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TMI Blog2013 (12) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 to verify correct nature of transactions, survey u/s 133A of the Act was carried out on at the office premises of M/s Swati International. During the course of survey action, V.M.Kokate proprietor of these three concerns, stated on oath on 6.1.2005 that all his above concerns were opened for giving accommodation entries only and no business was conducted. AO has stated that these three concerns of Mr.Kokate allegedly supplied material to concerns of Shri Pawan Kumar Agarwal (Shri P.K.Agarwal) namely M/s Surajbhan Rajkumar Pvt. Ltd (ii) M/s Shree Durga Iron and Steel Pvt. Ltd and (iii) M/s Singhal Brothers etc. The AO has stated that purchases to the extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 claimed depreciation of Rs.32,03,626/-. It was contended on behalf of the assessee that the beneficiary of such payment is non other than vendor i.e. suppliers and vendors had confirmed having sold goods to the assessee and received payments against such purchases. Further, there is no allegation by any party to the transaction that money have been given back to the assessee. Since the AO did not accept the contention of the assessee and treated the transaction as non-genuine, he disallowed claim of depreciation as claimed by assessee. The assessee filed appeal before the First Appellate Authority, who in turn confirmed the action of AO. 3. Similarly, for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 respect of disallowance of depreciation for the assessment years under consideration. Hence, the assessee is in further appeals before the Tribunal. 6. During the course of hearing, it was admitted by ld. AR of the assessee that the Tribunal by its consolidated order in the quantum appeals, dated 13.9.2013 had also confirmed the orders of ld. CIT(A) to disallow the claim of depreciation for all the assessment years under consideration in respect of capitalized value of construction material WIP i.e. steel to the extent of Rs. 2,56,29,005/-. However, the ld. AR submitted that penalty proceedings are separate from assessment proceedings and merely because the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 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 justified. He referred para 5 of the said order which reads as under : "5. We have examined the order of the Assessing Authority keeping in view the aforesaid principle of law in mind. From the said order, we find that the Assessing Authority disallowed the aforesaid expense by observing that there was no corroborative evidence justifying the payment of the said amount of Rs. 13 lakhs for genuineness business cause. The order reflects that evidence which was sought to be given by the assessee in support of the aforesaid was not believed and was not treated as sufficient evidence discharging the obligation placed upon the assessee as to the genuineness to the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be justification in making addition to the assessment, but it is held that there is no justification to impose penalty as the additions in the quantum proceedings does not mean that penalty automatically follows. He submitted that in the case of assessee penalty has been imposed u/s 271(1)( c ) of the Act merely because the additions have been confirmed in the quantum proceedings. Ld. AR further submitted that since no opportunity of cross- examination of Shri Kokate was given, no reliance on the statement made by him could be placed to draw an adverse inference and to levy penalty u/s 271(1)( c ) of the Act. He placed reliance on the decision of Hon'ble Allahabad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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 depreciation in respect of machinery which was not purchased, installed or commissioned during the relevant previous year and the contention of the assessee that it was a mistake committed by auditor who prepared the return was not accepted. The Ld. DR also referred the decision of Hon'ble Kerala High Court in the case of Kalpaka Bazar V/s CIT (2009) 313 ITR 414 and submitted that when there was no actual purchases and it was found that there was bogus claim of purchases and said fact was found only when account was audited u/s 142(2A) of the Act, it was held that the claim of the assessee amounts to concealment of income; levy of penalty u/s 271 (1) of the Act was h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purchases were not genuine. Therefore, we have to consider the facts of the case as to whether the assessee has furnished inaccurate particulars of its income. 10.2 We observe, on perusal of assessment orders as well as orders of appellate authorities that the assessee stated that it made purchases of the steel for setting up its refinery at Jamnagar from the concerns of Shri P.K.Agarwal and Shri Agarwal confirmed in his statement recorded u/s 131 of the Act that he supplied steel to the assessee and received the payment by account payee cheques. The assessee also stated that it furnished requisite invoices evidencing the receipt of material he had supplied. The ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purchase of material from Shri P.K.Agarwal but it is a fact that the assessee has set up its refinery at Jamnager. Therefore it cannot be said that the assessee has not purchased material. Further, it was pointed out that there were purchases and recorded in the books of accounts of the assessee and correctness of the books of accounts of the assessee have not been rejected by department on the ground that the assessee has made bogus purchases. Therefore, it could be a case that concerns of Shri P.K.Agarwal might not have made purchases from concerns of Shri Kokate of the steels but from somewhere else and thereafter would have supplied to the assessee. It is also a fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 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 concealing particulars of income. The First Appellate Authority cancelled the penalty and Tribunal upheld his order. In the appeal filed by the department, the Hon'ble Punjab and Haryana High Court held that the assessee had claimed certain expenditures incurred on the basis of a written agreement. The Court was of the view that in such cases penalty could not be imposed u/s 271(1)( c ) of the Act and to impose the penalty on the basis of disallowance of an item of expenditure was improper. 10.6 Since penalty proceedings are separate from assessment proceedings, merely because the additions or adjustment have been made in assessment order, do not tantamount, automatic lev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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