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2014 (10) TMI 392

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..... the assessee firstly would have purchased those assets either from the manufacturer in case of simple lease transactions and/or from the lessee itself in case of “sale and lease back transaction” - When the assessee itself was not aware about the existence of assets, it was obvious that such a transaction could not fall in the definition of lease transactions. The assessee had mentioned that the AO in the assessment order had mixed up the facts which would be explained at the time of hearing - the assessee had put a wrongful claim of depreciation and thereby had furnished inaccurate particulars of income for the purpose of concealment of real income, hence, the penalty proceedings were correctly initiated by the AO - It was not a case of tax planning by the assessee so as to avoid or reduce its taxes by remaining within the framework of the law - The transactions entered into by the assessee were sham and bogus transactions which were intended to defeat the provisions of law - tax avoidance by way of tax planning or structuring the transactions so as to reap the largest tax benefit may be permissible under law but fraudulent transfer of assets or income or engaging in sham tra .....

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..... y the AO that these lease transactions were in the nature of financial transactions and accordingly depreciation was not allowable. The AO further incorporated in the order that out of the disallowance of depreciation, only finance components of lease rentals received in the year should be brought to tax leaving the capital components i.e. principle amount, which would not come within the ambit of income for the year. The appellant subsequently accepted the stand of the department and accordingly, this ground for both the years under consideration is not pressed stands dismissed. 4. In penalty proceedings initiated u/s. 27l(1)(c) of the Act, the assessee made the following submissions: The assessee has filed an appeal to the l.T.A.T. on 23rd November 2000 against the order of the CIT(A), which is pending. Since the order of the CIT(A) is the subject matter of appeal to the ITAT, the limitation period u/s. 275 of the I.T.Act'61 for completion of the penalty proceedings is extended and does not get time barred by 31 St March, 2001. 5. The ld. AO however found that the contention of the assessee was not tenable. He observed that in the assessment proceedings the AO .....

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..... The AO carried out further enquiries regarding so-called suppliers of the equipments and finally concluded that the assets were never existed and the claim of the assessee proved to be wrong. Hence, he disallowed depreciation on the nonexisting lease assets at ₹ 50,00,000/-. Similarly, the AO has given a finding in the case of Prakash Industries Ltd. the lessee to whom the assessee company allegedly given assets worth ₹ 97,58,981/- on lease and claimed 100% depreciation thereon as bogus. At page 22 of the assessment order, the AO brought out further details regarding the investigations conducted in the case of the suppliers of the above equipments and the enquiries and the surveys conducted revealed that the suppliers denied to have manufactured the above equipment. The AO further brought out his findings at page 23 of the order which is as under :- It is noticed that the name and style M/s. A.S. Mechanical Works is being used ingenerating bogus 100% depreciation for its business houses. In the investigations, it was found that there is an existing firm in the name and style of M/s. A.S. Mechanical Works at G.T. Road, Near Gol Chhakkar, Mandi Gobindgarh-1473 .....

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..... ficer during the survey conducted on them. In this case, M/s. Larson Tourbo was a supplier of lease assets to this party. MIs. Larson Tourbo has also issued a summon on 8.2.1999. In response to the same M/s. Larson Tourbo has filed a letter dated 15.3.1999 in which the have stated categorically that they have not sold any asset to TGFL any time during the relevant F.Y. from 1992-93 to 95-96. Thus, in this case, it will be seen that, there is no supply of the alleged lease assets. Thus in the absence of the supply of the leased assets, the lease transaction cannot be taken as a genuine lease transaction and accordingly, the entire depreciation claimed on the alleged asset to ATB Project are hereby disallowed. 9. Similarly in the case of Mohan Meaking Ltd. the assessee is stated to have leased out boiler to the above party and further investigation revealed that the assessee only part financed the above assets and the supplier of the assets M/s. Cethar Vessels Ltd. confirmed that the assets were sold only to Mohan Meaking Ltd. and to the assessee. Taking into account all the facts, AO treated the above transaction is not a genuine one. Similar finding is given in the case of DCM .....

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..... accordingly the assessee was granted relief to that extent by passing order u/s. 250 of the Act. Hence, the ground taken before the ITAT in this regard does not survive. Moreover, it is the discretion of the Department to keep the matters pending or not till the disposal of the appeal before the ITAT depending upon the facts of each case. In this case, the assessee filed a loss return of ₹ 1,15,55,000/- and the same was finally assessed at an income of ₹ 1,66,91,410/- as per order u/s.250 dated 2nd March 2001. It has been judicially held that penalty is leviable even in the case where loss has been reduced. Reliance placed on the decision of the Hon'ble Karnataka High Court in the case of P.R. Basavappa and Sons Vs. CIT (243 ITR 776). Similarly, the Kerala High Court also given a finding in the case of CIT Vs. India Sea Foods (105 ITR 708) wherein it was held that levy of penalty is justified even in the case of assessed loss. 12. In view of the above facts and legal position, I am satisfied that the assessee has willfully concealed the particulars of income by making bogus claim of depreciation on leased assets which are contrary to the facts and legal position. .....

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..... lved are different than those mentioned in the assessment order and subsequently in the penalty order. 23. The appellant has furnished details in respect of M/s. Western Pacque India Ltd., M/s. Prakash Industries Ltd., ATV Projects Ltd., Mohan Meakins Ltd., DCM Sriram Consolidated Ltd., NIIT Ltd., Gilt Pack Ltd. and M/s. Padodia Syntex. 23. In the said submissions and statement furnished vide letter dt.11.01.2003, the appellant through ld. A.R. has reiterated the replies and explanations furnished before the A.O. during the course of assessment proceedings. One such example is given below, where the appellant has brought on record the reply furnished before the A.O. vide his letter dt. 29.03.1999 in the following manner:- Also in respect of Western Paques Ltd. where search and seizure operations are stated to have been conducted, we wish to state that we have sold the asset to them in January, 1996. (January, 1996 is a typographical mistake. It is July, 1995). We have no idea of the date on which the search and seizure operation was carried out. We would like to submit we do not have any idea of the existence of the asset after the sale by us to them. [effluent treatment] .....

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..... he cylinders are old, the entire depreciation on these cylinders must have already been availed of by DCM Sriram. We do not know whether the party stated so in its reply dated 16th Mach, 1999. 28. Similarly, in the case of the remaining other parties, the appellant has submitted the statements and replies which relate to the points in the assessment order or which were alternatively considered during the course of assessment proceedings. 29. In light of the above facts and circumstances of the case, it is seen that the subsequent submission made by the appellant saying that there is factual discrepancy in the assets discussed in the assessment order/penalty order is an issue beyond the purview of this appeal. It is seen that in the grounds of appeal nowhere such ground has been taken that there is factual discrepancy in respect of leased out assets, which have been elaborately discussed in the assessment order and subsequently in the penalty order. On the other hand, it is also seen from records that the said assessment order was a subject matter of appeal and same was decided vide order dt. 4.10.2000 by the CIT(A)XXXIII, Mumbai, where no such discrepancy was taken as a groun .....

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..... screpancy of the assessment order in the appellate proceedings of the penalty order u/s.271(1)(c) is misplaced, unjustified and not permissible under law. 32. It is also pertinent to note that this issue of factual discrepancy is not taken in the grounds of appeal of the penalty order u/s. 271(1)(c). It is only through the letter dt. 11.012003 that such an argument has been placed possibly as an afterthought, which in any case is irrelevant to the issues involved in the context of penalty order u/s. 271(1)(c). 33. The assessment proceedings and penalty proceedings are wholly distinct and independent of each other. It is only the facts and details of the transaction and conduct of the business affairs as reflected in the account books/final accounts of the assessee, which are considered as evidence/ material for the purpose of determining the liability of the assessee with reference to section 271(1)(c). Once certain facts and business affairs and / or final accounts of the assessee are examined and definite fact findings are reached, based on which additions are made, the same cannot be reconsidered or reopened for different interpretation for the purpose of 271(1)(c) proceed .....

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..... the appellant, which was disallowed by the A.O. Vide the original assessment order, whether the assets were sold or such assets were not leased or for any other reason, the claim of depreciation of the appellant remained unsubstantiated as per the assessment order u/s.143(3)/147. Therefore, merely pointing out discrepancies without establishing the claim that the depreciation claimed by the appellant was correct and same could have been allowed, does not change the facts of the case. The fact remains that the assessee had claimed depreciation and same were reflected in the books of account and final accounts of the assessee as a bonafide and genuine claim, which were found to be invalid, ungenuine and false and that is why a disallowance of ₹ 5,78,23,526/- was made vide assessment order dt.30.3.1999 and subsequent rectification order u/s.154 dt.18.8.1999 through which relief has been allowed on account of capital portion of lease rentals. The A.O. has categorically noted that assessee company would not be entitled to any depreciation u/s.32 on the actual cost of assets which were not really owned by it but were held merely for the purpose of security of the loans given to var .....

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..... wo divergent facts on the same thing. The factual misrepresentation on the existence of assets and also on the nature of transaction, as pointed out in the assessment order, which has stood the test of appeal, go on to show that there was misrepresentation of the facts and transactions both in the books of account of the assessee which could be possibly only with full intention and conscious preparation of books of account/final accounts contrary to the factual position. This proves the mens rea that is the conscious and deliberate action on the part of the appellant to hide, to cover, to prevent the discovery of facts as they are. The facts of the case show that same are not covered within the umbrella of bonafide belief. Further, the case of the appellant shows that the deduction/ depreciation claimed by the appellant based on certain facts have been disproved and only then the claim of depreciation has been disallowed. That is to say, the disallowance is not based on such set of facts which are not proved . The state of affairs reveal that the facts based on which depreciation was claimed stand disproved , hence it is not the case of mere rejection of explanation offered by th .....

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..... he appellant fails on this ground, which is contrary to the legal position and facts of the case. The explanation clauses of section 271(1)(c) are integral part of the section, hence this ground of appeal is dismissed as per section 271(1)(c) read with explanations to the said section. 42. Thus, in the result, the appeal is dismissed. The penalty of ₹ 1,44,41,888/- levied on the appellant u/s.271(1)(c) vide order dated 30.03.2001 is confirmed. 8. Aggrieved from the order of the ld. CIT(A), the assessee has preferred the present appeal before us. 9. We have heard the rival contentions of the ld. representatives of both the parties and have also gone through the records. The first contention of the ld. counsel for the assessee has been that the transactions in question were not bogus. Further that the question as to whether the transaction in question is that of operating lease or financial lease is a highly debatable issue, hence the imposition of penalty on a debatable issue was not justified. He has further contended that there were factual discrepancies in the order of the AO. The assessee did not agitate about the said discrepancies as the assessee did not press .....

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..... y to avail the tax benefit of depreciation under the Income Tax Act. Even it was also agreed by the assessee with the lessees that a part of such benefit would be passed on to the borrower in the form of interest on the loan amount taken, which was agreed to be recalled in case the assessee company would not get the expected tax benefits from the Income Tax Authorities. The AO has observed that it was a case of trading in tax benefits. Even the AO in the assessment order has categorically observed that it was not only the case of transfer of tax benefits from the borrower to the assessee company, rather was a case of claim of identical benefits by the assessee company when the borrower was also in fact claiming such benefits. The borrower in this case was also claiming deduction of depreciation on the cost of new asset (though capital component of the lease rental) over the lease period at the rate of depreciation of asset at the rate of 25% whereas the lessee was availing the claim of depreciation on an accelerated rate in most of the cases. The AO had called upon the necessary explanations from the assessee on the subject matter and after duly considering the reply/explanations g .....

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..... s and nothing more than that. We may further note that in appeal against the assessment order, the assessee agreed to the additions made by the AO and did not contest the findings of the AO regarding the transactions being bogus and sham in nature. The assessee, though, before us has taken a plea that there were factual discrepancies in the assessment order, but such a plea was neither taken by the assessee during the appellate proceedings against the assessment order nor in its appeal before the ITAT in the said quantum proceedings, even not during the penalty proceedings before the AO. Such a plea was taken for the first time before the ld. CIT(A) in penalty appeal only. The ld. counsel for the assessee has submitted before us that such a plea was taken before the ld. CIT(A) in quantum proceedings, but since the claim of the assessee regarding capital component was accepted, hence the assessee did not contest or agitate its point. However, we have gone through the grounds of appeal of the assessee put before the ld. CIT(A) during the appellate proceedings against the assessment order and found that no such a plea of factual discrepancies in the order of the AO was taken by the as .....

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..... e addition to avoid litigation or to buy peace etc. even does not seem plausible. The assessee during the year had claimed depreciation of huge amount of ₹ 5,17,09,213/- which was not fund genuine by the AO. The Hon ble Supreme Court, in the case of MAK Data P. Ltd. vs. Commissioner of Income Tax-II civil appeal No.9772 of 2013 date of decision 30.10.13, has categorically held that it is the statutory duty of the assessee to record all its transactions correctly and to clear its true income in the return of income. The AO should not be carried away by the plea of the assessee like voluntary disclosure , buy peace , avoid litigation , amicable settlement , etc. to explain away its conduct. The question is whether the assessee has offered any explanation for concealment of particulars of income or furnishing inaccurate particulars of income. Explanation to Section 271(1) raises a presumption of concealment, when a difference is noticed by the AO, between reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence. When the initial onus placed by the explanation, has been discharged by him, the onus shifts on the Reve .....

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..... intended to defeat the provisions of law. It may be observed that tax avoidance by way of tax planning or structuring the transactions so as to reap the largest tax benefit may be permissible under law but fraudulent transfer of assets or income or engaging in sham transactions with the object of reducing the tax liability cannot be said to be a case of tax avoidance but of tax evasion. Any act or attempt to reduce the tax liability by deceit, subterfuge or concealment is not permissible under law. 12. In our view, it was a clear cut case of furnishing of inaccurate particulars of income and as such the penalty has been correctly levied by the lower authorities in this case. So far the reliance of the ld. counsel for the assessee on catena of judgments such as CIT vs. Development Credit Bank Ltd. ITA No.5409/M/10 dated 06.09.11 and other decisions as mentioned in the paper book, it can be observed that in all such decisions a categorical finding has been given that the assessee had given a bonafide explanation which was accepted by the concerned judicial authorities. However, in the case in hand, we find neither the assessee offered any explanation nor the assessee could show .....

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