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C I T v. J K Jute Mills - INCOME TAX REFERENCE No. 27 of 1984  RD-AH 14343 (22 August 2007)
IN THE HIGH COURT OF JUDICATURE AT ALLAHABAD
ORIGINAL APPELLATE JURISDICTION
INCOME TAX REFERENCE NO.27 OF 1984
The Commissioner of Income-tax (Central), Kanpur ......Applicant
M/s. J.K.Jute Mills Co.Ltd., Kanpur ...Respondent
Mr. Shambhu Chopra,Standing Counsel for the applicant.
Mr. Ravi Kant, Senior Advocate and Mr. R.S.Agrawal, Counsel, for the respondent.
CORAM: Hon'ble H.L. Gokhale, C.J.
Hon'ble R.K.Agrawal, J.
Date: August 22 , 2007
Per R.K.Agrawal, J.
The Income-tax Appellate Tribunal, Allahabad has referred the following question of law under Section 256(1) of the Income-tax Act, 1961, hereinafter referred to as 'the Act', for opinion to this Court.
"1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in quashing the reopening of the assessment by the Income-tax Officer for the assessment year 1962-63 on the basis that the amount received by the assessee as a result of the settlement dated 17.5.1961 was not in the nature of the reduction in the price of the machinery but of the nature of damages agreed to by the suppliers as compensation for breach of warranty and that this accrued to the assessee only on 17.5.1961 when the matter was settled between the parties?
2. Whether on the facts and in the circumstances of the case, the Tribunal was legally justified in cancelling the penalty of Rs.40,000 levied under section 271(1)(c) of the Income-tax Act, 1961?"
The present reference relates to the Assessment year 1962-63.
Briefly stated that facts giving rise to the present Reference are as follows:
The respondent-company had purchased machinery worth Rs.4,89,317/- on 30.10.1957 from a German firm. It appears that the machinery did not work smoothly and as a result of a settlement arrived at by the assessee with the seller, the latter had agreed to pay to the former a sum of Rs.2,69,438. The above payment was received partly in 1962 and partly in 1963 corresponding to the Assessment years 1963-64 and 1964-65 respectively.
The Income-tax Officer was of the view that the amount of Rs.2,69,433/- was received by the assessee as reduction in the cost of machinery. As a consequence he was further of the view that the assessee had claimed excess depreciation by showing incorrect cost of the machinery in different years. Being of the opinion that there was escapement of income on account of assessee's failure to furnish full and true particulars, he initiated proceedings under Section 147(a) of the Act for various years including the assessment year under appeal. He made the assessment on 27.12.1974 for the year under appeal in which he withdrew the depreciation of Rs.36,353/- which according to him, had been allowed in excess in the original assessment. He rejected the assessee's contention that the initiation of proceedings was bad in law or that the disallowance was also not correct. His findings were upheld by the Appellate Assistant Commissioner. The latter, however, reduced the addition to Rs.26,109/- only.
The Inspecting Assistant Commissioner of Income-tax also levied a penalty of Rs.40,000/- for the above addition of Rs.26,109/- confirmed by the Appellate Assistant Commissioner.
The respondent-company took up the matter in appeal before the Tribunal. The Tribunal relying upon its order in respect of the Assessment Year 1958-59 had held that the addition of Rs.26,109/- as sustained by the Appellate Assistant Commissioner was uncalled for and deleted it which leaves only the income as originally assessed and as a consequence the reassessment made by the Income-tax Officer was cancelled. It did not go into the question whether the initiation of the proceedings under Section 147(a) of the Act was justified or not. As the addition of Rs.26,109/- was deleted, the penalty of Rs.40,000/- levied by the Inspecting Assistant Commissioner was also cancelled.
We have heard Sri Shambhu Chopra, learned Standing Counsel appearing for the Revenue and Sri Ravi Kant, learned Senior Counsel assisted by Sri R.S.Agrawal on behalf of the respondent company.
Vide order of date passed in I.T.R. No.361 of 1982, we have held that the amount received by the company was towards the diminution of the price of machinery and the price of machinery ought to have got reduced by the said amount. Consequently, the depreciation and development rebate could have been claimed only on the reduced price and not on the full price of the machinery as earlier claimed. In this view of the matter the Tribunal was not justified in deleting the addition of Rs.26,109/-and cancelling the reopening of the assessment as also cancelling the penalty of Rs.40,000/-. As the Tribunal has not considered the imposition of penalty on merits, the Tribunal has to decide the question on merits as to whether the penalty could be imposed.
Subject to the aforesaid observation, we answer both the questions referred to us in the negative i.e. in favour of Revenue and against the assessee. There shall be no order as to costs.
August 22, 2007.
(R.K.Agrawal) Chief Justice
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