Assessee not liable for penalty under section 271(1)(c) due to fraud.

The Tribunal held that the assessee did not conceal or furnish inaccurate particulars of income, acting in good faith and falling victim to fraud by BSAL. Consequently, the penalty under section 271(1)(c) of the Income-tax Act was deemed inapplicable, leading to the partial allowance of the appeal and the deletion of the imposed penalty.

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Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Disallowance of depreciation on SGCI rolls leased to Bellary Steel and Alloys Ltd. (BSAL).
3. Genuineness of the lease transaction.
4. Satisfaction of the Assessing Officer for initiating penalty proceedings.
5. Applicability of Explanation 1 to section 271(1)(c).
6. Bona fide belief and conduct of the assessee.
7. Quantum of penalty.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The primary issue in this appeal is the levy of penalty under section 271(1)(c) of the Income-tax Act, 1961, concerning the disallowance of depreciation on SGCI rolls leased to BSAL. The Assessing Officer concluded that the lease transaction was bogus and aimed at claiming depreciation on non-existent assets, thus attracting penalty for furnishing inaccurate particulars of income.

2. Disallowance of Depreciation:
The assessee claimed 100% depreciation on SGCI rolls leased to BSAL. The Assessing Officer disallowed this claim, concluding that the lease transaction was a sham. This conclusion was based on various findings during a survey and subsequent enquiries, including the non-existence of the assets, lack of stock registers, and the inability of the supplier (BMSL) to produce relevant records.

3. Genuineness of the Lease Transaction:
The Assessing Officer's findings indicated that the lease transaction was not genuine. The supplier, BMSL, was found to be a non-entity with no manufacturing capacity, and the transporter denied transporting the rolls. The lessee, BSAL, could not account for the rolls, and the entire transaction appeared to be orchestrated to claim depreciation benefits.

4. Satisfaction of the Assessing Officer:
The assessee contended that the Assessing Officer did not record any satisfaction for the levy of penalty, a condition precedent for initiating penalty proceedings. The Tribunal noted that the Assessing Officer had discussed the issue at length and initiated penalty proceedings during the assessment, indicating satisfaction.

5. Applicability of Explanation 1 to Section 271(1)(c):
Explanation 1 to section 271(1)(c) provides that if a person offers an explanation that is found to be false or fails to substantiate it, penalty is leviable. The Tribunal found that the assessee had offered an explanation and substantiated it with documents, proving the bona fide nature of the transaction. Therefore, Explanation 1 was not applicable in this case.

6. Bona Fide Belief and Conduct of the Assessee:
The Tribunal emphasized the assessee's bona fide belief in the genuineness of the transaction at the time of filing the return. The assessee had relied on documents provided by BSAL and the credibility vouched by Kotak Mahindra. The Tribunal concluded that the assessee was a victim of fraud by BSAL and had no reason to doubt the transaction's genuineness initially.

7. Quantum of Penalty:
The Tribunal noted that penalty under section 271(1)(c) should be levied on the amount of tax sought to be evaded. However, since the Tribunal held that there was no concealment or furnishing of inaccurate particulars, the penalty was not leviable. The Tribunal also discussed the quantum of penalty, stating that if it were leviable, it should be based on the net amount after considering lease rent offered as income.

Conclusion:
The Tribunal held that the assessee neither concealed particulars of income nor furnished inaccurate particulars. The assessee's conduct was bona fide, and it was a victim of fraud by BSAL. The penalty under section 271(1)(c) was not attracted, and the appeal was partly allowed, deleting the penalty levied.

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