Commissioner of Income-tax Vs. Goyal Gases (P.) Ltd. - Court Judgment

1. This is a petition under Section 256(2) of the Income-tax Act, 1961, whereby the Revenue seeks a direction to the Income-tax Appellate Tribunal to state the case and refer the following questions, stated to be of law, for the opinion of this court :

'1. Whether, on the facts and in the circumstances of the case, the learned Members of the Income-tax Appellate Tribunal erred in holding that the assessed did not furnish inaccurate particulars of income under Section 271(1)(c) of the Income-tax Act despite the fact that the Assessing Officer through protracted investigation established beyond doubt that the claim of depreciation on cylinders was shown deliberately wrong

2. Whether, on the facts and in the circumstances of the case, the learned members of the Income-tax Appellate Tribunal erred in setting aside the order under Section 271(1)(c) despite the fact that it was established beyond doubt that the computers were never purchased never used and never leased out ?'

2. The assessment year involved is 1989-90. The assessed is engaged in the business of hiring cylinders. Up to the assessment year 1987-88, the asses-see had the calendar year as its accounting period. However, for the assessment year 1988-89, the assessed sought extension of the accounting period till June 30, 1988, which was granted. The result was that there was no return of income for the assessment year 1988-89 and the return for the assessment year 1989-90 was for a period of 27 months, i.e., the first period from January 1, 1987 to June 30, 1988, and the second period from July 1, 1988 to March 31, 1989. For the relevant assessment year the assessed filed its return of income declaring a total income of Rs. 23,74,987.

3. During the course of assessment proceedings, the Assessing Officer noticed that the assessed had claimed a total depreciation of Rs. 1,97,51,631.85, which included depreciation on cylinders amounting to Rs. 88,83,699. The profit and loss account for the first period showed a profit of Rs. 23,77,274 on sale of cylinders. Since the depreciation chart furnished along with the return showed the total sale value of the cylinders sold during the period at Rs. 20,38,608, the Assessing Officer asked the assessed to explain the calculation with regard to the claim of depreciation on cylinders. After some proceedings, the assessed filed a revised statement of income in which it disclosed the sale value of the cylinders at Rs. 81,60,677 instead of Rs. 20,38,608 as shown earlier. Accordingly, the Assessing Officer enhanced the returned income by Rs. 37,44,795. This addition was upheld by the Commissioner of Income-tax (Appeals) and the Appellate Tribunal.

4. It was claimed by the assessed that during the previous year it had purchased 15 computers for Rs. 50,26,200, which were leased out after accepting security deposit of Rs. 25,13,100. On these computers, the assessed claimed depreciation amounting to Rs. 37,69,273. However, after detailed investigation, the Assessing Officer came to the conclusion that the entire transaction of leasing was sham and in fact the assessed never became the owner of these computers. He consequently disallowed the claim of depreciation. This disallowance was also upheld by the Commissioner of Income-tax (Appeals) and the Appellate Tribunal.

5. After initiating penalty proceedings under Section 271(1)(c) of the Act against the assessed on the ground that it had furnished inaccurate particulars about the sale value of the cylinders, which had the effect of understating income to the extent of Rs. 37,44,795 and had made a false claim of depreciation on computers amounting to Rs. 37,69,273, the Assessing Officer imposed a penalty of Rs. 95,05,296 under the said section. The assessor's appeal against the said order to the Commissioner of Income-tax (Appeals) was unsuccessful. Aggrieved, the assessed carried the matter in further appeal to the Appellate Tribunal. The Tribunal deleted the penalty levied on account of furnishing of incorrect particulars about the sale value of the cylinders but in so far as the levy of penalty for false claim of depreciation on computers was concerned, it set aside the penalty and remanded the case back to the Assessing Officer for fresh decision after giving an opportunity of hearing to the assessee.

6. It is this order, which has given rise to this application as the Tribunal has declined to refer the afore noted questions for the opinion of this court. We may note at this stage itself that initially the Tribunal had decided to refer the first question, in a reframed form and the draft statement of the case was also circulated but at the time of finalising the statement of the case, the Tribunal changed its mind, holding that the findings recorded by the Tribunal, while cancelling the penalty levied, did not give rise to any question of law.

7. We have heard Mr. R.D. Jolly, learned senior standing counsel for the Revenue, and Mr. K.K. Wadhera, for the assessee.

8. It is submitted by Mr. Jolly that apart from the fact that the Tribunal has failed to draw the correct inferences from the material available on record, while holding that the Explanationn to Section 271(1)(c) of the Act is not applicable on the facts of this case, it has even applied incorrect provisions of law. It is pointed out that the Explanationn taken into consideration by the Tribunal stood omitted with effect from April 1, 1976. On the other hand, Mr. K.K. Wadhera, learned counsel for the assessee, has tried to support the view taken by the Tribunal. Having heard learned counsel for the parties we are of the view that a question of law does arise from the order of the Tribunal. It is evident from para. 11 of the Tribunal's order that the Tribunal has failed to take into consideration Explanationn 1 to Section 271(1)(c), substituted by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976, and has wrongly applied the Explanationn which had been inserted earlier by the Finance Act, 1964. Undisputably, there is significant difference between Explanationn 1 as inserted by the Finance Act, 1964, and the one substituted by the Taxation Laws (Amendment) Act, 1975. Without expressing any final opinion at this stage, lest it may prejudice the issue involved, we are of the view that the order of the Tribunal gives rise to a question of law.

9. Regarding the second question pertaining to the claim of depreciation on the computers, we feel that the Tribunal having set aside the entire issue for fresh adjudication by the Assessing Officer, reference on proposed question No. 2 need not be called for. Besides, it is also pointed out that pursuant to the said order, a fresh order has already been passed by the Assessing Officer.

10. Accordingly, we direct the Tribunal to state the case and refer the following question for the opinion of this court :

'Whether, on the facts and circumstances of the case, the Tribunal was right in law in cancelling the penalty imposed on the assessed under Section 271(1)(c) of the Act in respect of the assessment year 1989-90 ?'

11. The petition stands disposed of in the above terms. There will, however, be no order as to costs.