ORDER G. D. AGRAWAL, A. M. :
This appeal by the assessee is directed against the order of the CIT(A)-VI, New Delhi, who confirmed penalty of Rs. 95,05,296 levied by the Assessing Officer (AO) under s. 271(1)(c) of the IT Act, 1961.
2. The AO had levied the penalty on following two points :
(a) For furnishing of inaccurate particulars about the sale value of cylinders which had the effect of understatement of income to the extent of Rs. 37,44,795.
(b) Bogus claim of depreciation amounting to Rs. 37,69,273 on computers which were never owned, used and leased.
3. The learned representatives of both the parties have made detailed submissions in respect of both the points separately. Therefore, we shall also consider both the above items separately.
4. The facts of the case with regard to first item, i.e., sale value of cylinders, is as follows. The accounting year relevant to assessment year under consideration was from 1st Jan., 1987 to 31st March, 1989. The assessee prepared two P&L A/c s - one for the period 1st Jan., 1987 to 30th June, 1988, and second for 1st July, 1988 to 31st March, 1989. Statement of total income was made out considering profit and loss of both the periods. Accordingly, the return declaring net taxable income of Rs. 23,74,987 was filed. In the statement of income the assessee claimed depreciation amounting to Rs. 1,97,51,631. The depreciation chart filed by the assessee along with the return, copy of which is placed at page 22 of the paper book reads as under :
Description Description WDV as on 1-1-87 WDV as on 1-1-87 Addition Addition Sales Sales 1 1 2 2 3 3 4 4 Ist Block (10%) 4,54,321.00 7,25,473.53 Factory Building Building Filling Station Furniture & Fixture 2nd Block (33.33%) 28,18,765.00 91,88,788.55 1,45,500.00 Plant & machinery Plant & machinery (Berating apparatus) Electric Installation Trollies Tanks DG Set Office equipment Fire extin-guishers Vehicles Computers 3rd Block (50%) Trucks 22,32,000.00 4th Block (100%) Cylinders 1,09,22,307.41 20,38,608.00 Total 32,73,086.00 2,30,68,569.49 21,84,108.00 Description Description Total Total Depreciation Depreciation WDV as on WDV as on 1 1 5 5 6 6 7 7 Ist Block (10%) 11,79,794.53 134,284.44 10,45,510.09 Factory Building Building Filling Station Furniture & Fixture 2nd Block (33.33%) 1,18,62,053.55 85,01,648.00 33,60,405.55 Plant & machinery Plant & machinery (Breating apparatus) Electric Installation Trollies Tanks DG Set Office equipment Fire extin-guishers Vehicles Computers 3rd Block (50%) Trucks 22,32,000.00 22,32,000.00 4th Block (100%) Cylinders 88,83,699.41 88,83,699.41 Total 2,41,57,547.09 1,97,51,631.85 44,05,915.64
5. The P&L a/c, filed with the return and copy of which is at page 6 of the paper book reads as under :
"Profit and loss account for the period ended 30th June, 1988 Particulars Particulars Annexure No. Annexure No. For the period ended 30th June, 1988 For the period ended 30th June, 1988 Income Sales 3,99,55,235.10 Other Income XI 1,86,05,846.58 5,85,61,081.68 Expenditure Cost of materials XII 2,50,29,179.75 Stores and spares consumed XIII 13,15,394.51 Employees costs XIV 21,49,781.77 Expenses XV 1,20,96.914.85 Interest and financial charges 17,05,285.45 Depreciation 52,94,734.92 Investment allowance 1,34,614.83 4,77,25,906.08 Profit before taxation 1,08,35,175.60 Less income-tax 1985-86 1,43,102.00 Add depreciation on fixed assets written back 38,77,169.42 Less : Depreciation earlier years 1,84,92,206.24 Add : Balance of profit from previous year 1,78,20,230.50 Balance carried to balance sheet 1,38,97,267.28
6. Details of other income of Rs. 1,86,05,846 given in Annexure XI, filed along with return, reads as under :
"Annexure-XI Other Income Other Income For the period ended 30th June, 1988 For the period ended 30th June, 1988 Interest received (TDS 3,47,332.76 previous year Rs. 83,117.00) 17,87,297.80 Rent on cylinders 19,08,636.13 Lease rent 9,525.00 Transportation charges 10,38,023.92 Usage charges of tanks 82,88,248.55 Cylinders servicing, repairing and maintenance 3,10,753.32 Other income 28,86,087.90 Profit on sale of fixed assets 23,77,273.96 1,86,05,846.58"
7. During the course of assessment proceedings the AO asked the assessee to reconcile the claim of depreciation. The assessee first tried to reconcile the claim made by it but ultimately filed a revised statement along with letter dt. 26th March, 1992. As per this letter it was claimed by the assessee that there was clerical error in calculating depreciation while filing the return. As per this revised statement, net taxable income shown by the assessee was Rs. 61,19,782 as against Rs. 23,74,987 shown in the original statement. The difference between the two statements was Rs. 37,44,795. The AO treated it as concealment of income by the assessee on account of furnishing of inaccurate particulars of sale value of cylinders. He levied penalty at twice the amount of tax on the said concealed income. The same is upheld by the CIT(A). Hence, this appeal by the assessee.
8. At the time of hearing before us the learned counsel for the assessee argued at length. His arguments may be summarised as under :
(i) It was the first year, when the entire law relating to depreciation allowance was changed. From this year the new concept of "Block of asset" was brought into statute book. Similarly, depreciable assets were made liable to capital gain tax under s. 50 of the IT Act.
(ii) That there was some error in the working of the depreciation but it was not on account of concealment of any fact by the assessee. The assessee bona fide believed that working of depreciation made by its counsel who prepared the return is correct.
(iii) That all the relevant information were furnished by the assessee. In the depreciation chart assessee has shown sale of cylinders at Rs. 20,38,608, because it was sale out of purchases made during the year under consideration. He submitted that sale value of old cylinders was not shown in this chart because there was no WDV of those cylinders. However, the entire sale value was considered for the purpose of working of profit on sale of cylinders. That profit on sale of cylinders amounting to Rs. 23,77,273 was worked out and transferred to P&L a/c. In the balance sheet also the depreciation written back amounting to Rs. 38,77,169 was shown. Thus, the entire sale proceed was considered for determining the assessees income and resultant figures were duly reflected at relevant places in P&L a/c and in balance sheet.
(v) That mistake, if any, was committed by the assessees counsel while working out the depreciation/profit on sale of cylinders. There was neither concealment of any fact by the assessee nor furnishing of inaccurate particulars.
(vi) That the assessee filed complete details of sale along with sale voucher as back as on 22nd Nov., 1990. On this date the chart showing working of profit on sale of cylinders and depreciation written back was filed. Copy of chart is also filed before us and is placed at page 32 of the paper book. He submitted that in spite of furnishing of complete details of sale of as far back on 22nd Nov., 1990, neither the assessees counsel nor even the AO could find till 26th March, 1992 (when the assessee filed revised statement), that there was any mistake in working of depreciation by the assessee.
9. The learned counsel for the Revenue, Shri G. C. Sharma, Advocate, also argued at length. His arguments may be summarised as under :
(i) That w.e.f. 1st April, 1964, the word "deliberately" has been omitted from s. 271(1)(c). After the deletion of word "deliberately" mental state of the assessee is not relevant and mens rea is not essential. If a person has furnished inaccurate particulars, he is liable for penalty of concealment, whether such act was deliberate or not. That it is impossible to know mental attitude. Therefore, legislation has deleted the provision with regard to mental attitude. That even in prosecution proceedings, the intention of culpable mental attitude shall be presumed unless it is proved otherwise by assessee. He, therefore, submitted that in penalty under s. 271(1)(c) in the main provision itself onus is upon the assessee and not on Revenue.
(ii) The assessee is a company, it is guided by tax experts. Therefore, it cannot plead not being properly conversant with the new provision. Moreover, the assessee had claimed depreciation as per amended law which clearly establishes that assessee was fully aware of the new provision.
(iii) That the assessee has pleaded there was clerical mistake in working of depreciation. However, it has not specified which clerk committed the mistake, and under which circumstances mistake was committed. No affidavit of clerk/chartered accountant who committed the mistake is filed at any stage. Moreover, the return was signed by Managing Director, therefore, the assessee cannot escape from liability merely by saying clerical mistake.
(iv) The assessee has shown inaccurate particulars of sale. It was substitution of one sale figure by another. That there was no scope of committing such error unless the assessee had intention of reducing its income by claiming higher depreciation. That to claim high depreciation is the easiest way of reducing income.
(v) That the assessee did not show its correct income as long as it could do so. He submitted that why the mistake could not be realised so long and it was realised only in March, 1992 ? It clearly shows that the assessee filed revised statement only when it was left with no option.
(vi) In alternate he submitted that the onus was upon the assessee to show that there was no deliberate furnishing of inaccurate particulars by it and its conduct was bona fide.
(vii) He also relied upon following cases :
(a) Addl. CIT vs. Jeevan Lal Sah (1994) 205 ITR 244 (SC)
(b) Cement Marketing Co. of India Ltd. vs. Asstt. Commr. of Sales-tax (1980) 124 ITR 15 (SC)
(c) Northland Development & Hotel Corpn. vs. Assessing Officer (1995) 52 TTJ (Del) 4 : (1995) 53 ITD 333 (Del)
10. In the rejoinder it is submitted by the learned counsel for the assessee that burden is upon the assessee only when Explanation is applied and not in main section. Since in this case penalty is not levied under Explanation, burden was upon the Revenue to establish the guilt of the assessee.
11. We have carefully considered the arguments of both the sides and have perused the material placed before us. The learned counsel for the Revenue has raised a very important legal issue, i.e., what is the significance of deletion of word "deliberately" from s. 271(1)(c). According to him, after the omission of the word "deliberately" the onus is shifted upon the assessee in the substantive provision itself. He has contended that if a person has furnished inaccurate particulars of income, he is liable for penalty under s. 271(1)(c).
11.1 We are afraid, we cannot endorse the view expressed by the learned counsel for Revenue. The Finance Act, 1964, omitted the word "deliberately" from s. 271(1)(c) and also inserted Explanation reading as under :
"Explanation. - Where the total income returned by any person is less than 80% 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 inaccurate particulars of such income for the purposes of cl. (c) of this sub-section."
11.2 The effect of above Explanation would be that the assessee would be deemed to have concealed the particulars of income if the returned income was less than 80% of assessed income. There is exception to this deemed concealment, i.e., the expenditure incurred bona fide by the assessee which is disallowed shall not form part of total income for the purpose of deemed concealment. Further, there will be no deemed concealment if assessee establishes that such variation between income returned/assessed was not on account of fraud or any gross or wilful neglect. To put it differently even in a case where the Explanation is applicable, no penalty will be levied if the assessee was not guilty of committing fraud or gross/willful neglect.
11.3 Now if we accept the interpretation put forth by the learned Departmental Representative, that even in substantive provision onus is upon the assessee to prove that he is not guilty, necessity of bringing the "Explanation" into existence cannot be understood. The purpose of Explanation is to shift the burden upon the assessee in certain specified cases. The CBDT itself in its Circular No. F. 58/19/66 IT (Inv.) No. 29(D-XIV-22) of 1966 dt. 3rd Oct., 1966 (Reproduced in Chaturvedi & Pithisarias Income-tax Law - Fourth Edn. Vol. 5 page 893) has explained the purpose of insertion of Explanation. In para 2 it is stated "The Explanation added to s. 271(1) has, in effect, shifted the burden of proof regarding fraud or gross or wilful neglect from ITO to the assessee."
11.4 Thus, we have no hesitation to hold that by deletion of word "deliberately" from s. 271(1)(c) onus is not shifted upon the assessee. Burden is shifted upon the assessee, only in cases where Explanation is applicable. Where Explanation is not applicable, onus remains upon the Revenue, though the omission of word "deliberately" has lightened the burden of the Department. We may also mention that even after the amendment in 1964, the penalty proceedings continue to be penal in nature.
11.5 The view taken by us also finds support from the following decisions :
(a) CIT vs. Jeevan Lal Sah (supra).
"The Explanation, thus, shifts the burden to the assessee in the situation covered by it. If he fails to establish the same, the presumption will become a finding - and it would be open to the authority to levy the penalty. But if the assessee establishes that his failure to return the correct income was not on account of any fraud or any gross or wilful neglect on his part, it is evident, no penalty can be levied. (see p. 248A-E).
Even after the amendment of 1964, penalty proceedings continue to be penal proceedings. Similarly, the question whether the assessee has concealed the particulars of his income continues to remain a question of fact. Where the Explanation has made a difference is while deciding that question the presumption created by it has to be applied, which has the effect of shifting the burden of proof."
(b) CIT vs. Gurudayal Ram Mukh Lal (1991) 190 ITR 39 (Gau).
"The Expln. to s. 271(1)(c) of the IT Act, 1961, pertains to the onus of proof. The onus was earlier on the Revenue. It has now been shifted to the assessee in cases covered by the Explanation. The onus is on the assessee to prove that the failure to file the correct income did not arise from any fraud or gross or wilful neglect on his part."
(c) CIT vs. K. S. D. Pandurangan (1996) 218 ITR 8 (Mad).
"No one who has concealed particulars of his income or disclosed inaccurate particulars should be allowed to escape penalty, if he has done it intentionally. No one who has not done any such thing and if any such thing is done unknowingly or inadvertently should be subjected to penalty. If only on the basis of assessment of escaped income or on the basis of later disclosure of some income by the assessee, it has to be inferred that he has infringed the requirements of law, there will be no purpose of a separate penalty proceedings. The very fact that penalty proceedings are separately taken out and an opportunity is given to the assessee to show cause and produce evidence, etc., must assume that before inflicting penalty, it should be examined whether there is a deliberate concealment of income by the assessee of particulars of income or deliberate furnishing of inaccurate particulars of income."
12. Now we come to the facts of this case. It is an admitted fact that the assessee made incorrect claim of depreciation and he filed the revised statement of income long after the enquiries were made by the AO in this respect. However, the material question for the purpose of levy of penalty under s. 271(1)(c) is whether the incorrect claim of depreciation was on account of fraud or gross negligence of the assessee or was it a bona fide mistake while working out depreciation.
12.1 In the depreciation chart the assessee has shown sales of cylinders at Rs. 20,38,608, while actual sale value of cylinders was Rs. 81,60,677. The claim of the learned Departmental Representative appearing before us was that it is a clear case where correct value of sale figure was substituted by incorrect figure and it was with the sole intention of claiming higher depreciation than what the assessee was actually entitled to. This cannot be clerical or a bona fide mistake. On the other hand, substance of assessees counsels argument is that depreciation was worked out bona fide. Since it was a new provision, the assessees counsel who prepared the return of income did commit certain mistake while working out depreciation. However, neither the assessee concealed the figure of actual sale, nor its counsel ignored the actual sale value of cylinder, while computing assessee taxable income. After considering the entire material and weighing the arguments of both the sides on preponderance of probabilities we find more force in the submission of the learned counsel for the assessee. The assessees representative who prepared the IT return, did consider and took into account actual sale value. After taking actual sale value he worked out profit on sale of cylinders at Rs. 25,25,031. After considering profit/loss on sale of other assets he worked out net profit on sale of fixed asset at Rs. 23,77,273. This was transferred to P&L a/c as "other income". This income was offered to tax. The schedule of "other income" was filed along with return and this schedule clearly shows profit on sale of fixed asset at Rs. 23,77,273. Similarly while working out profit on sale of asset, depreciation written back was worked out at Rs. 38,77,169. This depreciation written back was separately shown in the P&L a/c for the period ended on 30th June, 1988, filed along with return of income itself. Therefore, it cannot be inferred that the assessee intended to conceal actual sale value of cylinders. It would not be out of place to mention here that the assessee submitted complete details of sales on 22nd Nov., 1990, and along with it also filed chart showing working of profit on sale of asset. The chart, placed at page 32 of paper book, reads as under :
"Details of profit/loss on sales of fixed assets and depreciation written back for the asst. yr. 1989-90 Particulars Particulars Cost Cost WDV on 30-6-88 WDV on 30-6-88 Dep. written back Dep. written back 5,773 cylinders 56,35,645.12 Nil 35,97,037.12 Vehicles Car MPH-2909 10,000.00 97.54 9,902.46 Car DIC-4072 65,000.00 45,500.00 19,500.00 Truck DEG-1413 2,14,727.42 38,698.92 1,76,028.50 Moped DEI-7257 3,531.00 1,012.49 2,518.51 59,28,903.54 38,77,169.45 Particulars Particulars Sale Sale Loss/profit Loss/profit 5,773 cylinders 81,60,677 25,25,031.88 Vehicles Car MPH-2909 40,000 30,000.00 Car DIC-4072 63,000 (-) 2,000.00 Truck DEG-1413 42,000 (-) 1,72,727.42 Moped DEI-7257 500 (-) 3,031.00 83,06,177 (-) 1,47,758.42 Total 23,77,273.46 In the above chart sale value of cylinders at Rs. 81,60,677 was shown. Had the assessee intentionally shown incorrect sale value of cylinders in depreciation chart, before furnishing correct sale value of cylinders, it would have revised its statement of net income. But on the other hand, the assessees counsel even after furnishing correct value of cylinders tried to justify its stand and reconcile how he made working of depreciation. Moreover, after furnishing of above chart, which depicted correct sale value of cylinders the AO also could not prima facie come to conclusion that the assessee had made incorrect claim of depreciation by showing wrong value of sale of cylinders. The assessee has also explained how the figure of Rs. 20,38,608 was taken in the chart while computing depreciation. It was the sale of cylinders out of purchase made during the year. Remaining was the sale value of old cylinders. The same was not considered because the WDV of those cylinders being "Nil" was not taken into account while working out depreciation. Therefore, we are unable to agree with the submission of the learned Departmental Representative that the assessee had substituted correct sale value of cylinders by incorrect figure. We hold that the entire sale proceeds of the cylinders was taken into account while computing assessees income, though there was error in the method of computation. There was sea change in the law relating to depreciation allowance, cannot be ignored. In view of the totality of above, we hold that incorrect claim of depreciation by the assessee was on account of bona fide mistake of the person who prepared the return. Accordingly the assessee cannot be made liable for penalty for furnishing of inaccurate particulars of income under s. 271(1)(c) of the IT Act, in this respect. We may also mention, that in view of our finding that incorrect claim of depreciation was on account of bona fide mistake of the assessees counsel, various decisions relied upon by the learned Departmental Representative will not support the case of the Revenue.
13. Next item on which penalty under s. 271(1)(c) is imposed is claim of depreciation on computers, which according to the AO, were never owned, used or leased by the assessee. The facts in this respect were noted in detail by the Tribunal, while deciding the assessees appeal in quantum, vide para 6 of the order in ITA No. 8105/Del/1992. It reads as under :
"6. Ground Nos. 6 to 9 : The assessee claimed depreciation on computers purchased from M/s Pertech Computers Ltd., E-46/10, Okhla Industrial Area, New Delhi (PCL for short), in March, 1989, and leased out the same to M/s ALTOS India Ltd., D-60, Okhla Industrial Estate (ALTOS for short) under an agreement dt. 18th March, 1989. The AO noticed certain curious features in the claim of the assessee with regard to purchase of computers from PCL as also its claim of leasing out of the same to ALTOS. The AO noted that the assessee had claimed to have purchased 15 computers from PCL, for a sum of Rs. 50,26,200 on 15th March, 1989. He also noted that the computers involved were claimed as manufactured by ALTOS which sold the computers to PCL. The AO noted that the Chairman of PCL Shri Bhai, was a Director of ALTOS. He also noticed that though the assessee claimed to have taken delivery of the computers from PCL, there was no such evidence and on the contrary the delivery of the computers was taken by ALTOS itself from PCL, yet the computers continued to remain with PCL who, on subsequent enquiry informed the AO that the same were sent to their Calcutta office. The AO made enquiries at Calcutta office and found no such computers existing at the premises of PCL as claimed. He further noted that on enquiry and verification distinct identification numbers of computers as given in the invoice as also per Schedule to the agreement between the assessee and ALTOS simply did not physically exist. Still further he made enquiries from PCL as to how and when the computers were sent to Calcutta. PCL in turn sent the AO the photostat copies of six air consignment notes with its letter dt. 20th Feb., 1992. On going through these notes the AO found the same irrelevant as also noted discrepancy in the date of despatch which was 15th March, 1989 in one Note when the agreement with ALTOS was signed only on 18th March, 1989. The AO also recorded statements of Shri Raj Singh of PCL and Shri Tapas Majumdar of ALTOS on 11th March, 1992, during the course of survey under s. 133A of the Act. The AO felt that the assessee was coming out with different versions with regard to whereabouts of the computers when on the one hand the same were claimed to be leased out to ALTOS, as per agreed terms, the computers were to remain with ALTOS, the same stood subleased by ALTOS to PCL without the knowledge or the consent of the assessee. He further noted violation of the terms of agreement between the assessee and ALTOS regarding insurance of computers. The AO recorded the statement of Shri Suresh Goel, Director of the assessee-company, on 18th March, 1992, and again on 30th March, 1992, when he was, according to the AO, unable to satisfactorily explain the whereabouts of the computers even though the agreement had practically come to an end, i.e., March, 1992 itself when Shri Goel informed the AO that he was making further enquiries from ALTOS with regard to whereabouts of computers. The AO also noted that description of computers as given in the schedule to agreement as also in the invoice not only remained uncorroborated with the help of any independent evidence but on the other hand enquiries revealed that such computers did not exist. He confronted the assessee with various documents and copies of statements of Shri Raj Singh and Tapas Majumdar on 26th March, 1992, and on 30th March, 1992, noted that the assessee was unable to satisfactorily explain its stand and had also submitted that PCL and ALTOS would not participate in proceedings. The AO also took note of letter received from another AO relating to another assessee M/s Avanti Overseas Pvt. Ltd., wherein he had conveyed that M/s Avanti Overseas Pvt. Ltd. had also entered into similar agreements with PCL/ALTOS and PCL had confirmed that security deposit is to be treated as a residual price of the computers on completion of the lease agreement and the deposit is non-refundable and interest free. He also took note of the broker and finance consultant who carried out such arrangement between M/s Avanti Overseas and PCL/ALTOS namely M/s Anil Bhatia & Associates. He gave copies of these documents to Shri Goel, director of company on 30th March, 1992, and found no satisfactory reply coming from Shri Goel. He thus held that the assessees claim was devoid of merit. He also held that the agreement with ALTOS was shown when the computers involved simply did not exist which, according to the AO, mean that the same were not even manufactured and therefore, there was no ownership of computers by the assessee. He, therefore, concluded that the money paid by the assessee was only towards financing recoverable in 36 monthly instalments s. 92,845 p.m. in all Rs. 33,42,420. He rejected the assessees contention that it was a normal business transaction when the assessee had duly paid the money for computers at Rs. 50,26,200 and the amount collected by way of security, i.e., Rs. 25,12,100 was properly disclosed in the balance sheet and the assessee in fact had received rental of Rs. 92,845 for the month of March, 1989, in terms of the agreement dt. 18th March, 1989."
In quantum appeal, disallowance of depreciation was upheld by the Tribunal with the following observations :
"11. In order to successfully claim depreciation, burden lay on the assessee to prove "ownership" and "user" of the assets, i.e., computers. So far the question of ownership is concerned, it is necessary to look into the circumstances obtaining in this case, namely, that ALTOS the manufacturer of the computers is claimed to have sold the computers to PCL, its selling agent, and PCL in its turn sold the same to the assessee and again the assessee entered into a contract of leasing with M/s ALTOS. It is also relevant to notice that according to the assessee, computers were never taken actual delivery of and they went back from PCL to ALTOS. The AO on enquiry was informed that, according to ALTOS, the computers were sub-leased by it to PCL and according to PCL they were sent to Calcutta and again subleased to various parties at Calcutta. Thus, the entire transaction is so interwoven that it gives a colour of mere paper transaction without any actual transaction of sale. In other words, there is no material on record to establish that the title in computers ever actually passed to the assessee. The assessee had disowned the knowledge of the alleged sublease by ALTOS to PCL and further sublease by PCL to various Calcutta parties. The assessee since did not receive delivery of the computers from PCL and allowed it to deliver by PCL to ALTOS, there was implied authority of the assessee with PCL and therefore, the assessee cannot get rid of the conduct of his own agent, namely, PCL in dealing with those computers, contrary to the claim of ownership thereof by the assessee. The entire gamut of facts makes it clear that there was no actual delivery of computers to the assessee and the assessee also never cared to know the whereabouts of those computers. The conduct of the assessee was such as if it had nothing to do with the computers except to realise the amount of Rs. 25,13,100 from ALTOS which, according to the agreement, the assessee is getting in monthly instalments from ALTOS in all aggregating to Rs. 33,42,420 s. 92,845 p. m. The interest of the assessee in this connection is fully secured under its agreement. The agreement of lease of the computers between the assessee and ALTOS does not inspire truthfulness for the obvious reason that the manufacturer of computers would not take lease of the same in normal course of its business. The story of selling of computers by ALTOS to PCL and in turn by PCL to the assessee and again giving back same computers to ALTOS under the colour of lease is nothing beyond that the goods have reached the place of origination throwing great suspicion on the origination itself."
The AO mainly relying upon the above finding of the Tribunal came to the conclusion that the assessee made bogus claim of depreciation on computers. He accordingly levied penalty twice the amount of tax on the sum of Rs. 37,69,273. On appeal, the CIT(A) upheld the levy of penalty. While upholding the penalty he also relied upon the statement of Shri Dhadon Bhai recorded during the course of search proceeding at their premises, and the petition of M/s Pertech Computers Ltd. (hereinafter shall be referred to as "PCL") before Addl. CST.
14. At the time of hearing before us the learned counsel for the assessee argued at length. His arguments are summarised as below :
(i) That the assessee purchased 15 computers from PCL for Rs. 50,26,200 vide proforma invoice No. Comp./89/105, dt. 15th March, 1989. The assessee made payment of entire purchase price as under :
On 20th March, 1989, by pay order No. 157302 Rs. 25,13,100 On 30th March, 1989, by cheque No. 865487 Rs. 25,13,100 Rs. 50,26,200
(ii) Computers were leased out to M/s ALTOS India ((hereinafter shall be referred to as "ALTOS") vide lease agreement dt. 18th March, 1989.
(iii) That as ALTOS and PCL are companies under the same management, ALTOS took delivery of computers directly from PCL and confirmed having received the computers. Copy of confirmation was filed before the AO.
(iv) The assessee received lease rent of Rs. 92,845 for the month of March, 1989, as per pay order No. 007686 dt. 31st March, 1989.
The lease rent was shown in accounts and offered for tax.
(v) That all the relevant information were duly furnished before the AO. That whatever further information asked by the AO during assessment proceedings, were not available with the assessee, were asked from the lessee, viz., ALTOS. After receiving such information from ALTOS the same were supplied to the AO. In this respect he referred to queries raised by the AO with regard to the present whereabouts of computers, its transportation to Calcutta and other places.
(vi) That finding of the Tribunal during quantum appeal was based only on presumption and suspicion, which cannot be made basis for levy of penalty. In support of his contention he referred to the following observations of the Tribunal :
"The agreement of lease of the computers between the assessee and ALTOS does not inspire truthfulness for the obvious reason that the manufacturer of computers would not take lease of the same in normal course of its business. The story of selling of computers by ALTOS to PCL and in turn by PCL to the assessee and again giving back the same computers to ALTOS under the colour of lease is nothing beyond that the goods have reached the place of origination throwing great suspicion on the origination itself."
(vii) That under the identical circumstances, Tribunal, Delhi Bench "B" in the case of Indian Management Advisers & Leasing (P) Ltd. vs. Dy. CIT (1994) 51 ITD 566 (Del), observed as under :
"Under the law, there is no bar on a manufacturer to take back on lease equipment manufactured and sold to the purchaser and pay rent for it. If such a transaction is genuine, the Revenue cannot disallow the claim of rent and depreciation by doubting/challenging the necessity of the manufacturer to take back the manufactured goods on lease. It is common knowledge that several banks and financial institutions are carrying on leasing business by financing purchase of equipment taken back and used by them on lease. The depreciation and interest to the financier and lease rent and interest, etc., to banks are being allowed."
(viii) In alternate he submitted that in any case assessee bona fide purchased computers, made payment for it, leased it out, received hire charges and shown the same as its income not only in this year but also in subsequent years. He submitted all the relevant information to the AO. Therefore, if at all any fraud was played, it was played by ALTOS and PCL upon the assessee. The assessee is not the party to such fraud, if any, but the victim.
(ix) That the CIT(A) has first time relied upon the statement of Shri Dadanbhai of PCL/ALTOS, recorded at the time of search at their premises. That the assessee was not given opportunity to cross examine those persons and, therefore, such statement cannot be used against the assessee. Similarly, the CIT(A) also relied upon the submission made by PCL before CST. In this respect he submitted that the assessee was supplied only the extract of the PCL s statement before sales-tax authorises and not entire statement. Moreover, the extract supplied was unauthentic. Therefore, it has no evidentiary value, and has to be ignored.
In view of above, he submitted that penalty levied in this respect was not at all justified, the same may be cancelled. In alternate, without prejudice to his submission for cancellation of penalty, he submitted that minimum penalty be levied.
15. The submission of the learned counsel for the Revenue is summarised as under :
(i) That penalty was based on the finding given in assessment order, CIT(A) in quantum appeal, which was confirmed by the Tribunal. That the learned counsel for the assessee is seeking to reappraisal of the finding of the Tribunal in quantum appeal.
(ii) That in the quantum appeal, the Tribunal has concluded that the lease agreement between the assessee and ALTOS was only paper transaction. The assessee claimed depreciation only on the basis of such paper transaction.
(iii) That the assessee claimed depreciation on computers which were not in existence, i.e., which were not even manufactured. Thus, the claim of depreciation by the assessee was fraudulent.
(iv) That during the course of search proceedings at the premises of ALTOS/PCL, statement of Director Shri Dadan Bhai was recorded. From the statement it is evidently clear that PCL never sold any computer to the assessee and no computers were taken on lease by ALTOS. That PCL made a statement before sales-tax authorities, to exclude sale of such computers from its sale for the purpose of sales-tax. The assessee was duly confronted with these statements. From these statements, it is evidently clear that claim of depreciation by assessee was bogus and fraudulent.
(v) That the assessee made vague statement regarding whereabouts of the computers. The assessee was not aware of the correct location of the computers even after expiry of lease period.
(vi) In quantum appeal the Tribunal has concluded that the arrangement between the assessee and ALTOS was only financial arrangement. The finding of fact recorded by the Tribunal in quantum appeal can be disturbed in penalty proceedings only if some fresh material is brought on record by the assessee to support its case. In this case no fresh material is brought on record by the assessee, on the other hand, Revenue has brought further material on record which strengthens the finding of the Tribunal in quantum appeal.
(vii) That it is a case where assessee made bogus claim of depreciation on the basis of mere paper transaction. This is a case where maximum penalty was warranted. However, the AO has levied penalty only at twice of the tax sought to be evaded as against maximum of thrice of tax. Therefore, there is no justification for reduction of penalty. He submitted that penalty cannot be reduced merely because it is harsh.
16. We have carefully considered the arguments of both the sides and have perused the material placed before us. For levy of penalty, the Revenue has relied mainly upon the finding in assessment proceedings, which was ultimately affirmed by the Tribunal. From the said order, we find that the Tribunal has held that to successfully claim depreciation burden is upon the assessee to prove ownership and user. After appreciating the facts and arguments of both the sides, it was concluded that the assessee under the circumstances cannot be said to have satisfied the conditions of ownership of computers and claim of depreciation was rightly denied. While reaching to above conclusion, the learned Members also took into consideration the normal human behaviour and observed "We fail to understand why a manufacturing concern would take its own manufactured computers on lease and would pay a heavy hire charges."
16.1 These findings were good enough for refusing the assessees claim of depreciation but cannot be sufficient for levy of penalty for concealment of income. In this case, penalty is levied under the substantive provision itself, without invoking Explanation to s. 271(1)(c). Even at the time of hearing before us, learned counsel for the Revenue reiterated the stand of the Revenue that penalty is levied and is liable to be confirmed in the main s. 271(1)(c) itself. We have considered this issue in para 11 and have held that in the main section burden is upon the Revenue and not upon the assessee, burden shifts upon the assessee only when Explanation is applicable, which is not applied in this case. Moreover, the Tribunal, Delhi Benches (to which one of us is party) has considered the identical issue in the quantum appeal of Indian Management Advisers & Leasing (P) Ltd. (supra). The Tribunal has held that in law there is no bar on the manufacturer to take back on lease equipment manufactured and sold to purchaser and pay rent for it. It is also observed by the Tribunal that several bank and financial institutions are carrying on leasing business by financing purchase of equipment. Ultimately the Tribunal has set aside the orders of the AO and the CIT(A) and directed the AO to re-examine the question of genuineness of transaction and accordingly decide the claim of depreciation. In the case of Apogee International Ltd. ITA No. 750/Del/1993, also the Tribunal, Delhi Benches, set aside the matter back to the file of the AO for re-examining the claim of depreciation afresh. The facts in the case of the assessee before us, and in the case of Indian Management Advisers & Leasing (P) Ltd. and Apogee International Ltd. (supra) are identical. We may further mention that the CIT(A), while confirming the penalty has relied upon the statement of Shri Dadan Bhai, which was recorded at the time of search of the premises of PCL/ALTOS. The CIT(A) had also confronted the assessee with the said statement of Shri Dadan Bhai. The assessees counsel had made a request to the CIT(A) vide letter dt. 24th March, 1995, to produce the said deponent. It is settled law that if a statement of any person was recorded at the back of the assessee and if the Department desires to utilise such statement against the assessee, the assessee must be given an opportunity to cross-examine such person. Admittedly, in this case the assessee was not given the opportunity to cross examine Shri Dadan Bhai. The CIT(A) has also relied upon the statement made by the PCL before the sales-tax authorities. Copy of such statement was supplied to the assessee and a photocopy of the same finds place at pages 265 and 266 of the paper book. The assessees counsel has objected to the consideration of this statement on two grounds, one, it is not the authentic copy of the statement made by PCL and secondly, it is not a complete statement but only some part thereof. After going through the photocopy of the statement placed at pages 265 and 266 of the paper book we find that the submission of the assessees counsel is correct. It is not the full statement but it is only some extract from the statement of Dadan Bhai. Moreover, it does not bear the signature of anybody. There is no certification from anybody that it is a certified true copy from the original statement of facts submitted by the PCL to the CST. In our opinion, the statement of Shri Dadan Bhai and the statement of PCL before sales-tax authorities are very important piece of evidence for deciding the issue under appeal. However, the assessee was not given adequate opportunity to cross-examine Shri Dadan Bhai and also to rebut statement of PCL before sales-tax authorities. In view of above, we deem it proper and in the interest of justice to set aside the orders of the authorities below in this respect and restore the matter back to the file of the AO to be decided afresh. We may clarify that if the AO would like to rely on statement of Shri Dadan Bhai, he shall allow the adequate opportunity to the assessee to cross-examine Shri Dadan Bhai. Similarly, if he would like to rely upon the statement of PCL before the sales-tax authorities, he shall supply certified copy of complete statement of PCL,. and allow opportunity to the assessee, to furnish any evidence in rebuttal. The AO shall also examine the assessees contention that, even if any fraud was played, it was played by PCL and ALTOS and the assessee was not party to it. He shall allow the opportunity to the assessee to establish his contention.
17. In view of above, while we cancel the penalty in respect of item No. 1, i.e., for furnishing of inaccurate particulars of sale value of cylinders, we set aside the order of penalty in respect of claim of depreciation on computers to the file of the AO to be decided afresh, in the light of our direction in this order and after giving opportunity of being heard to the assessee.
18. In the result, the assessees appeal is deemed to be allowed for statistical purposes.