TMI Blog1986 (3) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... sisting 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 it from the aforesaid erstwhile firm, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... W.D.V 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 ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the various decisions referred to in his order the CIT (A) held that this was a clear case in which the assessee has furnished inaccurate particulars of its income. As regards the quantum of penalty the CIT (A) held that levy of penalty was justified at ₹ 1,60,000 in view of the provisions of the Act as they stood for the relevant assessment year. In shot the CIT (A) declined to interfere with the decision of the ITO and dismissed the appeal. 9. Being aggrieved the assessee has come up in appeal before us. Shri 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which tax was payable by the assessee. It was therefore, submitted that on facts of the case levy of penalty was wholly unjustified. The ld. departmental representative on the other hand strongly submitted that the facts as found by the Tribunal in quantum appeal in the assessee's own case cited supra spoke for themselves. It was a clear case in which the assessee has tried to obtain tax benefit by revaluing the assets thereby making a claim for higher depreciation on one hand and passing on the benefit in favour 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 proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s income within the meaning of s. 271(1)(c) of the Act. The inaccurate particulars of income which are said to have been furnished fall into two categories: (a) the claim regarding depreciation on land, and (b) the claim for excess depreciation on enhanced cost of various items as set out in the above table. The learned departmental representative has also passed into service the Explanation to s. 271(1)(c) of the Act and in this connection he has relied on Drapco's case (supra). In view of the above decision it is necessary 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 (her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not arise out of gross or wilful neglect or fraud. The scope of expression concealment, fraud and wilful neglect was considered by their Lordships of the Gujarat High Court in Drapco's case (supra) at page 359-360 is stated as follows: As regards the alternative arguments, as we have seen earlier, concealment for the purposes of s. 271(1)(c) must be conscious concealment. Conscious concealment would mean concealment which is not accidental or unintentional but concealment with a guilty mind to evade tax. It would thus appear that for the purposes of bringing a case within the said sub-section, the state of mind of the assessee becomes relevant. The Explanation, in so far as it is relevant, provides that unless the assessee proves that the failure to return the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. It is worse than negligence, for negligent action is that, the consequences of which, the law, the presumes to be present in the mind of the negligent person, whether actually it was there or not. This legal presumption is drawn through the well-known hypothetical reasonable man. The Supreme Court, in terms, observed (p. 531): Reckless disregard of consequences and mala fides stand equal, where the actual state of mind of the actor is relevant. This is so in the eye of law, even if there might be variations in the degree of moral reproach deserved by recklessness any mala fides. It was further pointed out that the General Clauses Act helps only in so far as it lays down that negligence does not necessarily mean mala-fides. Sometimes 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o parts firstly the claim for depreciation on land. The assessee had shown the value of building with land at ₹ 16,50,000 while the value of super structure was shown at ₹ 4,62,000 and that of land at ₹ 10,68,900 by his valuer. The above valuation was based on the valuer's report filed by the assessee before the ITO. Now depreciation as rightly pointed out by the ITO is admissible only on building and not on land in view of the decision of the Supreme Court in case of Alps Theatres (supra). In our view when a clatm is made by the assessee and it is not found tenable in law it is open to the taxing authorities to reject the same. But it would not per se establish the guilt of furnishing inaccurate 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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