TMI Blog2012 (12) TMI 373X X X X Extracts X X X X X X X X Extracts X X X X ..... 08 - - - Dated:- 19-10-2012 - MR. S. RAVINDRA BHAT AND MR. R.V. EASWAR JJ. Appellant: Sh. Sanjeev Rajpal, Sr. Standing Counsel. Respondent: Sh. C.S. Aggarwal, Sr. Advocate with Sh. Prakash Kumar, Advocate. MR. JUSTICE S.RAVINDRA BHAT 1. The following questions of law arise in this appeal: (i). Whether the ITAT was correct in law in deleting the penalty of Rs. 47,68,180/- imposed by the Assessing Officer u/s 271(c) of the Act? (ii). Whether the ITAT was correct in law in deleting the penalty ignoring the material fact that the transaction was treated as sham by ITAT as well as by this court (227 ITR 536) in the quantum proceedings? 2. The assessee filed its return for the assessment year 1989-90 declaring an income of Rs. 23,74,987/-. The Assessing Officer by order dated 30.3.1992 assessed the assessee s income at Rs. 11,24,84,725/- which included disallowance of depreciation of Rs. 37,69,273/- on computers purchased by the assessee from Pertech Computers Ltd. (PCL, in short) and leased back to Altos India Pvt. Ltd. (Altos, in short); both the companies being under the same management. The CIT(A) through order dated 16.09.1992, and the Income Tax Appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, thus attracting Explanation 1 to Section 271 and deeming such amounts in respect of depreciation on computers as concealed income. In this regard, he placed reliance on a decision by a Division Bench of this Court in Commissioner of Income Tax v. Zoom Communication Pvt. Ltd., [2010] 327 ITR 510 (Delhi). 5. Learned counsel for the assessee, on the other hand, defended the impugned judgment. He pointed out that it is a matter of record that the assessee was not given opportunity to cross-examine Daddan Bhai. It was urged that in penalty proceedings, the assessee is entitled to lead evidence and cross-examine the witnesses; and the failure to enable the assessee to do the same herein, despite directions of the Tribunal through its order dated 08.04.1996 should preclude levy of any penalty, on the assessee. Counsel further urged that the assessee had furnished copies of purchase invoices, details of payments, confirmation from parties (PCL and ALTOS) and details of lease rental, received and offered. The main thrust of his argument was that the mere disallowance of the claim of depreciation was inadequate to attract the levy of penalty; instead, what is needed for attracting penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon ble Tribunal in the assessee s own penalty appeal vide its order dated 8.4.96. this proposition has been upheld by the Hon ble Supreme Court judgment in 83 ITR 369 and in 123 ITR 458. The prolonged litigation between the appellant and M/s. Altos India Ltd. also goes to support the appellant s case that the computers purchased from M/s. Pertech Computers Ltd. were leased out to M/s. Altos India Ltd. The learned AR s submission and contentions regarding the statement of Shri Dadan Bhai carry weight and deserve to be upheld. Keeping in view the facts and circumstances of the case it is clear that AO has erred in imposing the penalty u/s 271(1)(c) as the same was unwarranted and unjustified. 7. The Tribunal upheld this reasoning in the following manner: The learned CIT(Appeals) has taken into consideration the fact that the assessee had made efforts to recover the computers leased out to Altos which were purchased from PCL. Copy of correspondence between assessee and Altos made are discussed by the learned CIT(Appeals) at pages 35 to 40 of his order and from his correspondence it is seen that the assessee had made efforts to recover the computers leased out to ALTOS. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case, if any, will have to be examined. The Explanation reads as: Explanation 1. Where in respect of any facts material to the computation of the total income of any person under this Act, (A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed. 9. It cannot be doubted that in order to claim depreciation on the computers, the burden lay upon the assessee to prove its ownership and use . The circular nature of the transactions involving these computers has already been stated above. The following extract from the Tribunal s order dated 22.10.1992 in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uters. 10. During hearing before him, the CIT(A) had enquired from the assessee s counsel as to what ultimately happened to the computers, and whether the assessee had claimed ownership of these computers. In response, the assessee filed certain documents based on which it asserted that after expiry of the lease period, it had been trying its level best to get back the computers as leased out, and that it was also pursuing recovery of unrealized lease money. It was stressed that Altos was under liquidation/winding up, and despite prolonged litigation, the assessee had been unable to recover either computers or even unrealized amount of lease money, due to which it suffered great loss. 11. This response given by the assessee, in the opinion of this Court, does not substantiate its claim for treating the tripartite agreements as valid. It is difficult to believe that assessee would not have known the true nature of the transaction, and that it was of the bona fide view that it actually owned the leased computers, on which it claimed depreciation. In this light, the observation of the Supreme Court in Commissioner Of Income-tax West Bengal Ii v. Durga Prasad More, [ 1971 ] 82 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature. There is no doubting the view taken by the Court in Reliance Petro-products, however, the same is of no assistance to the assessee. The distinguishing factor has already been discussed earlier, viz. that the transactions were a sham, and the assessee was could not have been unaware about the same. Furthermore, the revenue, in this connection, relied upon the following extracts from Zoom Communication (supra), which are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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