9911796707
TMI Blog1986 (3) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... carried on by another firm consisting the assessee and S/Shri Ramanlal Premchand Shah, Navnitlal Manilal Shah, Kikaram Khinjibhai Purohit, Smt. Subhadraben Rajnikant Sheth, Smt. Arunaben Rajnikant Shah and Smt Nayanaben Dhirubhai Shah. There were four minors admitted to the benefits of partnership of M/s Hotel Sabar. M/s Hotel Sabar came into existence under a deed of partnership dt. 14th April, 1974. On 1st April, 1974 the remaining partners of M/s Ajay Estate Agency retired from the firm of the assets of the said firm were taken over by the assessee at the agreed figure of ₹ 16,50,000 Similarly on 22nd April, 1974 the remaining partners alongwith minors retired from the firm M/s Hotel Sabar and the business as well as assets of the said firm were taken over by the assessee for a price stipulated in the deed captioned "Deed of Retirement" dt 22nd April, 1974. It may be mentioned that the assessee had taken over furniture and fixture, utensils etc. of M/s Hotel Sabar at double the amounts of their written down value. 3. In its return of income as well as at the time of assessment proceedings, the claimed depreciation of ₹ 2,37,852 on the assets acquired by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Value at which taken over Furniture & Fixtures 3,07,348 2,11,677 4,23,374 Plant & Machinery 1,45,851 96,296 1,92,590 Utensils 1,22,792 82,426 1,64,852 Dead stock 6,181 5,563 11,136 Decoration 68,755 45,450 92,900 Curtains 62,899 36,777 73,554 Goodwill ' ' 1,00,000 According to the ITO, the assessee had in fact paid double amount of written down value in respect of some of the items and paid more than its original cost in respect of other items. The assets were acquired by the assessee at such an exorbitant price that no man of prudence would purchases the same at that price. The whole exercise was motivated with as ulterior object in order to benefit the retiring partners as also with a view to claiming higher depreciation. Therefore, it was clear that this was a case of collusion by the assessee and the retiring partners who have tried to further their own interest. The ITO therefore held that this was a clear case of furnishing inaccurate particulars of income and in this view of the matter he imposed a penalty of ₹ 1,60,000 with the approval of the IAC. 7. Being aggrieved the assessee carried the matter in appeal before the CIT(A) clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hri Shah submitted that the basis of levy of penalty was an act of the assessee to furnish inaccurate particulars of its income, in accordance with the finding reached by the authorities below. The assessee has clearly brought out the fact about the revaluation of assets and liabilities at the time of raking over of the business on retirement of the business on retirement of erstwhile partners, in the note appended to the balance sheet which formed a part of Schedule 'D' appended to the balance sheet. It was made clear that the assessee had revalued the assets and the said value has been incorporated in the accounts of the company. Secondly the value fixed on revaluation was set in the deed of retirement executed on 22nd April, 1974 between the assessee and the retiring partners. Thus the full facts in regard to the question was disclosed to the ITO at the time of hearing. The valuation of assets and the prices set out in the deed of dissolution were incorporated in the final accounts of the company and no basis of which the claim for depreciation was made in the return. The income as determined by the ITO after giving effect to the CIT (A)'s order worked out to ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of retiring partners who could claim the receipt as non-taxable having received the amount on retirement. Another material point which was required to be taken into consideration, Shri Bhattacharya argued, was that in the instant case provisions contained in Expln. to s. 271(1)(c) were squarely applicable. The return of income was filed on 31st July, 1975 at which point of time the Expln. to s. 271(1)(c) was in force. According of their Lordships of the Gujarat High Court in case of CIT vs. Drapco Electric Corporation 1978 CTR (Guj) 181: (1980) 122 ITR 341(Guj) the said Explanation only enacted a rule of evidence and it could be invoked at any stage of penalty proceedings. Therefore, according to the ld. departmental representative even if the said Explanation was not invoked either by the ITO or by the CIT(A) the same should be invoked in course of the present proceedings and the question of levy of penalty should be considered in light of the said Explanation. Thus according to the ld. departmental representative the assessee's case fell not only under the main provisions of s. 271(1)(c) of the Act i.e. furnishing of inaccurate particulars of income but the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary to consider in the first place the applicability of Explanation to s. 171(1)(c) of the Act as it stood for the relevant assessment year alongwith the main provisions as are relevant for our purposes: "271. (1) If the ITO or the AAC in the course of any proceedings under this Act, is satisfied that any person ''''''''' (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,........" "Explanation.' Where the total income returned by any person is less than eighty per cent of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under s. 143 or s. 144 or s. 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e correct income did not arise from any fraud or any gross or wilful neglect on his part, he should be deemed to have concealed the particulars of his income. The question is whether the absence of circumstances which the assessee is required to prove in order to escape from the clutches of s. 271(1)(c) introduces the proof of factors which are not inherently relevant in the proof of conscious concealment. Now, the case of fraud would obviously be a case of conscious concealment. So also would be a case of wilful neglect, because neglect of that type would result from a deliberate action the part of the assessee resulting in escapement or avoidance of tax and conscious concealment might ordinarily be inferred in such a case. As observed by the Patna High Court in CIT vs. Patna Timber Works (1977) 106 ITR 452at 460 (Pat), the expression "wilful neglect" imports neglect of the kind, where it is mixed with the neglect, a conscious, wilful or deliberate act of the assessee. Gross neglect which is different from mere negligence and springs from utter want of care and diligence can not, in our opinion, be put in a different class. When a person acts with reckless disregard of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es more than negligence is necessary. But the Act says "honestly" and so, for the interpretation of that word, the legal meaning explained above became relevant. The ratio of this decision is that for the purposes of judging whether anything was done in good faith, what is to be seen is whether an authority or individual, being aware of possible harm to the others, acts inspite thereof in reckless disregard of consequences. If it is so, it would be a case so far as the actual state of the mind of the actor is relevant, of mala fides. It would thus appear that even for the purposes of the definition of the expression "done in good faith" as given in s. 3(22) of the General Clauses Act, any action taken by a person being aware of possible harm to others in total or reckless disregard of the consequences can be treated as not honest. It is this very test which we have applied. If the assessee, by his gross neglect, brings about avoidance, evasion of tax thereby causing loss to public revenue, he could not be said to have acted in good faith. The conclusion can be legitimately reached in that case that gross neglect is equal to lacking in bona fides. It is pertine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e particulars of income within the meaning of s. 271(1)(c) of the Act. In the instant case, the assessee had furnished the break up of the amount shown under the head building and the break up was based on the valuer's report as observed by the ITO. In our opinion therefore, a claim for depreciation on land which is not tenable in law was rightly rejected. But at the same time it can not be said that the assessee had furnished inaccurate particulars of income with a view to getting a unfair advantage because as pointed out earlier there was no tax effect involved as a result of making a wrong or erroneous claim for depreciation. It may not be out of place to mention that the particulars required to be submitted in the return of income in respect of depreciation allowance inter alia requires that in respect of building the assessee is required to indicate whether the building is taken on lease or owned by the assessee. There is no mention that the value of building and land should be separately shown, in the depreciation statement. Now coming to second aspect the question relating to the claim for depreciation on revaluation of movable assets it is noticed that the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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