TMI Blog2013 (12) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) all dated 10.8.2011 for assessment years 2004-05, 2005-06 and 2006-07 disputing the confirmation of levy of penalty u/s 271(1)( c) of the Income Tax Act, 1961 (the Act) with reference to disallowance of depreciation amounting to Rs.32,03,626/- in assessment year 2003-04, Rs.56,06,345/- for assessment year 2004-05-, Rs.42,04,759/- for assessment year 2005-06 and Rs.31,53,569/- for assessment year 2006-07 on account of capitalized value of steel purchased to the extent of Rs.2,56,29,005/- out of total purchases of Rs.8,95,13,277/-. 2. The relevant facts are that the assessee stated to have purchased steel from various parties including Durga Iron and Steel Pvt.Ltd (hereinafter in short referred to as "Durga" ) and M/s Surajbhan Rajkumar Pvt Ltd. (hereinafter in short referred to as Surajbhan) to the extent of Rs.8,95,13,277/- for setting up its refinery at Jamnager. During the course of assessment proceedings, AO noticed that M/s Laxmi Exports, M/s Swati International and M/s Rashi International were involved in giving accommodation entries only without supply of any material to its customers. The proprietor of these concerns is Mr.Vinayak M. Kokate (V.M.Kokate). In order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eel to assessee. That the transporters are selected and payments to them are made by vendors for transporting goods to assessee's site. That it is a business practice in steel trade to procure the requisite material from manufacturer/other traders in the market and supply to the purchasers. Hence there is no reason to state that purchases have not been made. Assessee contended that substantial part of the material which had been consumed during the assessment year 2003-04 formed part of capital work- in-progress (WIP) and it was appearing as part of balance-sheet item. It is relevant to state that the assessee enclosed the details of assets for which material had been utilized, its quantum and its value forming part of plant and machinery and claimed depreciation @25% in the previous year relevant to assessment year 2003-04. The assessee contended that material had been properly accounted for in its books of account and its treatment was recorded in the accounts. That out of the total purchases of Rs.8,95,13,277/-, a sum of Rs.256,29,005/- was capitalized in the latter half of the previous year relevant to the assessment year 2003-04 as part of plant and machinery and assessee clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prosecution u/s 276 of the Act. The ld. CIT(A) after summarizing the facts as stated in the assessment orders/in the orders of ld. CIT(A) in quantum proceedings,has stated that the claim of assessee to have purchased steels from Durga and Surajbhan was not genuine as these companies had in turned shown to made purchases from M/s Laxmi Exports, proprietary concern of Shri Kokate. He stated that Durga and Surajbhan were just a via media or a link in the chain. M/s Laxmi Exports had not supplied any material and therefore the claim of Shri P.K.Agarwal for supplying material to the assessee remained unsubstantiated. He has stated that the assessee has to prove that the explanation offered by it is bonafide though not substantiated. He has stated that as per the facts, it cannot be said that the explanation of assessee is bonafide. He has stated that the AO is not required to establish mens-rea or intention of the assessee. It is not his duty/obligation to establish malafide of the assessee as the onus is on the assessee to establish innocence. He has stated that in the facts and circumstances of the case, the condition for imposition of levy of penalty u/s 271(1)( c ) is satisfied in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling. He submitted that the Tribunal while confirming the action of the ld. CIT(A) held that supply of material to the assessee company remains unsubstantiated. He submitted that the Tribunal has not held that the purchases were not proved but only stated that they remained unproved. Ld. AR relying on the decision of the Hon'ble Jurisdictional High Court in the case of CIT V/s Upenda V Mithani in Income Tax Appeal (L) No.1860 of 2009 dated 5th August, 2009 submitted that Their Lordships held that "if the assessee gives an explanation which is unproved but not disproved, i.e. it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee's case is false", no penalty can be imposed u/s 271(1)(c ) of the Act. Ld AR has furnished a copy of the said order to substantiate his submissions. Ld. AR further referred the decision of Hon'ble Delhi High Court in the case of CIT V/s Rampur Engg.Ltd (2010) 187 Taxman 171 (Delhi) and submitted that if the claim of the assessee is disallowed on the ground that there was no corroborative evidence justifying the payment of the amount for genuine business cause, the levy of penalty u/s 271(1)(c ) is not jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that decision of Hon'ble Himachal Pradesh apply to the assessee and therefore levy of penalty is not justified merely because the claim of the assessee is not accepted does not mean that the assessee furnished inaccurate particulars of income. Ld. AR also referred decision of the Mumbai Bench of Tribunal in the case of Chempure V/s Income-tax Officer, 14(3)(1) [2010] 40 SOT 164 (MUM.), and submitted that when the assessee failed to produce concerned person and concerned person did not comply with the notice issued u/s 131 of the Act to appear before AO, it held in para 14 of the order that the assessee could not be blamed for concealing particulars of income or furnishing inaccurate particulars of income in respect of claiming bogus purchases from various concerns belonging to the said persons. Accordingly, it was held that penalty u/s 271(1)( c ) of the Act could not be imposed. 8. Further ld. AR referred the order of Hyderabad Bench of the Tribunal in the case of M/s HOE Leather Garments Ltd V/s DCIT in ITA No.38/Hyd/2007 (AY 1989-90) dated 13.4.2010 and submitted that merely because additions were made on account of unproved cash during the quantum proceedings, there may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business. He submitted that alleged concerns of Shri P.K.Agarwal purchased steel from the concerns of Shri Kokate but the said concerns of Shri Kokate were not genuine, and transactions were paper transactions as no goods were supplied by the concerns of Shri Kokate to the concerns of Shri P.K.Agarwal. Therefore, the said transactions were not genuine transactions for purchase of steel. He submitted that when there was no actual purchase of steel by assessee, the claim of depreciation in respect of capitalization value was bogus. Hence imposition of penalty is justified for furnishing inaccurate particulars of income. Ld. DR submitted that the Hon'ble M.P.High Court in the case of Steel Infots Ltd. V/s CIT [2008] 296 ITR 228(MP) has held that in case of concealment of true income chargeable to tax by making bogus claim, levy of penalty u/s 271(1)( c ) read with Explanation (1) thereto is justified. Ld. DR also referred the decision of the Hon'ble Kerala High Court in the case Kuttookaran Machine Tools V/s ACIT [2009] 313 ITR 413 (KER.) and submitted that the levy of penalty u/s 271(1)( c ) was confirmed on the facts that the assessee made bogus claim of investment allowance and de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r provisions of Act. Further, it is necessary to emphasize that the word "concealed", "particulars" and "inaccurate" are with reference to income and not with regard to any other things. The Mumbai Bench of the Tribunal in the case of Chempure (supra) examined the meaning of above words "concealed", "particulars" and "inaccurate" and has stated that there cannot be a straight jacket formula for detection of default of concealment of particulars or furnishing of inaccurate particulars of income. It depends upon the facts of each case. The Hon'ble Apex Court in the case of Reliance Petroproduct (P). Ltd (supra) has held that " a glance at this provision of section 271(1)(c) would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. There is no dispute to the fact that the case before us is not a case of concealment of income. The authorities below as well as Ld. DR at the time of hearing submitted that the assessee made incorrect claim of expenditure by way of depreciation in respect of capitalized value of steel allegedly purchased and the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty proceedings, if no opportunity was given to the assessee to cross-examine witnesses. Accordingly, the order of the Tribunal was justified in cancelling the penalty levied u/s 271(1)( c ) of the Act on the basis of findings arrived at on the basis of material collected and the statement recorded of some of the creditors who had accepted that they were mere name-lenders and, secondly, that the assessee could not prove the genuineness of loans in assessment proceedings. We are of the considered view that the above decision of Hon'ble Allahabad High Court squarely apply to the facts of the case of the assessee before us that the statement of a person which was relied upon against assessee by the department but no opportunity to cross-examine was given to the assessee; the statement of said person could not be made the basis for levy of penalty u/s 271(1) (c) of the Act. 10.3 We have already observed that there cannot be a straight jacket formula to apply that the assessee has furnished any inaccurate particulars of income but it depends on the facts of each case. We observe that in the quantum proceedings, it has been observed that the assessee was not able to substantiate the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be regarded as concealment of income and therefore levy of penalty u/s 271(1)( c ) of the Act was held not to be justified. In the case of CIT V/s Hari Machines Limited (311 ITR 285) (Del) the claim of loss made by assessee, was negated by Revenue authorities as well as by the Tribunal. On the basis of addition made and confirmed by higher authorities, AO imposed penalty for furnished inaccurate particulars. Appellate authority cancelled the penalty. The Delhi High Court while dismissing the appeal filed by the department, held that just because some additions have been made to the total income of the assessee during assessment proceedings, penalty could not be imposed. 10.5 In short, if penalty is imposed on the basis of decision taken during assessment or re-assessment proceedings, it has been held that penalty is imposed for insufficient and unreasonable cause. A similar case came before the Hon'ble Punjab and Haryana High Court of CIT V/s Mehta Engineers Limited (2008) 300 ITR 308 (P H). Assessee made a claim about the expenditure and the return mentioned, based on which such claim was made. AO after disallowing the claim, imposed penalty u/s 271)(1)( c ) of the Act for co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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