T N Pandey: Penalty for concealment correct

CHAT ROOM

A survey was conducted at my place under Section 133A of the Income Tax Act, during which, some undisclosed income, not shown in the return already filed, was detected, which remained to be shown in the original return by the misunderstanding of its nature by the Accountant. I filed a revised return, showing such income next day. But while completing the assessment under Section 143(3), the assessment officer initiated penalty proceedings also under section 271(1) (c) of the Income Tax Act, 1961, rejecting the plea of omission on bona fide grounds. Are such proceedings justified, considering that the income was voluntarily disclosed in the revised return?

The proceedings are justified considering the position that the income was disclosed after it was detected by the income tax department.

Our company has constructed a building to be used for conducting research related to the products manufactured by the company. The building was completed on February 28, 2002, but could not be put to use by March 31, 2002. The company, in the assessment proceedings for 2002-03, claimed the cost of the building as admissible expenditure. But the assessment officer has disallowed the claim saying the building was not put to use during the financial year ending on March 31, 2002. Is he correct in his view.

No. Once it is established that the expenditure was incurred for the purpose of scientific research and the conditions incorporated in Section 35 of the Income Tax Act are fulfilled, the revenue department cannot expect the assessee to start using the asset immediately.

In a given case, the assessee might have to go on incurring expenditure for several years before putting the asset to actual use. If the interpretation advanced by the assessment officer is accepted, the assessee will not be in a position to avail of the deduction under Section 35 of the Act to the extent to which the Legislature intends to give to the assessee.

In the Commissioner of Income Tax vs Gujarat Aluminium Entrasions (P) Ltd, (2003) 263 ITR 453 (Gujarat), the assessee was a private limited company manufacturing aluminium extruded sections.

The assessee constructed a building for the purpose of scientific research and, therefore, claimed deduction under the provisions of Section 35(1) (iv) read with Section 35(2) of the Act for the assessment years 1981-82 and 1982-83. Construction of the building was completed on October 25, 1981, as per the certificate given by the concerned architect.

The assessee claimed deduction under Section 35 of the Income Tax Act. But as the building was not put to use in the said assessment years, the assessment officer did not allow the deduction.

Being aggrieved by the disallowance, the assessee filed an appeal before the Commissioner (appeals) who allowed the appeal. The revenue department filed an appeal before the tribunal.

The tribunal agreed with the view expressed by the Commissioner (appeals) and dismissed the appeal. The tribunal's decision was confirmed by the high court, which, inter alia, also said an exemption provision was to be interpreted liberally.

Sections 69/69B states that, where any investment made by the assessee is not recorded in the books of account or exceeds the amount, which is recorded in the books of account and the explanation of the assessee is found not to be satisfactory, then Sections 69/69B will be attracted and addition will be made by the revenue. Please clarify whether for making such addition, the assessment officer must first reject the books of account of the assessee.

No. Section 69 states that where, in the financial year immediately preceding the assessment year, the assessee has made investments, which are not recorded in the books of account, (if any, maintained by him) for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the assessment officer satisfactory, then the value of the investments may be deemed to be the income of the assessee of such financial year.

Further, Section 69B says where in any financial year the assessee has made investment or is found to be the owner of any bullion, jewellry, or other valuable article, and the assessment officer finds that the amount expended on making such investments or in acquiring such bullion, jewellry or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the assessment officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year.

The Calcutta High Court recently in its decision in the Unit Construction Co Ltd vs Joint Commissioner of Income Tax case, (2003) 26D ITR 169 (Cal), has analysed these provisions and this decision shows that an addition under Sections 69/69 B can be made without expressly rejecting the books of account and further it is also pertinent to note that the main foundation for applicability of these provisions is the explanation of the assessee.

If the explanation is found to be unsatisfactory then addition can be made irrespe-ctive of the fact as to whether or not the same was recorded in the books of account.