TMI Blog2006 (12) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... rations lease and not financial lease. It was emphasized that as per the lease terms aircraft always belonged to the lessor. This arrangement did not therefore lead to any rights being created in the hands of the lessee i.e., the assessee-company. Accordingly, assessee s claim for depreciation on aircraft, which was made on the basis that lease arrangement was a de facto finance transaction, was erroneous. The disallowance so made was not carried in appeal and the assessee accepted the same. As for the disallowance of deduction under section 35D to the extent of Rs. 34,771, was inter alia , also on the basis that aircraft could not have been shown as an asset by the assessee, and, accordingly, its inclusion in the capital employed was erroneous. This disallowance was also accepted by the assessee. 4. It was in the backdrop of above quantum additions that the assessee was required to show cause as to why concealment penalty under section 271(1)( c ) should not be imposed on the assessee, as the assessee has, according to the Assessing Officer, wilfully furnished the incorrect particulars and thereby concealed the income. It was amongst other things, pointed out by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... false claim of depreciation of Rs. 23,24,544 as it made a conscious attempt to reduce its tax liability by furnishing inaccurate particulars of its income. 6. As regards the excessive claim of deduction under section 35D, the assessee has not furnished any explanation. It is however clear that the assessee has not been able to justify the same in any manner. It is clear that deduction under section 35D was eligible to the assessee in respect of the share capital of Rs. 5,00,000 only and that nothing else was eligible for being included within the definition of capital employed. The assessee however claimed the 10 per cent of the expenses of Rs. 3,47,712 straight- away and thereby attempted to reduce its tax liabilities further. Since the assessee by such act furnished inaccurate particulars of its income I find it liable for penalty under section 271(1)( c ) on this account also." 5. Aggrieved, assessee carried the matter in appeal before the learned CIT(A) but without any success. The learned CIT(A), while confirming the penalty, observed as follows : "I have considered the submissions of the appellant and find that the appellant has been shifting stands on the issue and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light of Hon ble Supreme Court s judgment in the case of K.P. Madhusudhanan v. CIT [2001] 251 ITR 99 it is no longer necessary that revenue is required to prove mens rea , and, therefore, independent finding about the conscious concealment is no longer a condition precedent to imposition of penalty under section 271(1)( c ) read with Explanation 1 to section 271. The school of thought casting onus on revenue to prove the mens rea , as advanced by some legal precedents may be viewed as having been rejected by the Hon ble Supreme Court. However, it is also not the legal position that the penalty can also be imposed without anything more than quantum addition. The explanation given by the assessee for claiming the deduction has to be objectively considered by the Assessing Officer. What the Assessing Officer has to examine is whether the explanation given by the assessee or the conduct of the assessee meets the tests of human probabilities. Strictly speaking, mens rea may not require to be proved by the revenue, but then at least the Revenue has to demonstrate that the assessee has behaved in a manner which is not justified on the test of reasonable human probabilities, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the depreciation claim was that the ownership of the aircraft remained with the lessor company, but the two situations visualized in the CBDT circular, entitling the assessee for depreciation in the cases of hire purchases, are ( a ) when the ownership is transferred at once and the lessor has the right to sue for instalments but not for recovery of the leased assets; and ( b ) when the terms of agreement provide that the equipment shall become the property of hirer or confer the hirer an option to purchase the equipment. It is, therefore, obvious that no rights being created in the hands of the assessee-company, in respect of aircraft taken on lease, per se does not disentitle the assessee for depreciation on aircraft. 12. Those two situations, visualized aforesaid Central Board of Direct Taxes circulars, are inherently mutually exclusive conditions and they envisage different treatments for the purpose of depreciation. In the first case, according to the Central Board of Direct Taxes circular, the transaction is required to be computed on entire purchase price as per the agreement. In the second situation, however, the transaction is required to be treated as one of hir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore settled position that depreciation is to be allowed on the assets purchased on hire purchase basis which the aircraft lease agreement was, at least prima facie, in substance. It is not material that in terms of the agreement, the lessor had a right to sue for recovery of asset in case of payment defaults by the lessee, and that the ownership in the asset continued to vest in lessor. We are, therefore, of the view that the claim for depreciation on assets purchased, under the aircraft lease agreement was not a claim which can be rejected outright, or which can be said to be mala fide. Even if depreciation was not to be allowed as it was to be viewed as operational lease, in such a situation the lease was to be treated as operating lease and the entire lease rental was to be considered for being allowed as revenue deduction, which could have possibly resulted in an even lower taxable income. It is not normally possible to disallow deduction for depreciation as also for lease rental. For this reason also, the stand of the Assessing Officer is erroneous. 14. The assessee s claim cannot, therefore, be said to be without any basis. We are not really concerned with wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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