TMI Blog2006 (7) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee is bona fide and all the facts relating to the explanation of total income have been disclosed by the assessee. We are, therefore, of the view that there is no case of levy of penalty u/s 271(1)(c) of the Act, in relation to the disallowance of loss claimed by the assessee and it is accordingly deleted. We are of the view that the Tribunal has rightly decided this issue. The Tribunal as a matter of fact, found that the double claim for an amount of Rs. 1,00,112 was made due to some bona fide mistake on the part of the assessee. No sooner an entry was made in the trading account of this year, it was to affect the opening stock in the next year, and hence it could have been easily found out and would not have resulted in any advantage to the assessee. We, therefore, confirm the order of the Tribunal on this issue and hold that the penalty relatable to the disallowance of loss of Rs. 1,00,112 is rightly deleted by the Tribunal. In the result, both the questions referred to us at the instance of the assessee as well as the Revenue are answered in favour of the assessee and against the Revenue. - HON'BLE: ANIL R. DAVE., K. A. PUJ, JJ For the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the written down value of the building, plant and machinery and the electric installations lost in fire was only Rs. 74,349/- against which the assessee had received Rs. 84,462/- from the insurance company. He, therefore, instead of allowing balancing depreciation, worked out profit under section 41(2) of the Act at Rs.10,112/- (Rs. 84,462 - Rs. 74,350/-) and added the same to the income of the assessee. Consequently, loss claimed by the assessee on account of destruction of damage to plant and machinery was disallowed. In appeal, the learned Commissioner of Income-tax (Appeals) upheld disallowance of Rs. 1,83,492/- as being loss of capital nature. But with regard to addition of Rs. 10,112/- on account of terminal allowance or profit under section 41(2) of the Act, the learned Commissioner of Income-tax (Appeals) directed the Income-tax Officer to consider for taxation the amount of Rs. 84,462/- received from the insurance company for loss of capital asset, in the immediately succeeding year. 5. The assessee had further claimed an amount of Rs. 1,00,112/- on account of loss of stock due to fire. The Income-tax Officer noted that on physical verification of the stock, made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case. He, therefore, levied penalty of Rs. 1,50,000/- under section 271(1)(c) of the Act. 7. In appeal, the learned Commissioner of Income-tax (Appeals) confirmed the penalty levied by the Income-tax Officer by holding that in the instant case, the assessee had falsely claimed deduction of capital loss in the profit and loss account and had also further fraudulently suppressed its closing stock by claiming double deduction in the trading account. In the opinion of the learned Commissioner of Income-tax (Appeals), the assessee had attempted to reduce its taxable income and both the steps of the assessee, as mentioned above, amounted to concealment of particulars of income as well as furnishing of inaccurate particulars of its income with an intention to evade tax. While confirming the penalty the learned Commissioner of Income-tax (Appeals) followed the decision of the Kerala High Court in the case of CIT v. India Sea Foods [1976] 105 ITR 708. 8. Being aggrieved by the said order of the learned Commissioner of Income-tax (Appeals) the assessee preferred second appeal before the Tribunal and contended that the assessee-company had acted in good faith and in all bona fides in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the insurance company had been moved by the assessee-company for replacement of the damaged plant and machinery on cost basis. The Tribunal, therefore, finally held that penalty referable to the aforesaid amount regarding capital loss but dishonestly claimed as trading loss in the profit and loss account was well justified. This part of the Tribunal's findings has given rise to the assessee's prayer for reference on a question proposed by it. 10. With regard to penalty referable to Rs. 1,00,112/- claimed as loss to the stock, the Tribunal held that the double claim for that amount had been made due to some bona fide mistake on the part of the assessee-company. The Tribunal observed that the said loss was to affect the opening stock in the next year and, therefore, could have been found out and would have not resulted in any advantage to the assessee. For these reasons, the Tribunal cancelled the penalty proportionately referable to the amount of Rs. 1,00,112/-. This part of the Tribunal's order has given rise to the prayer for reference on the question proposed by the Revenue. 11. Mr. R.K. Patel, the learned advocate appearing for the assessee has submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m on account of the damage or destruction of the capital assets is so received on account of the transfer within the meaning of section 45 read with section 2(47) of the Act and therefore chargeable to capital gains tax under the said section. This decision has been challenged by that assessee before the hon'ble Supreme Court and while reversing the judgment of this court in the case of Vania Silk Mills P. Ltd. v. CIT [1991] 191 ITR 647, the hon'ble Supreme Court has observed, that capital gains tax was attracted under section 45 by transfer and not merely by extinguishment of rights howsoever brought about. Whatever the mode by which the transfer was brought about, the existence of the asset during the process of transfer was a precondition : unless the asset existed in fact, there could not be a transfer of it. The extinguishment of a right or rights should in any case be on account of its or their transfer in order to attract the provisions of section 45. If it was not, and was on account of the destruction or loss of the asset, it was not a transfer and did not attract the provisions of section 45 which related to transfer and not to mere extinguishment of a right. Henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 51, wherein it is held that in the case of Mrs. Grace Collis [2001] 248 ITR 323 (SC), the court did not have occasion to go into the question as to whether the destruction of a capital asset which as a consequence brings about the extinguishment of the rights of the assessee owner in such asset, would amount to transfer. The court did not hold that Vania Silk Mills P. Ltd. v. CIT [1991] 191 ITR 647 (SC) was wrongly decided, or that the definition of transfer in section 2(47), particularly, the use of the words extinguishment of any rights therein would cover cases of destruction of the capital asset. Cases such as the destruction of the capital asset in a fire, or its complete loss as in the case of sinking of a vessel in the sea, cannot be regarded as having been brought within the fold of the definition of transfer in section 2(47) by reason of what has been said and laid down in the case of Mrs. Grace Collis [2001] 248 ITR 323 (SC). The court therefore held that the law laid down in Vania Silk Mills P. Ltd.'s case [1991] 191 ITR 647 (SC), that extinguishment of rights in a capital asset as a necessary consequence of destruction of the asset does not amount to transfer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l further invited the court attention to para. 61.8 of Circular No. 204, dated July 24, 1976, being the Explanatory Notes on the provisions of the Taxation Laws (Amendment) Act, 1975 effective from April 1, 1976, and April 1, 1977. This circular is reported in [1977] 110 ITR (St.) 21. It says that new Explanation 1 provides that where in respect of any facts material to the computation of his total income, an assessee fails to offer an explanation or is unable to substantiate an explanation offered by him or offers an explanation which is found to be false, the amount added or disallowed in computing the total income of such person as a result thereof will be treated as his concealed income. If, however, the explanation offered by the assessee is bona fide and all the facts relating to the explanation and material to the computation of total income have been disclosed by the assessee, Explanation 1 will not be applicable. Precisely for this reason, the Income-tax Officer has not applied Explanation 1 to the facts of the assessee's case. 19. With regard to the levy of penalty relatable to the sum of Rs. 1,00,112/- for which the Revenue is in reference, Mr. Patel has submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee informed the Income-tax Officer about it. The Tribunal had come to a final conclusion that there was no case for imposing penalty and the mental state of the assessee being a question of fact, it would not be proper for the court to take a different view. The court therefore has taken a view that the Tribunal was justified in deleting the penalty. Here in the present case the Tribunal has held that the double claim for this amount was due to the result of bona fide mistake on the part of the assessee. 21. Mr. Patel has, therefore, submitted that this being a finding of fact given by the Tribunal the same should not be interfered with by this court. Mr. Patel has further relied on the decision of the hon'ble Supreme Court in the case of K.C. Builders v. Asst. CIT [2004] 265 ITR 562, wherein it is held that concealment inherently carries with it the element of mens rea. The fact that some figure or some particulars have been disclosed, even if it takes out the case from non-disclosure, would not by itself take the case out of the purview of furnishing inaccurate particulars. Mere omission from the return of an item of receipt amounts neither to concealment nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Income-tax Officer but at the appellate stage and after much efforts of the Commissioner of Income-tax (Appeals) the assessee raised the written down value to Rs. 90,255/-. He has further submitted that there was no justification in the assessee's claiming a capital loss as a revenue loss, not declaring the written down value of the destroyed asset and declaring the same after much efforts by the Income-tax Officer/Commissioner of Income-tax (Appeals) and that too at different figures. He has, therefore, submitted that the very conduct of the assessee belies its assertion of its having committed a bona fide mistake or having acted in good faith. 24. Mr. Vyas further submitted that there were concurrent findings of all the three authorities, so far as the levy of penalty in relation to disallowance of loss is concerned. He has further submitted that the explanation tendered by the assessee is also not bona fide nor can it be said to be reasonable. The assessee has deliberately concealed the particulars and made false claim in its return of income-tax and also tried to justify the said claim during the course of assessment and appeal proceedings. He has, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. [1977] 107 ITR 300 (Guj), (ii) Vania Silk Mills P. Ltd. v. CIT [1991] 191 ITR 647 (SC), (iii) CIT v. Mrs. Grace Collis [2001] 248 ITR 323 (SC) and (iv) Neelamalai Agro Industries Ltd. v. CIT [2003] 259 ITR 651 (Mad), it cannot be said that the assessee was knowing or was having reasons to believe that its claim of Rs. 1,83,492/- treating the same as revenue loss, is untrue. The assessee has filed its return of income on June 30, 1980, claiming, deduction of Rs. 1,83,492/- on the basis of its claim lodged with the insurance company on account of loss and damage to its plant and machinery on replacement cost basis. The decision of this court in Vania Silk Mills P. Ltd. [1977] 107 ITR 300 was assailed before the Supreme Court and it was reversed on August 14, 1991. It holds the field till February 23, 2001, when certain observations made therein were disapproved by the larger Bench of the hon'ble Supreme Court in CIT v. Mrs. Grace Collis [2001] 248 ITR 323. It is, however, worthwhile to derive support from the observations made by the Division Bench of the Madras High Court in Neelamalai Agro Industries Ltd. [2003] 259 ITR 651 for the purpose of deciding the issue as to whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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