regarding the income assessable for the assessment year 1989-90, nor had furnished any inaccurate particulars to attract penalty under Section 271(1)(c). According to the assessee they were under the bona fide belief that as the vehicle had been purchased during the previous year and also driven from Indore to Coimbatore before 31-3-1989, the allowance of depreciation could be claimed and that even though the Assessing Officer took a different view on the claim of depreciation that would not mean that there was concealment of income to justify the levy of penalty under Section 271 (1 )(c). The Assessing Officer was not satisfied with the explanation and he proceeded to levy a penalty of Rs. 49,290 by the order dated 17-6-1993.
3. The assessee took up the matter in appeal before the CIT(A) contending that merely because the claim for allowance was rejected in the assessment there could be no finding that there was concealment of income to bring the case within the mischief of Section 271 (1 )(c). Before the appellate authority there was the further claim that even though the claim of depreciation had been disallowed on the ground that the conditions governing the allowance had not been fully satisfied, there was nothing to show that any particulars regarding the purchase of the vehicle had been concealed by the assessee. The CIT(A) did not accept the assessee’s contention that there was no concealment of income, by making a genuine claim of depreciation. The appellate authority found that though the assessee purchased the vehicle from M/s. Eicher Motors Ltd., Indore on 30-3-1989 it was despatched from there only on 31-3-1989 and so the vehicle could not have reached Coimbatore before 2-4-1989. The CIT(A) further noticed that the vehicle was neither kept ready for use nor was actually put to use before 31-3-1989. The assessee had credited a sum of Rs. 450 as freight collected during the year ending 31-3-1989 but it was not in a position to give any details regarding the hire charges, like the name and address of the person from whom the charges were collected, the nature of the goods transported, the destination of the goods etc. In the light of the above facts, the appellate authority concluded that it was difficult to accept the assessee’s plea that the claim of depreciation was a bona fide claim. He further observed that Explanation 1 to Section 271(1)(c) could not save the assessee from the penal provisions. It was the finding of the CIT(A) that the Assessing Officer was justified in levying the penalty in the circumstances of the case and so he confirmed the same.
4. On behalf of the assessee Sri R. Vijayaraghavan, Advocate submitted before us that the CIT (Appeals) was not justified in upholding the levy of penalty on the ground that it was not a bona fide claim of depreciation by the assessee on the vehicle newly purchased in the previous year ending on 31-3-1989. The ld. counsel for the assessee pointed out that there was no dispute that the assessee had purchased the vehicle for the purpose of the business only and that the purchase had been made as per the invoice dated 30-3-1989. According to Sri Vijayaraghavan, the assessee became the owner of the vehicle on 30-3-1989 though it was despatched from Indore only on 31-3-1989. It was his contention that even though the vehicle arrived at Coimbatore only on 2-4-1989, when it was running from Indore to Coimbatore it should be deemed to have been running for the purpose of the assessee’s business. The ld. counsel contended that from the time delivery was taken at Indore the assessee became the owner and that it was running from Indore to Coimbatore for the purpose of the assessee’s business. He further stated that it would not be correct to take the view that only if the vehicle was running on hire for transporting goods it would be running for the purpose of the business. Sri Vijayaraghavan submitted the assessee was under the bona fide belief that from 31-3-1989 the vehicle was running from Indore for the purpose of the business, and so it was eligible for the allowance of depreciation. According to the ld. counsel though the assessee’s claim of depreciation was disallowed by the Assessing Officer and the CIT(A), on the ground that there was non fulfilment of the conditions for the allowance that would not mean that the assessee was making a false claim of depreciation. He stated that though there was the sum of Rs. 450 credited as hire charges the assessee could furnish no details because it was during the trip from Indore to Coimbatore that the driver transported the goods belonging to some parties and collected the hire charges. But that would not establish that the assessee was making a false claim regarding the running of the vehicle for business purpose, he submitted. Reliance was placed on the decision of the Kerala High Court in the case of CIT v. Nidish Transport Corporation [1989] 185 ITR 669′ for the plea that the transfer of vehicle under the Motor Vehicles Act, 1939 had taken effect from the date of issue of the sale invoice and that the assessee had become the owner of the vehicle on 30-3-1989. He also referred to the decision of the Supreme Court in the case of Sir Shadilal Sugar & General Mills Ltd. v. CIT[1987] 168 ITR 7052 for the contention that merely because the assessee had not pursued the quantum appeal it would not be correct to hold that the assessee had been making a false claim of depreciation. According to him, the assessee did not take up the matter in further appeal only because the entire cost of the asset could be recovered as depreciation allowance in the subsequent years and in that sense there was no loss to the assessee. The ld. counsel argued that even though the claim of depreciation was disallowed for non-fulfilment of certain conditions governing the allowance, it would not be correct to hold that the assessee was concealing its income or furnishing inaccurate particulars. Sri Vijayaraghavan urged us to reverse the order of the Revenue authorities and to cancel the penalty levied on the assessee.
5. Per contra, Sri V. Suryanarayanan, the Departmental Representative supported the order of the CIT(A) and submitted that the CIT(A) was justified in confirming the penalty as the assessee had been making a false claim of depreciation on an asset which had not been actually put to use in the previous year for the purpose of business. The ld. D.R. pointed out that though the assessee had purchased the vehicle on 30-3-1989 it was despatched to Coimbatore from Indore only on 31-3-1989 and reached Coimbatore on 2-4-1989. According to him, there was no question of the asset having been put to use for the purpose of business before it had reached the assessee’s business premises. He further stated that the assessee paid the vehicle tax for the first quarter only on 15-5-1989. Sri Suryanarayanan submitted that the vehicle was not kept even ready for use before the end of the previous year and so knowing fully well that depreciation could not be allowed for the assessment year 1989-90 the assessee was making a false claim as if the vehicle had been running for the purpose of the business before the end of the previous year. It could not be, therefore, said that it was a bona fide claim of depreciation by the assessee. He urged us to view the assessee’s case not as a claim of depreciation, having been disallowed on a legal ground, but as a claim of depreciation disallowed for the reason that it was a false claim that the assessee had actually used the vehicle for the purpose of the business in the accounting year ending on 31-3-1989. It was the contention of the ld. D.R. that there was also manipulation of the accounts by the assessee crediting a sum of Rs. 450 as hire charges received during the previous year. The assessee could not substantiate the receipt of hire charges with any evidence. According to Sri Suryanarayanan it was highly improbable that the vehicle could have been used for hiring the goods belonging to any party during the trip from Indore to Coimbatore. It was only a bogus credit in the accounts with a view to show that the vehicle had been used for the purpose of the business even before its arrival at Coimbatore. Regarding the plea that the trip from Indore to Coimbatore should be treated as running of the vehicle for the purpose of business, Sri Suryanarayanan submitted that there was no question of the vehicle being used for the business purpose before its arrival at the assessee’s place of business. The trip from Indore to Coimbatore was at the assessee’s instance and not for transporting goods in connection with the assessee’s business. The ld. D.R. wanted us to consider the entire case as an attempt made by the assessee to give the impression as if in the previous year itself the vehicle had been used for the purpose of the business. It was pointed out that though the assessee filed appeal against the disallowance of depreciation, the appellate authority found that the assessee could not have used the vehicle for the business purposes in the year ending 31-3-1989 and so there could be no allowance of depreciation. The assessee accepted the appellate order and did not take up the matter in further appeal before the Tribunal. It was submitted that the finding of the CIT(A) in the quantum appeal that the vehicle had not been used for the purpose of business in the previous year would go to show that it was a false claim of depreciation by the assessee to reduce the income liable to tax in the assessment year. Sri Suryanarayanan submitted that as there was concealment of income and also furnishing of wrong particulars regarding the running of the vehicle the Assessing Officer had rightly levied the penalty under Section 271 (1 )(c) of the Act. The CIT(A) was fully justified in confirming the penalty, requiring no interference by the Tribunal at this stage.
6. We have given due consideration of the submissions on both sides and gone through the facts of the case. In this case penalty has been levied on the ground that the assessee was making a false claim of depreciation on a vehicle newly purchased during the previous year and thereby concealing the income liable to tax for the assessment year 1989-90. The assessee’s claim was that the vehicle had been purchased during the previous year for the purpose of its business, and that from the time the vehicle was running from Indore to Coimbatore it was being used for the purpose of its business. Though there was the claim that during the trip from Indore to Coimbatore the goods belonging to some outside parties had been transported and that there was collection of hire charges of Rs. 450 the assessee could not furnish any evidence in support of that claim. The ld. D.R. submitted that the assessee had accepted the finding of the CIT(A) in quantum appeal that the vehicle had not been actually put to use during the previous year and so it was not entitled to the allowance of depreciation. According to the ld. D.R. the fact that the assessee had not taken up the matter in further appeal before the Tribunal would show that the assessee had not actually used the vehicle for the purpose of the business during the previous year, and in that sense there was indirect admission of making a false claim of depreciation. In this connection we may refer to the following observation of the Supreme Court as appearing in the case of Sir Shadilal Sugar & General Mills Ltd. (supra).
From the assessee agreeing to the addition to his income it does not follow that the amount agreed to be added was concealed income. There may be hundred and one reasons for such admission, i.e. when the assessee realises the true position it does not dispute certain disallowances. But that does not absolve the Revenue from proving the mens rea of quasi criminal offence.
We find force in the contention of the ld. counsel for the assessee that the assessee had not pursued the matter in appeal for the reason that they could actually get the full allowance of depreciation in the assessments for the subsequent years and in that sense there was no loss to the assessee. Merely because the assessee did not go in appeal against the order of the CIT(A) in the quantum appeal it would not be correct to hold that the assessee had accepted the finding of the appellate authority that the vehicle had not been used for the purpose of the business during the previous year. No doubt, it is an essential condition for the allowance of depreciation that the asset must have been put to use during the previous year for the purpose of the assessee’s business. In the case of Nidish Transport Corporation (supra) the Kerala High Court held as under :
A motor vehicle is a moveable property. The transfer of ownership of the vehicle is governed by the Sale of Goods Act, 1930 and not by the provisions of the Motor Vehicles Act, 1939. The transfer takes effect from the date of sale. As between the transferor and the transferee the sale is complete even before the transfer is effected in the registration certificate. The failure to report the same to the registering authority may entail levy of penalty prescribed under Section 31 of the Motor Vehicles Act, 1939 or Section 112 of the Act. Beyond that it does not affect the passing of the title. Law is clear that registration is not necessary to pass title in the motor vehicle.
It can be seen that the assessee became the owner of the van when it was purchased at Indore on 30-3-1989. When it was running from Indore to Coimbatore on 31-3-1989 the assessee was the owner and it was running for the assessee’s purpose. The vehicle might have reached Coimbatore i.e. the business premises of the assessee only on 2-4-1989, but then as submitted by the ld. counsel for the assessee, there is no condition governing the allowance of depreciation that the asset must be used in the usual place of business of the assessee. Though there was the claim that some hire charges were collected during the trip from Indore to Coimbatore, the assessee could not substantiate that claim even though there was the sum of Rs. 450 credited as hire charges in the assessee’s books of account. But there was the other claim of the ld. counsel that when the vehicle was running from Indore to Coimbatore it was running for the purpose of the assessee’s business. On that view there could be difference of opinion. The Department might not agree that when it was running from Indore to Coimbatore it was being used for the purpose of the assessee’s business. The Revenue might also disallow the claim of depreciation on the ground that the running of the vehicle from Indore to Coimbatore was not for the purpose of the assessee’s business. But the disallowance of depreciation in that case would be on a legal ground that the condition regarding the running of the vehicle for the purpose of the business has not been fulfilled. In this case it is useful to refer to the decision of the Kerala High Court in the case of CIT v. Geo Tech Construction Corporation [2000] 244 ITR 4521. In that case the Court observed :
The words ‘used for the purpose of the business’ were capable of a larger and narrower interpretation. If the expression ‘used’ was construed strictly it could be taken as connoting or requiring the active employment or the actual working of the machinery, plant or building in the business. On the other hand, the wider meaning would include not only cases where the machinery, plant were actively employed but also cases where there was what may be described as passive user of the same in the business. An asset could be said to be used, when it was kept ready for use.
In the above case the assessee’s claim of depreciation was allowed on finding that there was positive material to show the existence of the asset at the worksite and in that sense there was the passive user of the asset for the purpose of business.
7. In the present case we are not actually concerned with the question as to whether the assessee was entitled to the allowance of depreciation on the vehicle which had been purchased during the previous year and also running during the year to reach the assessee’s premises, but not hired out during the previous year. The question to be considered is as to whether by making the claim of depreciation the assessee was making a false claim with a view to reduce its income and thereby attracting the penal provisions of law. In the case of CIT v. India Sea Foods [1996] 218 ITR 629 the Full Bench of the Kerala High Court held that for levy of penalty under Section 271(1)(c) there should be conscious concealment of income on the part of the assessee. In that case the Court observed as under :
Penalty proceedings are penal in nature. The elementary principles of criminal law will apply. It is a quasi criminal proceeding. There should be a conscious concealment. The provisions should be construed strictly. Even after the addition of the Explanation to Section 271(1)(c) of the Income-tax Act, 1961 conscious concealment is necessary and the presumption under Explanation to Section 271(1)(c) can be displaced by the assessee proving that the failure to return the correct income did not arise from any fraud, or gross, or wilful neglect and the quantum of proof necessary would be that required in a civil case namely, preponderance of probabilities.
In the circumstances of the present case we are not inclined to agree with the ld. D.R. that the failure on the part of the assessee to return the correct income for the assessment year 1989-90 had arisen from any fraud, or gross, or wilful neglect. On the other hand, the facts clearly show that the assessee had furnished the particulars regarding the purchase of the vehicle and even the fact that it had not reached Coimbatore before 31-3-1989. It was a legal stand taken by the assessee that even when the vehicle was running from Indore to Coimbatore after the purchase, it was running for the purpose of the assessee’s business, and so it was entitled to the allowance of depreciation. In the case of Burmah-Shell Oil Storage & Distributing Co. of India Ltd. v. ITO [1978] 112 ITR 592, the Calcutta High Court held that the assessee’s claim for a deduction based on certain legal contentions could not be treated as a case of concealment of income within the meaning of Section 271(1)(c). Whether the said contentions were ultimately upheld or turned down it could not be said that the said contentions were frivolous, dishonest or mala fide. The rejection of the contentions raised by the assessee could not lead to the contention that there had been any concealment of the particulars of income or that the assessee had furnished inaccurate particulars of its income. Having regard to the facts of the present case and the judicial decisions on the subject of concealment of income, we do not think that the Assessing Officer was justified in levying the penalty on the ground that by making the claim for the allowance of depreciation on the vehicle purchased on 30-3-1989 and running for the assessee’s purpose, it was making a false claim of depreciation. We thus find that the CIT(A) was not correct in upholding the levy of penalty in this case.
8. Accordingly we reverse the order of the Revenue authorities and cancel the penalty levied on the assessee under Section 271(1)(c). This appeal by the assessee is therefore, allowed.
