2025 (7) TMI 1433 - AT - Income Tax

Penalty upheld under Section 271(1)(c) for false income details on inflated and bogus asset depreciation claims

Xcelris Labs Limited Versus Deputy Commissioner of Income Tax Central Circle -2 (1), Ahmedabad

The ITAT Ahmedabad upheld the penalty under section 271(1)(c) for concealing or furnishing inaccurate particulars of income related to depreciation ... Penalty u/s. 271(1)(c) - concealing/furnishing inaccurate particulars of income pertaining to depreciation allowance claimed by the assessee as disallowed Disallowance of depreciation was on two counts as Depreciation pertaining to inflated cost of purchase of assets and depreciation pertaining to bogus purchase of assets - disallowances were made on the basis of materials and evidences found during search carried out by the department in the case of Claris Group and its Associates on 04.08.2015. HELD THAT:- Disallowance of the depreciation pertaining to inflated purchases the argument of assessee that no penalty is leviable on the same on account of the issue being covered in favour of the assessee in quantum proceedings by the decision of the ITAT in the case of Flourish Purefoods Pvt. Ltd. [2024 (12) TMI 979 - ITAT AHMEDABAD] is rejected. No other argument having been raised before us against the confirmation of levy of penalty on the same, we see no reason to interfere in the detailed order of the Ld. CIT(A) confirming the levy of penalty on the depreciation disallowed pertaining to inflated cost of assets. Other portion of depreciation disallowed, pertaining to assets which were found to be bogus, purchased from non-genuine parties - Though on the face of it the issue appears to be identical to that in the case of Flourish Purefoods Pvt. Ltd. [2024 (12) TMI 979 - ITAT AHMEDABAD] wherein the assessee had taken the plea that he had requested the AO to verify the physical existence of the assets which he had not done and on this basis the relief was granted by the ITAT, We find that though identical argument was shown to have been taken by the assessee before the AO in the present case also requesting the AO to verify the physical existence of the assets, we have noted that the assessee has accepted the order of the CIT(A) confirming the disallowance of depreciation on bogus purchase of assets. The findings of the fact by the Revenue authorities on this issue consistently is that the parties from whom the assets were purchased were not traceable at the stated address by the department. VAT authorities had debarred these parties from conducting transactions and cancelled their TIN nos. The Assistant Vice-President (Accounts) in Claris Group which was associated with the Abbellion group, to which the assessee belonged, had admitted to the parties from whom the assessee has purchased these assets to be bogus entities. No identity on facts, as found in the case of the assessee, was demonstrated with respect to the Flourish Purefoods Pvt. Ltd. (supra). Assessee has not pointed out that the parties so found to be bogus in the case of the assessee were the same in the case of Flourish Purefoods Pvt. Ltd. (supra) also. Therefore, we hold that no benefit can be derived by the assessee from the order of the ITAT in the case of Flourish Purefoods Pvt. Ltd. (supra) in this regard and that the findings of the facts recorded by the Revenue authorities as noted above based on which a logical finding has been derived by the Revenue authorities of the purchase of assets to be bogus having remained uncontroverted by the assessee, it goes without saying that the assessee has no case at all for not being charged with having concealed/furnished inaccurate particulars of income with respect to claim of depreciation. No reason to disagree with the Ld. CIT(A) confirming the levy of penalty on the disallowance of depreciation pertaining to bogus assets/inflated assets purchased by the assessee - order of the Ld.CIT(A) confirming the levy of penalty on the disallowance of excess depreciation is upheld. ISSUES: Whether penalty under Section 271(1)(c) of the Income Tax Act, 1961 can be imposed for concealment or furnishing inaccurate particulars of income relating to depreciation claimed on capital assets'Whether disallowance of depreciation on the basis of statements recorded under Section 132(4) from an unrelated third party during search proceedings is sustainable'Whether depreciation claimed on assets purchased at inflated cost or on bogus/non-genuine assets can attract penalty under Section 271(1)(c)?Whether the assessee's request for physical verification of assets affects the validity of disallowance and penalty'Whether reliance solely on assessment order without independent finding of default in penalty proceedings is sufficient for penalty under Section 271(1)(c)?Whether disallowance of depreciation by the Assessing Officer in assessment proceedings necessarily constitutes furnishing inaccurate particulars of income attracting penalty under Section 271(1)(c)?Whether precedent decisions allowing depreciation claims on similar facts are applicable to the present case for negating penalty liability? RULINGS / HOLDINGS: Penalty under Section 271(1)(c) was rightly imposed for concealment/furnishing inaccurate particulars of income relating to depreciation claimed on inflated cost and bogus assets, as the assessee failed to provide reasonable explanation or evidence to the contrary.Disallowance based on statement recorded under Section 132(4) of an unrelated third party was upheld, given the corroborative evidences including seized documents and admissions by related parties, thereby sustaining the penalty.Depreciation claimed on assets purchased at inflated cost (Rs. 55,32,934/-) and on bogus assets (Rs. 7,86,414/-) was disallowed, and penalty confirmed, as these transactions were found to be non-genuine and the parties involved were non-traceable or debarred by VAT authorities.The assessee's request for physical verification of assets was not granted by the Assessing Officer; however, the penalty was sustained since the assessee accepted the disallowance of depreciation on bogus assets and failed to controvert the findings of non-genuineness.Reliance solely on the assessment order without independent finding of default in penalty proceedings was not explicitly discussed as a ground for interference; penalty confirmation indicates acceptance of factual findings by the Tribunal.The Supreme Court precedent that disallowance in assessment does not ipso facto amount to furnishing inaccurate particulars was distinguished on facts, as here the disallowance related to inflated and bogus assets, evidencing concealment.The ITAT decision in a similar case allowing depreciation on non-bogus assets where physical verification was denied was held distinguishable, as the present case involved both inflated and bogus assets, and the assessee had accepted disallowance on bogus assets. RATIONALE: The penalty provisions under Section 271(1)(c) require concealment or furnishing of inaccurate particulars of income; disallowance of depreciation on inflated or bogus assets satisfies this criterion.Search and seizure proceedings under Section 132 and statements recorded under Section 132(4) provide admissible evidence to support findings of non-genuine transactions, especially when corroborated by seized documents and admissions by related entities.Physical verification of assets is a relevant factor but not determinative; acceptance of disallowance by the assessee and factual findings of non-traceability and VAT debarment of suppliers support the conclusion of bogus purchases.The Tribunal applied a fact-specific approach distinguishing precedents based on the nature of assets (bogus vs. inflated) and the assessee's conduct, emphasizing that penalty is justified where concealment or inaccurate particulars are established.The ruling aligns with the principle that mere disallowance does not automatically attract penalty unless there is evidence of concealment or misreporting, which was found on the facts here.