TMI Blog2013 (11) TMI 730X X X X Extracts X X X X X X X X Extracts X X X X ..... Act - Till 13-3-2000, i.e., when the original assessment was made, the claim of the assessee was found acceptable and accepted as such. Held that:- It is the case of the revenue, in the present case that the information/particulars furnished in the return of Income filed for the assessment year 2002-03 was inaccurate - Assessee had claimed 100% depreciation on rolls, claiming that they had purchased the rolls from BM Steels Pvt. Ltd., (for short “BM Steel”) and leased to Bellary Steel. That led the concerned authority to conduct survey under Section 133-A of the Act at the premises of Bellary Steel on 1st June 2000. In the course of survey, various incriminating documents were seized/found. An inventory of rolls at the premises of Bellary Steel revealed that they had only 361 rolls in their stock as against 3702 rolls accounted both as purchased and leased by Financial institutions and leasing companies, like the assessee in the present case. Having regard to the admitted facts, the assessee could not and did not prove that he filed return due to fraud committed by Bellary Steel. On the facts and circumstances of the case, it cannot be stated that the assesee was completely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 100% depreciation made by the respondent-assessee was not only false but was made in respect of non-existent goods, and that penalty is liable to be levied not only for concealing the income but also for furnishing inaccurate particulars; and whether on the facts and in the circumstances of the case and in law, is it possible to hold that the respondent-assessee was unaware about nonexistence of assets/goods, as claimed by them, and was cheated by Bellary Steel and Alloys Ltd., (for short Bellary Steel ). The assets/goods involved in these proceedings is a form of Special Grade Cast Iron Rollers (for short rolls ). The concerned assessment year is 1997-98. The respondent-assessee claimed 100% depreciation claiming to have had leased the rolls to Bellary Steel. 5. The respondent M/s.BPL Sanyo Finance Limited (for short the assessee ) was in the leasing business. They had filed return of income for the assessment years 1997-98, i.e. for the financial year 1-4-1996 to 31-3-1997, on 28th November 1997 under Section 139, declaring a total income of Rs.1,26,50,375/- as applicable u/s 115JA of the Act. The return of income was processed and accordingly an intimation to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation in respect of non-existent assets. It was also brought to their notice that supplier of rolls B.M.Steel from Chennai was neither capable of manufacturing the rolls nor had supplied any rolls to Bellary Steel. It was also ascertained that Bellary Steel did not require the number of rolls that they had shown as taken on lease for manufacturing quantity of steel, that they produced year-wise. Mr.Madhava, the M.D. of Bellary Steel, in the course of enquiry, confessed to the fact that Bellary Steel was raising funds for capital expenditure by means of lease transaction in respect of non-existent assets. It is in this backdrop, the assessee was informed that they were not entitled to depreciation, as claimed, on non-existent rolls allegedly leased to Bellary Steel. In other words, they were informed that they were not entitled to claim 100% depreciation on the nonexistent rolls allegedly leased to Bellary Steel. Accordingly, the assessee was called upon to explain why the alleged bogus claim of depreciation should not be disallowed and taxable income for the year 1997-98 be computed afresh. 8. The assessee was asked to submit/file detail statement in response with the supporting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , a request was made by the assessee to allow them to withdraw their claim of 100% depreciation on the rolls and as a result thereof, the assessment order was passed by the AO on 15th March 2002. 11. Simultaneously penalty proceedings under Section 271 (1) (c) of the Act were also initiated against the assessee. The AO after having considered the entire materials placed on record and the admissions given by the assessee in respect of the transaction and so also on the basis of oral evidence on record levied penalty of Rs.43,47,753/- on the assessee. The order of the AO was confirmed by the appellate authority. The Tribunal, however, reversed the orders passed by the authorities below, vide order dated 28-10-2005, which, is impugned in the present appeal. 12. The case of the revenue against the assessee is that the assessee was a voluntary participant in a bogus lease transaction claiming 100% depreciation on nonexistent assets. They also demonstrated the undue haste in entering into lease deed/transaction without verifying the capacity of B.M.Steel to manufacture rolls. They even did not verify whether goods/rolls, owned by them, were actually taken delivery of and transported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due dates, the assessee never gets a whisper about anything wrong in such lease transaction. Even if assessee was to claim 100% depreciation on such assets leased, the tax thereon would be merely 35%. No prudent man, particularly a public limited company, will enter into transaction to loose 100% of the capital merely to save 35% thereof as a tax. To add to this, the assessee pays tax on entire lease rent which effectively and substantially reduces any tax advantage available by way of claim of depreciation. In the net result it will still loose more than 65% of its own money, which no person will ever do. Thus, there is no reason to believe that the assessee was ever a voluntary participant in the bogus lease transaction. On the contrary, the assessee is duped by systematic fraud played by BSAL upon the appellant. The power available to the AO either to verify or summon the manufacturer, to summon the transporter, to summon the lessee or examine the Managing Director is not available to the appellant. The appellant has to carry on its business transaction in a commercial way i.e. it runs on trust and not by doubt or suspecting at every point, particularly when it has no reason to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f it is found that the transaction was bogus and was only on paper and that the assessee was aware about it, the order of levy of penalty will have to be confirmed. When the cheques started bouncing, it was necessary for the assessee not only to lodge criminal complaint/initiate proceedings under Section 138 of the Negotiable Instruments Act but to proceed against the lessee to take possession of the leased rolls. The assessee has not placed any materials on record to show whether they took the criminal proceeding initiated by them against Bellary Steel to its logical conclusion and that what steps were taken to recover their monies or rolls. In the latter part of the judgment we would also demonstrate that the claim of the assessee/lessor that they were being cheated is not correct. Inference drawn by the Tribunal that they were innocent and were not aware about the ill-intentions of lessee, as observed earlier, is based on surmise and conjecture. In any case, having regard to the facts and circumstances of this case, it cannot be stated that the assessee/lessor neither concealed particulars of income nor furnished inaccurate particulars of income, as observed by the Tribunal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the case of revenue, the Tribunal has assumed everything in favour of the assessee/lessor. For instance, while dealing with the submission that the conduct of the assessee was unbelievable that it did not even verify existence of the rolls, the Tribunal has gone to the extent in observing that the transaction may be false (not genuine), but as far as the assessee is concerned, it had no reason to doubt the genuineness of the transaction since the assessee was interested only in ensuring its lease, earning lease rentals and securing its interest. The assessee, the Tribunal further holds, did it by receiving proper invoices, transport receipts, post dated cheques, entering into lease deed, obtained guarantees from Directors, availing collateral security in the form of shares of listed companies, the value of which was exceeding the leased assets. This, in our opinion, would simply show that the assessee only had secured its amount. From its conduct, and the other evidence on record, the only inference that can be drawn is that the assessee took so much care to secure its deal/amount since it was aware that they were financing/leasing non-existent goods. In support of such obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed assets are put to business use. It is clear from the statement of Mr. R.Balathandayudam, that the assessee had a mechanism/system of verification of assets leased by them to different lessees. Further, the assessee being a public limited company, a statutory audit was conducted for the relevant year as provided for under Section 44-AB of the Act. The Auditor clearly stated that the physical verification of all assets was reported to have been carried out by the management during that year and he was further informed that there was no material discrepancies between physical assets and the assets record. From the statement of the Managing Director of the assessee and the report of the auditor, in any case, it cannot be stated that they were not aware about the fraud being played by Bellary Steel or that they were not aware of non-existent of rolls. Either, their claim as reflected in the statement of MD and the Auditor s report was correct or the claim made in these proceedings is correct. In any case, statement of the MD and the Auditor s report cannot be stated to be incorrect or false, and that being so, the only inference that will have to be drawn is that the assessee were p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f rolls to Bellary Steel was sham and bogus and intended purely to claim depreciation on the assets which never existed. 22. Learned counsel for the assessee in the course of arguments took us through the order passed by the Tribunal and submitted that the assessee was not aware about the fraudulent intention of Bellary Steel and that they were cheated by Bellary Steel by involving them in the bogus transaction. The assessee emphasised that the entire transaction acted bonafidely and therefore, penalty cannot be imposed under Section 271 (1) (c) of the Act that being a discretionary power vested in the authority. He invited our attention to clause (B) of Explanation-I to Section 271 to contend/to prove that their explanation is bonafide and all the facts relating to the same and materials, to the computation of their total income, was disclosed by them to the concerned authority. 23. We have perused Section 271 (1) (c) (iii) and Explanation-I (B) of the Act. Under this provision, if AO in the course of any proceedings under the Act is satisfied that any person has concealed the particulars of his income or furnish inaccurate particulars of such income, he may direct such pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... By reason of the Explanation, where the total income returned by the assessee is less than 80 per cent of the total income assessed under section 143 or 144 or 147, reduced to the extent therein provided, the assessee is deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, unless he proves that the failure to return the correct income did not arise from any fraud or neglect on his part. The assessee is, therefore, by virtue of the notice under section 271 put to notice that if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income, or furnished inaccurate particulars thereof and, consequently be liable to the penalty provided by that Section. No express invocation of Explanation to section 271 in the notice under section 271 is, in our view necessary before the provisions of the Explanation therein are applied. (emphasis supplied) 25. In order to understand the purport of Section 271(1)(c), it would be advantageous to look into the observations made by the Supreme Court, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be invoked. Further, the Supreme Court observed in the report, that by any stretch imagination, making an incorrect claim or wrong claim in law would not tantamount to furnishing inaccurate particulars. The word particulars used in Section 271(1)(c) would embrace the meaning of details of the claim made. It is the case of the revenue, in the present case that the information/particulars furnished in the return of Income filed for the assessment year 2002-03 was inaccurate. 26. In Hindustan Steel Limited vs. State of Orissa, [1972] 83 ITR 26, the Supreme Court was dealing with similar provisions as is 271(1)(c) in Orissa Sales Tax Act namely Section 25(1)(a) while dealing with this provision, the Supreme Court made the following observations, which read thus: Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on has to be considered from a different angle. It is now a well-settled principle of law that the more stringent the law, the more strict a construction thereof would be necessary. Even when the burden is required to be discharged by an assessee, it would not be as heavy as the prosecution (See P.N.Krishna Lal v. Government of Kerala (1995) Supp 2 SCC 187). (emphasis supplied) Thus, the assessee, by virtue of notice under Section 271 (1) (c) of the Act, was put to notice that if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof and consequently, be liable to penalty provided by that Section. 28. Having regard to the admitted facts, and our finding on facts, in our opinion, the assessee could not and did not prove that he filed return due to fraud committed by Bellary Steel. On the facts and circumstances of the case, it cannot be stated that the assesee was completely innocent/ignorant of the fact that the assets/rolls were not in existence at all and that they claime ..... X X X X Extracts X X X X X X X X Extracts X X X X
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