Tax Management India. Com
                        Law and Practice: A Digital eBook ...

Category of Documents

TMI - Tax Management India. Com
Case Laws Acts Notifications Circulars Classification Forms Manuals SMS News Articles
Highlights
D. Forum
What's New

Share:      

        Home        
 

TMI Blog

Home List
← Previous Next →

2009 (8) TMI 799

..... its stand from time to time. The assessee could take a correct stand and it was headache of the AO to verify it before the assessment got out 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 ₹ 1,02,36,480. - 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. - Penalty to be levied u/s 271(1)(c) - [IT Appeal No. 890 (Mad.) of 2008 - 24-8-2009 - Member(s) : VIMAL GANDHI., DR. O. K. NARAYANAN., VIJAY PAL RAO. ORDER-DR. O.K NARAYANAN, A.M.: February, 2009 This is an appeal filed 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, .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... rew its claim of 100 per cent depreciation in respect of the said lease transaction. Accordingly, the depreciation of Rs. 1,24,80,000 claimed by the assessee was disallowed. It is consequent to the above development happened in the course of assessment proceedings, that the penalty was levied by the assessing authority. The main argument advanced before the CIT(A) was that the assessee had conceded withdrawal of the depreciation only on the ground that the assessee could not produce sufficient proof as required by the assessing authority before the time allowed to the assessee as the transaction has taken place more than a decade earlier that there was nothing to indicate that the transaction was not genuine on the claim intended by the assessee. Later, the assessee had filed 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... t proceedings. Therefore, the reasoning of the CIT(A) is unsustainable both in law and on facts. 8. We do not say that withdrawal of a claim of deduction by an assessee ipso facto leads to mandatory levy of penalty. No, we do not agree. Assessment proceedings and penalty proceedings are different proceedings and the postulates of both are quite different in its rhyme and reason. But, it does not mean that the assessee can disown itself from stating inaccurate particulars in the return filed by it. In other words, it is a duty of the assessee to convince and prove that the computations provided in the return of income are true and best of its knowledge and belief. 9. In the present case, apart from documents of the transactions arranged by the assessee-company, there was no 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 reve .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... claimed by the assessee on the assets leased out to M/s Steel Tubes of India Ltd. The AO issued a notice in this aspect which is reproduced by the CIT(A) in para No. 3 of the impugned order which reads as under: On enquiry, this supplier viz., M/s Nagpur Pollution Control Co., (P) Ltd., has denied categorically that any sales made to M/s TVS Lakshmi Credit Ltd., or M/s Steel Tubes of India Ltd. They have categorically stated that the copy of invoice given to the Department by you was not issued by them. Copy of statement of Sri Anil G. Deshpande, M/s Nagpur Pollution Control Co. (P) Ltd., is supplied to you. Based on this it can be concluded that invoice No. 18 of M/s Nagpur Pollution Control Co. (P) Ltd., dt. 10th July, 1997 is a fabricated evidence. Please 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... ia Ltd. (6) The assets were installed and put to use by the lessee on 15th July, 1997, as per the installation certificate dt. 15th July, 1997 furnished by Steel Tubes of India Ltd. (7) M/s United India Insurance Company, Indore inspected the assets and insured the said asset vide their certificate No. 191202/11/16/13/6061/1997, dt. 16th Sept., 1997 indicating the beneficiary as TVS Lakshmi Credit. (Annexure No. 4) From the above documents and also the fact the assets have been inspected at that time by our representative on installation, we are under bona fide belief that the assets have been supplied and put to use in the factory premises of M/s Steel Tubes of India Ltd., Dewas. It could be seen from the perusal 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... able income. We also request you to accept this explanation on the transactions and drop further proceedings in this matter. Thanking you, Yours faithfully, For Harita Finance Ltd. (Formerly TVS Lakshmi Credit Ltd.) R. Jagannathan Special Officer. 3. The assessee in its reply annexed various papers and contended that only under the bona fide belief based on the documents, the assessee made the claim of depreciation in the return of income. However, since considerable time has passed, since the transaction it was very difficult for the assessee to collect the evidences relating to the supplier, existence of asset, etc., the assessee pleaded to withdraw the claim of the depreciation 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... ars of income or for furnishing inaccurate particulars of income. The conduct of the assessee at the time when it filed the return of income was material, at which point the assessee was always under bona fide belief that the transaction was genuine and claim was admissible as per law. That belief was further strengthened as the same was accepted even in scrutiny assessment made under s. 143(3) on 13th March, 2000. Thus, it could be concluded that the assessee neither concealed particulars of income nor furnished inaccurate particulars of income. The assessee was merely a victim of fraud played upon it to which it was never a party. Penalty under s. 271(1)(c) was not 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 th .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... to the AO. (a) Invoice issued by Nagpur Pollution Control Co. (P) Ltd. (b) Certificate of insurance issued by United India Insurance Co. Ltd., Indore after inspection of the asset and indicated that the appellant as a beneficiary. (c) Certificate given by the lessee on 27th Feb., 2001 that they have installed the machinery and have not claimed depreciation on the said asset. (d) Inspection report dt. 18th July, 1997 of the representative of the appellant who had inspected the asset at the time of installation and confirmed availability of asset, who not only ignored the above evidences but had also not conducted enquires in respect of the above 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 hav .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... ITR 9 (SC); (12) CIT vs. P. Govindasamy (2003) 179 CTR (Mad) 566 : (2003) 263 ITR 509 (Mad); (13) CIT vs. Sri Saradha Textile Processors (P) Ltd. (2006) 206 CTR (Mad) 369 : (2006) 286 ITR 499 (Mad); (14) CIT vs. Easun Engineering Co. Ltd. (2006) 280 ITR 678 (Mad) and Rajarajan Electrical Equipments (P) Ltd. vs. Dy. CIT (2006) 203 CTR (Mad) 299 : (2006) 284 ITR 448 (Mad); (15) Cement Marketing Co. of India Ltd. vs. Asstt. CIT (1980) 124 ITR 15 (SC); (16) CIT vs. Inden Bislers (2000) 158 CTR (Mad) 323 : (1999) 240 ITR 943 (Mad); (17) CIT vs. International Audio Visual (2007) 208 CTR (Del) 328 : (2007) 288 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, c .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... manufacturer, i.e., M/s Nagpur Pollution Control Co., (P) Ltd., the lessee M/s Steel Tubes of India Ltd. has been shown as one of the clients. From all the above-mentioned documents, there was nothing on record to show that the assessee had inkling or doubt about the genuineness of the transaction and thus the assessee was under the bona fide belief that the transaction was a genuine lease transaction. The assessee agreed to withdraw the claim of depreciation in respect of the leased asset only out of commercial expediency to purchase peace and avoid pro acted 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 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 e .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... was entitled to it. It is pertinent to mention that from all these facts and circumstances and development in the case, it cannot be that the lessee if acted mischievously by misappropriating the asset had done so on behest of or in collusion with the assessee. The AO has hot conducted any enquiry in respect to prove the in-genuineness of the transaction when the assessee has clearly established with all documentary evidences that he has made the payment for purchase of machinery which was leased out to the lessee. There was an inspection of installation and existence of the machinery as well 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 decisi .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... vered, no penalty is leviable. In the case of CIT vs. Easun Engineering Co. Ltd. it has been held that when there was no mala fide intention on the part of the assessee to file/furnish particulars, penalty cannot be imposed. In the case of Cement Marketing Co. of India Ltd. vs. Asstt. CIT, 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, 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, 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 cl .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... unless the said addition is due to concealment of income and furnishing of inaccurate particulars of income. The penalty is not automatic but the burden to prove in the penalty proceedings varies from that in the assessment proceedings. The findings in the assessment proceedings that a particular receipt as his income cannot automatically be adopted in the penalty proceedings. At the time of filing of return, the assessee claimed depreciation and offered lease, rentals as income which shows that the assessee was under the bona fide belief and there is nothing on record to show that 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 follow .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... nt depreciation on assets leased to STI. (1) In a leasing transaction, the lessee, who is the ultimate user of the J!1achinery 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 to suit his technical requirements. The leasing company comes into picture only 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... No. 620704 (new number) (Annexure No. 7) and also confirming the outstanding lease rentals which evidences treatment of the same as lease rentals in their books. Even as late as 27th Feb., 2001 STI have confirmed to us of the nature of the transactions, i.e., it was only a lease, and that it had not claimed any depreciation in respect of this plant wherein it had also given the invoice number and the cost. We enclose an undertaking received from 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... nly to buy peace with the Department but not on accepting the in-genuineness of the transaction. The company also submitted the inspection report dt. 18th July, 1997. The assessee company filed copy of the petition before the Madras High Court against STI and also copy of the order of the High Court on this issue. The explanation of the assessee-company is considered. It is submitted that the order of the Madras High 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 a .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... be evaded amounting to Rs. 6,00,02,261. 4. The assessee challenged the levy of penalty in appeal before the CIT(A) who after considering facts and circumstances of the case, cancelled the penalty vide his order dt. 31st Jan., 2008. The reasons for cancellation can be summarized as under: (I) During the course of penalty proceedings, no further enquiry was conducted by the AO and penalty was imposed on the 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 no .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... further examination of the transaction. The matter stood concluded against the assessee in the assessment proceedings. The reasonings of the learned CIT(A) was held to be unsustainable. The learned AM appreciated that the penalty proceedings were separate and different from the assessment proceedings but it could not mean that the assessee could disown itself from stating inaccurate particulars in 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 appea .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... ions to s. 271(1)(c) are part of the section and no express invocation of these Explanations was necessary to apply. The learned JM reiterated more or less the same reasons as given by the learned CIT{A) in the impugned order for setting aside the penalty imposed. All the same, they may briefly note as under: (I) It is undisputed fact that the assessee had made payment for the purpose of 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... it supported by documentary evidence clearly show that the assessee was under a bona fide belief that the assessee was entitled to claim of depreciation. 6.2 Above reasons given by the learned JM in the proposed order are supported by the case law referred in para 13 of the proposed order to which reference would be made later. The learned JM also relied upon the following 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 depreciat .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... non-existing assets and on the basis of a fabricated evidence was claimed as under: 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 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 b .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... that there is no requirement to make further enquiry in penalty proceedings before levying penalty in every case. Material collected during the course of assessment may be sufficient to hold that assessee furnished inaccurate particulars of income or concealed income and, therefore, levy of penalty is justified. In the present case the claim of 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... ? Why the assessee did not ask for specific verification of assets installed. Nothing prevented the assessee to challenge what was stated in the show-cause notice of wrong claim made by the assessee. If it was duped or defrauded by STI then this fact should have been clearly stated in the reply to the show-cause notice. This was not done. Why 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... eal to the High Court: Held, dismissing the appeal, that as a final fact finding authority, the Tribunal had found that the claim of the assessee for depreciation was bogus. Consequently, in the face of the said fact that the revised return thus was consequent on a search, it confirmed the finding that the assessee was 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 fo .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... ssets. Many cases go scott free. Some are caught and then a surrender of depreciation is made. Like in the case in hand, evidence of insurance policy, transportation and installation of goods etc. is fabricated and forged in support of the claim. This is quite natural as a claim of deduction of crores of rupees 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... . 38 of the paper book. Having considered above referred to documents, I am unable to attach any importance to them for the following reasons. In my view, AO rightly read these documents. 16.1 As discussed above, if fraud was played by STI on the assessee then it would have been specifically mentioned in the 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... d shows the seriousness of the complaint. Why invoice relating to purchase and documents relating to installation of machinery, alleged to have been furnished by the lessee. were not included in the list of documents relied for purposes of complaint. Further, mere drafting of a complaint 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... uently 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 stated to be not agreeing to the proposal of Mr. Daga in para 1. Simultaneously he recorded the agreement between parties to settle the issue. Well aforesaid document cannot be taken as any evidence of existence of assets on which depreciati .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... 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) Ltd. (1986) 57 CTR (Cal) 307 : (1986) 158 ITR 509 (Cal), CIT vs. Mussadilal Ram Bharose (1987) 60 CTR (SC) 34 : (1987) 165 ITR 14 (SC), Addl. CIT vs. Jeevan Lal Sah (1994) 117 CTR (SC) 130 : (1994) 205 ITR 244 (SC) are on the point that merely because th .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... e 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 is not justified. He has further observed and relied upon CIT vs. V. Ramaswamy Naidu (1994) 208 ITR 377 (Mad) to hold that disbelief of explanation by the assessee is no ground for imposition of penalty. He has further observed that agreed addition by its .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... n 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 income assessed by the Department which was designated as the correct income . The case where the returned income was less than 80 per cent of the assessed income can be squarely placed into one category. Where, however, such a variation is below 20 per cen .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... ment 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 to furnish accurate particulars. The cases to which the Explanation is attracted have to be decided in the light of the law enunciated in the cases of CIT vs. Mussadilal Ram Bharose (1987) 60 CTR (SC) 34 : (1987) 165 ITR 14 (SC) and CIT vs. K.R. Sadayappan (199 .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... tal 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 furnishing of inaccurate particulars of income and that assessee had acted bona f1dely, the case would not come within the purview of s. 271(1)(c) of the IT Act. But in the present case, for the reasons already discussed in detail, I am of view that assessee furnished wron .....

X X X X X X X

Full Text of the Document

X X X X X X X

 

 

← Previous Next →

 

 

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || Database || Members || Refer Us ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.
|| Blog || Site Map - Recent || Site Map ||