TMI Blog2009 (8) TMI 799X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Revenue for the asst. yr. 1998-99. The appeal is directed against the order of the CIT(A)-VIII at Chennai, dt. 31st Jan., 2008. The appeal arises out of the penalty levied under s. 271(1)(c) of the IT Act, 1961. 2. The assessing authority has levied a penalty of Rs. 4,00,01,506 for different items of concealment consisting of claim of 100 per cent depreciation, bill discounting charges, provision for non-performing assets and disallowance under s. 35D. In first appeal, the CIT(A) deleted the penalty in its entirety. 3. Now, the Revenue is aggrieved on that part of the order of the CIT(A) deleting the penalty attributable to the claim of 100 per cent depreciation made by the assessee on leased assets. The grounds raised by the Revenue are as follows: "(1) The learned CIT(A) erred in deleting the penalty levied in respect of disallowance of assessee's claim of 100 per cent depreciation on leased out assets. (2) The learned CIT(A) failed to note that the alleged lessee M/s Steel Tubes of India Ltd. itself considered the transaction as financial transaction only. (3) The learned CIT(A) failed to note that in the sworn statement M/s Nagpur Pollution Control Ltd. has cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suits. In many cases, the Courts have given the direction to take possession of the assets involved in the lease transaction. 5. In the light of the detailed arguments advanced by the assessee, the CIT(A) held that there was no concealment of income or furnishing of inaccurate particulars as far as claiming of 100 per cent depreciation on leased assets were concerned. One of the main reasons pointed out by the CIT(A) for deleting the penalty is that the AO has not conducted any further enquiry in the course of assessment proceedings. The CIT(A) has also accepted the contention of the assessee that the transaction was originally intended, there was no circumstance to doubt the genuineness of the transaction. He has relied on number of cases where it was held that when there was no deliberate attempt on the part of the assessee to mislead the Revenue authorities and no mens rea established, there cannot be a levy of penalty under s. 271(1)(c). 6. We considered both sides in detail. First of all, we would like to make it clear that the judicial pronouncements relied on by the CIT(A) were delivered before the judgment of the Supreme Court in the case of Union of India Ors. vs. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empirical evidence or physical evidence to show that M/s Nagpur Pollution Control Co. (P) Ltd. had ever sold the leased out assets either to assessee-company or to M/s Steel Tubes of India Ltd. Legal propositions do not rest in vacuum. Those propositions become alive only when factual matrixes are embedded. In the present case, the chronology of events reflected in the investigation reports of the Department reveal that what is available in the hands of the assessee-company are only papers and documents to support the lease transaction. The assessee-company has not made any sort of verification. The assessee has not identified the assets physically. There is nothing on record to prove that the assessee-company has examined the quality of the assets. There is nothing on record to show that the assessee has examined the specifications of the assets. The assessee-company is completely relying on bunch of papers to argue that the lease transaction was genuine and the claim of 100 per cent depreciation made was bona fide. 10. This approach of the assessee is very hard to digest. The assessee is expected to perform the normal things that any reasonable human being is supposed to do in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease show cause why 100 per cent depreciation claim on this non-existent assets to the tune of Rs. 1,24,80,000 cannot be disallowed also show cause why penalty under s. 271(1)(c) cannot be levied." 2. The assessee filed his reply dt. 17th March, 2001 to the said show-cause notice dt. 16th March, 2001 which reads as under: "17th March, 2001 The Jt. CIT, Special Range X, 121, Mahatma Gandhi Road, Chennai-600 034. Madam, Re.: Income-tax assessment proceedings-Asst. yr. 1998-99-Our own-TVS Lakshmi Credit Ltd.-G.I. No. 38-T-Your show-cause notice under s. 271(1)(c) of the Act dt. 16th March, 2001. We acknowledge receipt of your show-cause notice dt. 16th March, 2001 on the above subject. We submit the following facts in respect of our claim for 100 per cent depreciation on assets leased to Steel Tubes of India Ltd. (1) In a leasing transaction, the lessee, who is the ultimate user of the machinery takes the initiative for selecting the equipment which he requires for manufacturing the products relating to his line of business. Once he decides about the requirement of his machinery, he also finalises the supplier, who will be willing to supply the aforesaid machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rusal of aforesaid documents, that various factors required for ascertaining the genuineness of the transactions viz., existence of the asset, its nature, year of manufacture, name of the supplier, completion of installation, etc., have all been obtained before the funds were released for the purpose of leasing transactions. Based on the request made by the lessee viz., Steel Tubes of India Ltd., vide their letter dt. 18th July, 1997 (Annex. 5), we have made out the cheques in favour of the lessee, as the lessee had claimed that it had paid the whole of the invoice value to the supplier in various instalments. We are enclosing copies of the invoices from M/s Steel Tubes of India Ltd., as also receipts from Nagpur Pollution Control Co. (P) Ltd. vide receipt dt. 7th April, 1997, 20th May, 1997, 10th July, 1997 (Annexure No. 6) favouring Steel Tubes of India Ltd., At our request to the lessee to confirm the existence of the assets and also for a statement of account as per their books of accounts during end February, 2001, the lessee had vide its letter confirmed the existing of the lease arrangement with our company vide agreement No. MPNP0025 (old number), 620704 (new number) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation with a request that the principle portion of the leased rentals offered be excluded for computation of taxable income. The AO then completed the assessment and the penalty proceedings were initiated separately. A show-cause notice under s. 271(1)(c) dt. 30th March, 2001 was issued to the assessee. In response to the show-cause notice, the assessee filed its reply dt. 18th April, 2001. The AO did not accept the reply of the assessee and has held that it was the responsibility of the assessee to satisfy the existence/continuation of the assets before claiming depreciation on these assets. He has also held that if the payment is made directly to the lessee and the lessee purchases the assets, it will become a financial transaction and not a leased transaction. Accordingly, penalty was levied. The assessee preferred an appeal before the CIT(A) against the order of the penalty. After considering the contentions of the assessee and all other facts and circumstances, as well as the records/documents, the CIT(A) has held in paras 7.3 and 7.4 which read as under: "7.3 It is also seen that the appellant has not misrepresented or suppressed any facts or furnished inaccurate particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t attracted in such situation. Whether penalty is leviable or not is based upon the facts and circumstances of each case. The instant case was of the lease transaction per se. When the assessee was engaged in the leasing business, the assessee was entitled to depreciation on the assets leased. Thus, it was not the case of the Revenue that the assessee was not entitled to claim any depreciation at all. The claim was based on valid documentation and other certification by the lessee. Thus, it could not be said that when the assessee claimed depreciation, the same was either not admissible under law or that it was aware that the assets were not existing. Accordingly, the penalty levied under s. 271 (1)(c) was to be deleted. In view of the above discussion, I find that penalty under s. 271(1)(c) is not eligible in respect of this addition and the AO shall cancel the same." 4. Before us, the learned Departmental Representative has contended that the lessee M/s Steel Tubes of India Ltd., itself considered the transaction as financial transaction only and M/s Nagpur Pollution Control Co. (P) Ltd., has clearly stated that it has not sold any storage treatment plant to the assessee no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e evidences to prove the ingenuineness of transaction, sought to disallow the depreciation purely based on the report dt. 8th March, 2001 of Addl. Director of IT, Nagpur which was not given to the appellant nor the appellant had been given sufficient time to rebut the same. (iii) Since the assessment was getting time-barred on 31st March, 2001, the appellant felt that they cannot in any way produce the proof to the satisfaction of the AO within time of 15 days granted to them, viz. before the time barring date. Further, more than 44 months have been elapsed from the date of lease and therefore, the appellant felt that there would not be any tax effect as the cost of the assets will be reduced from the lease rental and only the net income portion of the lease rental will be assessed. Therefore, the appellant has agreed to withdraw the claim of depreciation in respect of the said leased asset only out of commercial expediency to purchase peace and to avoid protracted litigation with the Department and considering the fact that expenditure, time and efforts that may have to be spent in producing the proof and not because that the lease was non-genuine. (iv) Further, during the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 570 (Del). 7. He has also relied upon our own order in the case of India Cements Capital Finance Ltd. vs. Asstt. CIT in ITA Nos. 1880 and 1881/Mad/2005, dt. 3rd Dec., 2008 as well as the order of this Tribunal in the case of Sundaram Finance Ltd. vs. Asstt. CIT in ITA No. 738/Mad/2004, dt. 4th May, 2007 and order of the Bangalore Benches of this Tribunal in the case of BPL Sanyo Finance Ltd., vs. Dy. CIT (2008) 166 Taxman 90 (Bang)(Mag). He has also taken us through various documents in the paper book which includes invoices, installation certificate, inspection report, certificate from United India Insurance Co. Ltd., details of payments, undertaking from M/s Steel Tubes of India Ltd., extracts of the website of Nagpur Pollution Control Co. (P) Ltd., criminal complaint filed by the assessee against M/s Steel Tubes of India Ltd., the order of the Hon'ble jurisdictional High Court dt. 15th July, 2003, memo of compromise between the assessee and M/s Steel Tubes of India Ltd. and proceedings of the advocate CIT appointed by the Hon'ble High Court. 8. In the case of K.P. Madhusudhanan vs. CIT, the Hon'ble Supreme Court has held that "as the Explanation to s. 271(1)(c) is a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the fact that after the lapse of considerable time, the assessee would not be able to prove the existence of the asset and due to the mischief committed by the lessee. After coming to know about the mischievous act of the lessee of misappropriation of the asset, the assessee initiated criminal proceedings against the lessee M/s. Steel Tubes of India Ltd., and its directors by filing a criminal complaint under s. 200 Cr.PC requesting the permission of the High Court of Madras to issue necessary instructions to the police authorities for investigation and pass appropriate orders. The extract of the para 2 of the complaint filed under s. 200 Cr.PC is extracted below: "The complainant submits that the accused and identified M/s Nagpur Pollution Control Co. (P) Ltd., as their suppliers who would manufacture and supply the Annexs. A and B mentioned machines. The complainant also on the basis of the representations of the accused, had made the payment to the sold supplier and accused by demand draft and cheques (346378 dt. 31st March, 1997 Karur Vysya Bank and cheques bearing Nos. 847034, 555737, 465191 and 892623 drawn on State Bank of Patiala, State Bank of Saurashtra, Catholic Syr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as there was an insurance of the asset which also shows that prima facie the asset was installed at the premises of the lessee. In this way, the AO has neither tried to prove the evidence produced by the assessee as false nor given any opportunity to the assessee to rebut the stand of the AO that the transaction was not genuine. Even otherwise, the AO held that it was not a leased transaction but a financial transaction. Even in that case it cannot be said that the assessee has made a bogus claim by concealing the income or furnishing an inaccurate particulars of income. Therefore, the decision relied upon the learned Departmental Representative does not help the case of the Revenue. 12. For attracting the penalty provision, it is necessary that the assessee has acted dishonestly to avoid tax liability by concealing the income or furnishing wrong particulars of income. When the assessee had proper reason and bona fide belief that the leased transaction was a genuine one, then the explanation given by the assessee during the assessment proceedings as well as in the penalty proceedings along with all the relevant documentary evidences as well as the action taken by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the case of CIT vs. International Audio Visual, the Hon'ble Delhi High Court has held that when the primary facts disclosed but claim found erroneous would not be a case of concealment. 14. In the case of India Cements Capital Finance Ltd. vs. Asstt. CIT, the learned AM and myself have held in paras 18 and 19 which read as under: "18. But, in the present case, the question is not of willful concealment or mens rea as such. The question on the other hand, is whether there was any concealment at all? Or, to put into another words, whether the assessee was reasonably justified in making a claim for depreciation allowance even though in the final test, the claim was disallowed by the AO for the reason stated by him in the assessment order. On going through the facts of the present case, we find that the assessee had a reasonable ground to make a claim for depreciation allowance on the basis of lease agreements entered into by the assessee with various parties. All the negative events happened subsequently. Those were the consequences of subsequent investigations made by the Department and the corroborated statements made by the lessees. The assessee-company was not given oppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had concealed or misrepresented any facts. 17. In view of the above facts and circumstances, as well as the above discussions and the various decisions as discussed above, the levy of penalty under s. 271(1)(c) is not justified in the present case. The impugned order of the CIT(A) does not suffer from any illegality or error. Therefore, the same is upheld. 18. In the result, the appeal of the Revenue is dismissed. REFERENCE UNDER S. 255(4) OF THE IT ACT, 1961 31st March, 2009 As there is difference of opinion between the Members constituting the Bench with regard to one issue, so the following question is formulated and referred for nominating Third Member: (1) Whether in the facts and circumstances of the case the penalty is exigible under s. 271(1)(c) of the IT Act, 1961. VIMAL GANDHI, PRESIDENT (AS THIRD MEMBER): 24th Aug., 2009 On account of difference of opinion between the Members of the Tribunal, 'D' Bench, Chennai the following question has been referred to me for disposal as Third Member under s. 255(4) of the IT Act, 1961: "Whether in the facts and circumstances of the case the pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after the customer finalises the machinery and also the supplier. (2) As such, in all the leasing transactions, the technical capabilities of the lessor cannot be questioned, as the lessee himself selects the equipment from the supplier of his choice. (3) You will, thus, observe that the leasing companies come into play only after both the required asset and the supplier is selected by the lessee. In respect of the transaction under consideration, we summarise hereinbelow, a brief note on the facts of the case: (1) As stated hereinabove, the lessee,- STI, has itself identified the supplier of the machine viz. M/s NPCC. (2) As per the records available with us STI, had placed a purchase order No. STI/P/1824 on M/s NPCC for supply of Waste Treatment Recovery Plant. (3) On supply of the asset, STI, sent the original invoice No. 18 dt. 10th July, 1997 for Rs. 1,24,80,000 to us evidencing the supply of the equipments. (Annexure No. 1) (4) The assets were physically inspected and verified by our employee at Indore on 18th July, 1997 vide copy of inspection report enclosed (Annexure No. 2) together with photographs of the assets that were installed in the premises of STI. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om STI confirming the above vide their letter dt. 27th Feb., 2001 (Annexure No. 8) that they have not claimed depreciation on Waste Treatment/Recovery Plant supplied to them vide invoice No. 18, dt. 10th July, 1997 and also the details of lease rentals paid to TVS Lakshmi Credit Ltd., as per their books of accounts. The website of NPCC, also mentions that they have installed Waste Water Treatment Recovery Plan for STI (Annexure No. 9). We, therefore, state that considering all the above you would notice that at no point of time we had reasons to believe that there was no supply of the assets as is now being confirmed to you by the manufacturer under the invoice handed over to us at that time. However, since the transactions relates to a period which is nearly 44 months old as of today and it is very difficult for us to collect evidences relating to the supplier's existence etc., we have been advised to withdraw our claim for depreciation in respect of the above transactions. We, therefore, request you to permit us to withdraw our claim for 100 per cent depreciation and the principal portion of lease rentals offered be excluded for the computation of taxable income. We als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court nowhere mentions that the assets claimed to be purchased by the assessee from NPCC and leased to STI is a genuine transaction. It is submitted that the whole purchase bill is fabricated and no asset was actually purchased and assessee-company was not having any option but to surrender the depreciation on non-existent asset. The assessee's contention that transaction is genuine is not acceptable. On the basis of the earlier year's records, in the assessee's own case, it is seen that the assessee-company has been claiming huge depreciation on the assets which are not in existence year after year and withdrawing the claim of depreciation when enquiry was conducted by the Department regarding the existence of the assets. For instance, for the asst. yr. 1994-95, the assessee-company claimed bogus depreciation on non-existent assets which were supposed to have been leased to M/s Castle Daughlars Ltd., M/s Gounder Rice Exports Ltd. and M/s Kedia Distilleries Ltd. For the asst. yr. 1995-96, the assessee-company withdrew the claim of depreciation of Rs. 2,04,24,112 in respect of the assets which are supposed to have been leased to Duckfin International Ltd., REPL Engineering, HM B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding given in the assessment order. (II) The assessee had placed inspection report dt. 18th July, 1997 by its employee together with photograph of the assets installed in the premises of STI, insurance certificate dt. 16th Sept., 1997 issued by M/s United India Insurance Co., Indore which was issued after inspection of the assets installed. The-AO did not conduct enquiries in respect of the above evidence to prove that the above documents were fabricated. Even during the course of penalty proceedings, the assessee filed a reply dt. 10th March, 2006 in which the position was explained, but that was not properly considered. (III) Under a bona fide belief that the assets were supplied and put to use in the premises of STI, the claim of depreciation was made and therefore, it is not a fit case for levy of penalty. (IV) The assessee was not given opportunity to cross-examine the supplier or Sri Anil Deshpande whose statement was used against the assessee. According to the learned CIT(A) for the purpose of imposing penalty, it was necessary to give opportunity of cross-examination to ascertain the correct facts. (V) Merely because the assessee withdrew the depreciation, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the return filed by it. It is the duty of the assessee to prove that the computations provided in the return were true and correct to the best of its knowledge and belief. In the present case, there was no empirical evidence or physical evidence to show that NPCC had ever sold the leased out assets either to the assessee company or to STI. The chronology of events reflected in the investigation reports of the Department revealed that what was available with the assessee-company was only papers and documents to support the lease transaction. There was no physical identification of assets or verification of assets carried out by the assessee-company. There was nothing on record to show that the assessee had examined the specifications of the assets. The learned AM while accepting the appeal of the Revenue further observed as under: "10. This approach of the assessee is very hard to digest. The assessee is expected to perform the normal things that any reasonable human being is supposed to do in such circumstances. The assessee has entered into a contract of big amount by way of leasing equipments to STI. The assets are sold by NPCC. The assessee-company has not examined the assets; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery to the lessee. (II) Various documents relating to the transaction namely the invoices issued by the supplier, certificate of insurance issued by the insurance company, certificate of the lessee regarding installation of machinery, inspection report dt. 18th July, 1997 by the representative of the assessee who had inspected the assets at the time of installation would go to show that the assessee was under the bona fide belief and having sufficient reasons about the genuineness of the transaction. (III) The assessee had further ensured that the manufacturer was capable of manufacturing the assets to be leased out as per the website of the manufacturer. The above documents showed that the assessee had no inkling or doubt about the genuineness of the transaction. (IV) The assessee had agreed to withdraw the claim of depreciation in respect of leased assets only out of commercial expediency to purchase peace and avoid protracted litigation with the Department. In view of the fact that after the lapse of considerable time, the assessee would not be able to prove the existence of the assets and due to the mischief committed by the lessee. (V) The assessee also initiate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng decisions in which on identical circumstances the Tribunal held that no penalty was exigible. (i) India Cements Capital F1nance Ltd. vs. Asstt. CIT (ITA Nos. 1880 and 1881/Mad/2005 decided on 3rd Dec., 2008. (ii) Sundaram Finance Ltd. vs. Asstt. CIT (ITA No. 738/Mad/2004 decided on 4th May, 2007. (iii) BPL Sanyo Finance Ltd., vs. Dy. CIT (2008) 166 Taxman 90 (Bang)(Mag). 7. In the ultimate analysis, the learned JM observed that the entire record and the developments which had taken place between the assessee and the lessee, did not indicate that the assessee had concealed particulars of income or furnished inaccurate particulars of such income. When all relevant particulars and detailed materials were furnished before the AO during the course of assessment proceedings and penalty proceedings, the depreciation was claimed for the reasons given by the assessee and it cannot be stated that the assessee failed to tender the bona fide explanation for claiming depreciation. Merely because there is an addition due to withdrawal of claim of depreciation. It could not ipso facto warrant the levy of penalty unless the said addition is due to concealment of income or furnishing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the transactions relate to a period which is nearly 44 months old as of today and it is very difficult for us to collect evidences relating to the supplier's existence etc., we have been advised to withdraw our claim for depreciation in respect above transactions. We, therefore, request you to permit us to withdraw our claim for 100 per cent depreciation and the principal portion of lease rentals offered be excluded for the computation of taxable income." 9. It is clear from above that it was nobody's case that invoice dt. 10th July, 1997 was genuine and not fabricated or that assets ever came into existence. No assertions to the above effect were made. The plea of the assessee, at the relevant time, was "at no point of time the assessee had reasons to believe that there was no supply of assets as is now being confirmed to you by the manufacturer." Further, it was stated: "Since the transaction relates to a period which is nearly 44 months old as of today, it is very difficult for us to collect evidences relating to the supplier's existence etc. and, therefore, we have been advised to withdraw our claim for depreciation". There is no material on record to show that in Februar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation was wrongly made on a bogus invoice and on non-existent assets. Above facts on enquiry were detected and found by the Revenue. When these facts were put to the assessee through show-cause notice dt. 16th March, 2001, the assessee surrendered the claim of depreciation without challenging that invoice was fabricated and assets subject of depreciation non-existent. In the above circumstances, no further enquiry from the Revenue was needed as there was sufficient material to determine whether provision of s. 271(1)(c) was applicable in this case. (ii). The second reason given for cancelling penalty is that AO did not conduct enquiries relating to inspection report dt. 18th July, 1997 by the employee of the assessee together with photographs of assets installed, considered insurance certificate of M/s United Insurance Co., Indore in the assessment proceedings or in penalty proceedings. It is difficult to appreciate this submission. When invoice of purchase has been found to be fabricated and assets non-existence, there is no question of examining inspection report dt. 10th July, 1997, insurance certificate etc. which were to serve and support the wrong claim of depreciati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hy it was not clearly stated, is not explained. It is relevant here to mention that it was only assessee which had claimed depreciation in addition to hire charges by setting claim of hire of machinery after purchase although it was subsequently clearly accepted to be the financial transaction. In case of a financial transaction, the assessee was not entitled to depreciation which would have been claimed by STI. So wrong claim relating to fictitious lease of assets would have only benefited the assessee and not STI. To obtain benefit, documents referred to in reply dt. 17th March, 2001 were procured or fabricated by the assessee. This inference is drawn from the act and conduct of the assessee which for purposes of levy of penalty is of considerable importance. 11. In the case of CRN Investments (P) Ltd. vs. Asstt. CIT (ITA Nos. 1742 and 2662/Mad/2004, before 'A' Bench, Chennai, vide order dt. 31st Aug., 2006, a similar claim of depreciation was made by the assessee relying upon the following evidence: "Regarding claim of depreciation, it was submitted that the assessee obtained delivery challan from the supplier duly acknowledged by the party for having received the steel roll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guilty of concealment of income by furnishing inaccurate particulars. Penalty, was correctly levied." 12. The learned Departmental Representative rightly contended that aforesaid decision is on all four and is to be applied in the case in hand. The learned counsel for the assessee could not point out any distinguishing feature or advance any reason for not following and applying aforesaid decision of jurisdictional High Court. I am, therefore, inclined to apply aforesaid decision and reject the reasons under discussion advanced by the learned CIT(A) or in the proposed order of the learned JM. 13. The next reason advanced by learned CIT(A) and in the proposed order by learned JM was that assessee was not given opportunity to cross-examine supplier or Shri Anil Deshpande whose statement was used against the assessee. This reason is unjustified as assessee never asked for opportunity to cross-examine Shri Deshpande or any person from NPCC. There is no rule that cross-examination of person should be allowed even if it is not asked for by the assessee before the levy of penalty. The assessee has duly put the material being used against the assessee in the show-cause notice. In reply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be falsely made without fabricating evidence. It is not expected that assessee would not manufacture some evidence to give it some authentic appearance. This was the position in the case of CRN Investments (P) Ltd. and many other cases placed by Revenue in the paper book. I am unable to accept that present was a case of a bona fide claim. It is further to be noted that it is not the first time that a wrong claim is being made. The AO had noted from the record of the assessee that this company has been making claim of huge depreciation on assets which were not in existence in earlier years but subsequently withdrew the claim after enquiry was conducted by the Revenue. The AO has given instances of such bogus claims on non-existing assets. For instance, for the asst. yr. 1994-95, the assessee-company claimed bogus depreciation on non-existent assets which were supposed to have been leased to M/s Castle Daughlars Ltd., M/s Gounder Rice Exports Ltd. and M/s Kedia Distilleries Ltd. For the asst. yr. 1995-96, the assessee-company withdrew the claim of depreciation of Rs. 2,04,24,112 in respect of the assets which are supposed to have been leased to Duckfin International Ltd., REP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reply dt. 17th March, 2001, filed before the AO. There is no direct and specific allegation of fraud in the aforesaid letter and the criminal complaint subsequently set up was only an afterthought and was done merely to cover up the defaults committed by the assessee. It is not irrelevant to state here that as per books of account, STI showed the transaction merely as a financial transaction. It did not claim even depreciation which it would have claimed if it had purchased and used the assets. There is, therefore, no question of STI playing any fraud on the assessee. 17. The assessee has not filed or stated as to what happened to criminal complaint filed by the assessee, copy of which is on record. It is not shown to have pursued. In the suits for injunction filed and as per copies placed in the paper book, there is no presence of the respondent STI and all the proceedings are shown to have taken ex parte against STI. 18. In reply to show-cause notice dt. 16th March, 2001, the assessee did not dispute that purchase invoice dt. 10th July, 1997 was fictitious and no supply of assets was made. Depreciation was claimed on non-existing assets. However, in the copy of complaint al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laint or filing it is of no value. What happened to the complaint is not stated, or explained on record. If the complaint was straightaway dismissed as frivolous and baseless then such allegations have no value. The complaint is part of documents to cover the detection of false claim. 19. Next document filed on paper book is copy of some ex parte order dt. 15th July, 2003 of the Hon'ble Madras High Court, appointing Shri S.P.L. Palaniappa as Advocate Commr. in person to take possession of machinery detailed in schedules. It is quite clear from above that assessee not having succeeded in alleged criminal proceedings, got appointed an Advocate Commr. to seize the machinery. The CIT was to make a report on or before 9th Sept., 2003. 20. Next is copy of order dt. 22nd May, 2003 in Original Appeal Nos. 388 and 389 of 2003 granting an interim injunction against STI (respondent) and its managing directors from alienating or otherwise dealing with the machinery more fully set out in the schedule hereunder till 17th June, 2003. It is also an ex parte order. 21. Next document is memorandum of compromise between the assessee and STI, according to which the respondent has agreed to pay R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and surrender the assets. Hence, Mr. Daga of the respondent company sought time till 15th Sept., 2003 to enable them to surrender the assets. I did not agree to this proposal of the respondent company and demanded the assets. Subsequently in view of the difficulties/inability to handover the assets, Mr. Daga of the respondent company in consultation with Mr. Dr. R.B. Baheti and chairman of the respondent company offered to settle the dues after discussion. In support of this, the respondent company has made a token payment of Rs. 1 lac today and have given a undertaking to finalise the payment schedule before 30th Sept., 2003. The respondent has further agreed to surrender the assets in the event of a settlement not being finalised by 30th Sept., 2003. The applicant company has also agreed to the above proposal. A copy of the undertaking letter given by the respondent company is enclosed. Since the respondent and applicant companies have agreed to finalise the settlement before 30th Sept., 2003. I have not taken possession of the assets today." 21.2 The aforesaid document does not show that at any stage, any machinery was seen even by the Advocate Commr. The learned CIT is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of time. Assessee need not have bothered for time barring assessment. The plea that non-claim of depreciation will have no tax effect has to be rejected outright. In other documents, assessee had clearly admitted that disallowance created demand of Rs. 1,02,36,480. Besides ITO had made his intention clear that he is going to impose penalty, which has ultimately been computed at Rs. 6,00,02,261 (as given in the penalty order) including other items of disallowance. Even 100 per cent of tax sought to be evaded work out to Rs. 2,00,00,753. Therefore, claim of the assessee that withdrawal or claim of depreciation did not have any tax effect is meaningless and is to be rejected on the basis of clear facts emerging from record. Besides that, as already noted, it is not for the first time that assessee is making such a false claim. It had done so in the earlier years, as noted above in detail. 23. On above facts and circumstances, it is not possible to accept that it was a bona fide claim. 24. I would now like to examine the legal conclusion arrived at by the learned JM. Para 13 of his proposed order is as under: "13. The decision in the cases of CIT vs. M.B. Engineering Works (P) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticulars, penalty cannot be imposed. In the case of Cement Marketing Co. of India Ltd. vs. Asstt. CIT (1980) 124 ITR 15 (SC), the Hon'ble Supreme Court has held that disallowance of bona fide claim of deduction cannot result in levy of penalty. In the case of CIT vs. Inden Bislers (2000) 158 CTR (Mad) 323 : (1999) 240 ITR 943 (Mad), the Hon'ble jurisdictional High Court has held that when the amount has been disallowed from the commercial point of view, no penalty can be levied. In the case of CIT vs. International Audio Visual (2007) 208 CTR (Del) 328 : (2007) 288 ITR 570 (Del), the Hon'ble Delhi High Court has held that when the primary facts disclosed but claim found erroneous would not be a case of concealment." On the basis of decisions which I will reproduce hereinbelow, the learned JM held that merely because claim for expenditure was disallowed and amount shown as cash credit or added, would not automatically lead to the conclusion, that there has been concealment of income, warranting penalty. In spite of taking note of decisions of Supreme Court, the learned JM held that unless the assessee is shown to have deliberately made false claim for deduction, levy of penalty i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the Full Bench of the Punjab Haryana High Court where Sandhawalia, CJ speaking for the Full Bench observed that the object and intent of the legislature in omitting the word 'deliberately' from cl. (c) of s. 271(1) and adding an Explanation thereto by the Finance Act, 1964, was to bring about a change in the existing law regarding the levy of penalty so as to shift the burden of proof from the Department on to the assessee in the class of cases where the returned income of the assessee was less than 80 per cent of the assessed income. The learned Chief Justice noted that the significant thing about the change made in cl. (c) of s. 271(1) was the designed omission of the word 'deliberately' therefrom, whereby the requirement of a designed furnishing of inaccurate particulars of income was obliterated. According to the learned Chief Justice, the language of the Explanation indicated that for the purposes of levying penalty the legislature had made two clear-cut divisions. This had been done by providing a strictly objective and an almost mathematical test. According to the Chief Justice, the touchstone therefore, was the income returned by the assessee as against the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Even after the amendment of Finance Act 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. The rule regarding burden of proof enunciated in CIT vs. Anwar Ali (1970) 76 ITR 696 (SC), is no longer valid. Whether it is a case of undisclosed or unexplained cash deposit or any other concealment the standard is the same. The principle enunciated in Anwar Ali's case that mere rejection of the explanation of the assessee is not sufficient for levying penalty no longer holds good and it is no longer necessary that the Department must go further and establish that there was conscious concealment of particulars of income or a deliberate failure t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e arose only on the value of such assets. The Tribunal had held that in the case of difference of opinion on merit, penalty was not leviable. The case was clearly distinguishable on facts. 27. While distinguishing case of BPL Sanyo Finance Ltd., the learned Departmental Representative submitted that it was not a case where assessee was not entitled to any depreciation. The assessee was held to be entitled to claim depreciation and, therefore, imposition of penalty was not upheld. Likewise the case of India Cements Capital and Finance Ltd. was also distinguishable as in that case, it was held that assessee had claimed depreciation on the basis of evidence available in the ordinary course of business and it was not possible to say that there was any concealment of income. 28. On careful consideration of submissions of parties, I am of the view that distinction put forward by the learned Departmental Representative is valid and require to be upheld. Question whether assessee has concealed income or furnished inaccurate particulars of income is especially one of the facts. If after examination of all facts and circumstances of the case, it is held that there is no concealment or fu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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