TaxTMI 
TaxTMI 
TaxTMI 
2009 (8) TMI 799
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....y attributable to the claim of 100 per cent depreciation made by the assessee on leased assets. The grounds raised by the Revenue are as follows: "(1) The learned CIT(A) erred in deleting the penalty levied in respect of disallowance of assessee's claim of 100 per cent depreciation on leased out assets. (2) The learned CIT(A) failed to note that the alleged lessee M/s Steel Tubes of India Ltd. itself considered the transaction as financial transaction only. (3) The learned CIT(A) failed to note that in the sworn statement M/s Nagpur Pollution Control Ltd. has clearly stated that it has not sold any sewerage treatment plant to the assessee nor to the lessee and disowned the invoices saying that they were not prepared by it. (4) Having regard to the decision of the Supreme Court in the case of K.P. Madhusudhanan vs. CIT (2001) 169 CTR (SC) 489 : (2001) 251 ITR 99 (SC), the learned CIT(Al ought to have upheld the action of the AO and there is nothing more to prove that the assessee consciously made any wrong claim of depreciation or furnished inaccurate particulars of income." 4. We heard Shri Onkareshwar Chidra, the learned CIT appearing for the Revenue and Shri R. Vijayaraghava....
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....inally intended, there was no circumstance to doubt the genuineness of the transaction. He has relied on number of cases where it was held that when there was no deliberate attempt on the part of the assessee to mislead the Revenue authorities and no mens rea established, there cannot be a levy of penalty under s. 271(1)(c). 6. We considered both sides in detail. First of all, we would like to make it clear that the judicial pronouncements relied on by the CIT(A) were delivered before the judgment of the Supreme Court in the case of Union of India & Ors. vs. Dharamendra Textile Processors & Ors. (2008) 219 CTR (SC) 617 : (2008) 306 ITR 277 (SC). In this recent judgment, the Supreme Court has made it clear that mens rea is not an essential element for imposing penalty under s. 271 (1)(c) as penalty under that section is basically a civil liability. Therefore, it is very clear that what is to be examined is whether there were any inaccurate particulars or any concealment of income while filing the return. The good faith of the assessee on which the assessee has relied on to claim the deduction or allowance is no more relevant in adjudicating a matter of penalty under s. 271(1)(c). ....
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....he assets physically. There is nothing on record to prove that the assessee-company has examined the quality of the assets. There is nothing on record to show that the assessee has examined the specifications of the assets. The assessee-company is completely relying on bunch of papers to argue that the lease transaction was genuine and the claim of 100 per cent depreciation made was bona fide. 10. This approach of the assessee is very hard to digest. The assessee is expected to perform the normal things that any reasonable human being is supposed to do in such circumstances. The assessee has entered into a contract of big amount by way of leasing equipments to M/s Steel Tubes of India Ltd. The assets are sold by M/s Nagpur Pollution Control Co. (P) Ltd. The assessee-company has not examined the assets; it has not verified the specifications; it has not witnessed the movements of the goods and the assets and no iota of empirical or physical evidence is available on record. In these circumstances, we conclude that the assessee cannot be absolved from the liability of furnishing inaccurate particulars and thereby claiming of higher amount of depreciation ultimately resulting in conce....
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.... We acknowledge receipt of your show-cause notice dt. 16th March, 2001 on the above subject. We submit the following facts in respect of our claim for 100 per cent depreciation on assets leased to Steel Tubes of India Ltd. (1) In a leasing transaction, the lessee, who is the ultimate user of the machinery takes the initiative for selecting the equipment which he requires for manufacturing the products relating to his line of business. Once he decides about the requirement of his machinery, he also finalises the supplier, who will be willing to supply the aforesaid machinery to suit his technical requirements. The leasing company comes into picture only after the customer finalises the machinery and also the supplier. (2) As such, in all the leasing transactions, the technical capabilities of the lessor cannot be questioned, as the lessee himself selects the equipment from the supplier of this choice. (3) You will, thus, observe that the leasing companies come into play only after both the required asset and the supplier is selected by the lessee. In respect of the transaction under consideration, we summarise herein below, a brief note on the facts of the case: (1) As stated....
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....closing copies of the invoices from M/s Steel Tubes of India Ltd., as also receipts from Nagpur Pollution Control Co. (P) Ltd. vide receipt dt. 7th April, 1997, 20th May, 1997, 10th July, 1997 (Annexure No. 6) favouring Steel Tubes of India Ltd., At our request to the lessee to confirm the existence of the assets and also for a statement of account as per their books of accounts during end February, 2001, the lessee had vide its letter confirmed the existing of the lease arrangement with our company vide agreement No. MPNP0025 (old number), 620704 (new number) (Annexure No. 7) and also confirming the outstanding lease rentals which evidences treatment of the same as lease rentals in their books. Even as late as 27th Feb., 2001 M/s Steel Tubes of India Ltd. have confirmed to us of the nature of the transactions, i.e., it was only a lease, and that it had not claimed any depreciation in respect of this plant wherein it had also given the invoice number and the cost. We enclose an undertaking received from Steel Tubes of India confirming the above vide their letter dt. 27th Feb., 2001 (Annexure No. 8) that they have not claimed depreciation on Waste Treatment/Recovery Plant supplie....
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....directly to the lessee and the lessee purchases the assets, it will become a financial transaction and not a leased transaction. Accordingly, penalty was levied. The assessee preferred an appeal before the CIT(A) against the order of the penalty. After considering the contentions of the assessee and all other facts and circumstances, as well as the records/documents, the CIT(A) has held in paras 7.3 and 7.4 which read as under: "7.3 It is also seen that the appellant has not misrepresented or suppressed any facts or furnished inaccurate particulars before the AO. The appellant was under the bona fide belief that the lessee actually purchased the assets from M/s Nagpur Pollution Control Co. (P). Ltd., which was installed and put to use and when the AO informed the appellant about the enquiry and statement of Mr. Anil Deshpande, the appellant immediately withdrew the depreciation. In the circumstances, I do not find any justification for imposition of penalty as it has not been proved that the assessee consciously made any wrong claim of depreciation or furnished inaccurate particulars of income. 7.4 The Hon'ble Bangalore Tribunal has recently decided similar issue in the case of B....
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....t existing. Accordingly, the penalty levied under s. 271 (1)(c) was to be deleted. In view of the above discussion, I find that penalty under s. 271(1)(c) is not eligible in respect of this addition and the AO shall cancel the same." 4. Before us, the learned Departmental Representative has contended that the lessee M/s Steel Tubes of India Ltd., itself considered the transaction as financial transaction only and M/s Nagpur Pollution Control Co. (P) Ltd., has clearly stated that it has not sold any storage treatment plant to the assessee nor to the lessee and disowned the invoices. He has further contended that the assessee continuously made wrong claim of depreciation and furnished inaccurate particulars of income. He relied upon the penalty order and the decision of the Hon'ble Supreme Court in the case of K.P. Madhusudhanan vs. CIT (2001) 169 CTR (SC) 489 : (2001) 251 ITR 99 (SC). 5. On the other hand, the learned counsel for the assessee has submitted as under: (i) The appellant had leased "Waste Treatment Recovery Plant" worth Rs. 1,24,80,000 to Steel Tubes of India Ltd. The facts of the case and the documents furnished to the AO are enclosed as Annexure. From the above do....
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....t as the cost of the assets will be reduced from the lease rental and only the net income portion of the lease rental will be assessed. Therefore, the appellant has agreed to withdraw the claim of depreciation in respect of the said leased asset only out of commercial expediency to purchase peace and to avoid protracted litigation with the Department and considering the fact that expenditure, time and efforts that may have to be spent in producing the proof and not because that the lease was non-genuine. (iv) Further, during the course of penalty proceedings also no further enquiry was conducted by the AO and the penalty was imposed based on the findings given in the assessment order without proving the explanation and evidences given by the appellant were not genuine. (v) Since the appellant is engaged in leasing business, it is entitled to depreciation on the assets leased. It is not the case of the AO that the appellant is not entitled to claim any depreciation at all. The claim was based on valid documentation and other certification by the lessee. (vi) In the circumstances, when at the time of filing of return the appellant claimed depreciation and offered the lease rental ....
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....l Tubes of India Ltd., extracts of the website of Nagpur Pollution Control Co. (P) Ltd., criminal complaint filed by the assessee against M/s Steel Tubes of India Ltd., the order of the Hon'ble jurisdictional High Court dt. 15th July, 2003, memo of compromise between the assessee and M/s Steel Tubes of India Ltd. and proceedings of the advocate CIT appointed by the Hon'ble High Court. 8. In the case of K.P. Madhusudhanan vs. CIT, the Hon'ble Supreme Court has held that "as the Explanation to s. 271(1)(c) is a part of s. 271. When the AO or the AAC issues a notice under s. 271, he makes the assessee aware that the provisions thereof arc to be used against him. These provisions include the Explanation. By virtue of the notice under s. 271, the assessee is put to notice that if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, and, consequently be liable to the penalty under the section. No express invocation of the Explanation to s. 271 in the notice under s. 271 is necessary be....
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....mplainant submits that the accused and identified M/s Nagpur Pollution Control Co. (P) Ltd., as their suppliers who would manufacture and supply the Annexs. A and B mentioned machines. The complainant also on the basis of the representations of the accused, had made the payment to the sold supplier and accused by demand draft and cheques (346378 dt. 31st March, 1997 Karur Vysya Bank and cheques bearing Nos. 847034, 555737, 465191 and 892623 drawn on State Bank of Patiala, State Bank of Saurashtra, Catholic Syrian Bank Ltd., and State Bank of Bikaner and Jaipur respectively all dt. 21st July, 1997) for the purchase; of the Annexs. A and B machines respectively. The machines were installed at the lease agreement specified place and the same was inspected by the complainant agent." Based on the complaint and after going through the above records, the Hon'ble High Court of Madras has appointed an advocate CIT vide its order to take possession of the property mentioned in the schedule. The asset indicated in the schedule represents the same asset on which the depreciation claim has been made by the appellant. The decision of the Madras High Court order was on the basis that aforesaid t....
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....Revenue. 12. For attracting the penalty provision, it is necessary that the assessee has acted dishonestly to avoid tax liability by concealing the income or furnishing wrong particulars of income. When the assessee had proper reason and bona fide belief that the leased transaction was a genuine one, then the explanation given by the assessee during the assessment proceedings as well as in the penalty proceedings along with all the relevant documentary evidences as well as the action taken by the assessee against the lessee clearly shows that the assessee was under the bona fide belief that the assessee was entitled for the claim of depreciation. 13. The decision in the cases of CIT vs. M.B. Engineering Works (P) Ltd., CIT vs. Mussadilal Ram Bharose and Addl. CIT vs. Jeevan Lal Sah are on the point that merely because the claim for expenditure is disallowed and the amount shown as cash credit or added would not automatically lead to the conclusion that there has been concealment of income warranting penalty, In the case of Narendra Kumar Rajendra Kumar Jain vs. CIT, it has been held that unless the assessee should have been shown to have deliberately false claimed for deduction, ....
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....y the AO for the reason stated by him in the assessment order. On going through the facts of the present case, we find that the assessee had a reasonable ground to make a claim for depreciation allowance on the basis of lease agreements entered into by the assessee with various parties. All the negative events happened subsequently. Those were the consequences of subsequent investigations made by the Department and the corroborated statements made by the lessees. The assessee-company was not given opportunity to cross-examine those parties who had stated against the genuineness of the lease agreement. Therefore, we have no doubt to state that the assessee had a reasonable ground to claim the depreciation allowance in working out its taxable income for the impugned assessment years. 19. Therefore, in the facts and circumstances of the case, we are of the view that levy of penalty under s. 271(1)(c) is not justified in these cases. Therefore, we delete the penalties imposed for the asst. yrs. 1992-93 and 1996-97." 15. In the above said cases, the facts were identical as in the case in hand. Therefore, in my view we should follow the same to maintain the principle of consistency. 1....
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....n between the Members constituting the Bench with regard to one issue, so the following question is formulated and referred for nominating Third Member: (1) Whether in the facts and circumstances of the case the penalty is exigible under s. 271(1)(c) of the IT Act, 1961. VIMAL GANDHI, PRESIDENT (AS THIRD MEMBER): 24th Aug., 2009 On account of difference of opinion between the Members of the Tribunal, 'D' Bench, Chennai the following question has been referred to me for disposal as Third Member under s. 255(4) of the IT Act, 1961: "Whether in the facts and circumstances of the case the penalty is exigible under s. 271(1)(c) of the IT Act, 1961." 2. The facts which led to the above difference are that the assessee claimed 100 per cent depreciation amounting to Rs. 1,24,80,000 on assets which were shown to be on lease to M/s Steel Tubes of India Ltd.(hereinafter STI). The assets were shown to have been acquired from M/s Nagpur Pollution Control Co. (P) Ltd. (hereinafter NPCC) and installed and used in the premise....
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....nsideration, we summarise hereinbelow, a brief note on the facts of the case: (1) As stated hereinabove, the lessee,- STI, has itself identified the supplier of the machine viz. M/s NPCC. (2) As per the records available with us STI, had placed a purchase order No. STI/P/1824 on M/s NPCC for supply of Waste Treatment Recovery Plant. (3) On supply of the asset, STI, sent the original invoice No. 18 dt. 10th July, 1997 for Rs. 1,24,80,000 to us evidencing the supply of the equipments. (Annexure No. 1) (4) The assets were physically inspected and verified by our employee at Indore on 18th July, 1997 vide copy of inspection report enclosed (Annexure No. 2) together with photographs of the assets that were installed in the premises of STI. (5) As per the inspection report the aforesaid unit was fabricated and installed at the site of STI at Dewas. We have also been informed that the same had not been capitalized in the books of STI. (6) The assets were installed and put to use by the lessee on 15th July, 1997, as per the installation certificate dt. 15th July. 1997 furnished by STI. (7) M/s United India Insurance Company, Indore inspected the assets and insured the said asset vid....
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....ate that considering all the above you would notice that at no point of time we had reasons to believe that there was no supply of the assets as is now being confirmed to you by the manufacturer under the invoice handed over to us at that time. However, since the transactions relates to a period which is nearly 44 months old as of today and it is very difficult for us to collect evidences relating to the supplier's existence etc., we have been advised to withdraw our claim for depreciation in respect of the above transactions. We, therefore, request you to permit us to withdraw our claim for 100 per cent depreciation and the principal portion of lease rentals offered be excluded for the computation of taxable income. We also request you to accept this explanation on the transactions and drop further proceedings in this matter. Thanking you, Yours faithfully, For Harita Finance Ltd. (Formerly TVS Lakshmi Credit Ltd.) R. Jagannathan Special Officer." 2.1 The AO disallowed the depreciation claim and also initiated penalty proceedings under s. 271(1)(c) of the IT Act. 3. In the penalty order dt. 29th March, 2006, the AO reiterated that on enquiry by Addl. Director of IT (Inv....
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....n case, it is seen that the assessee-company has been claiming huge depreciation on the assets which are not in existence year after year and withdrawing the claim of depreciation when enquiry was conducted by the Department regarding the existence of the assets. For instance, for the asst. yr. 1994-95, the assessee-company claimed bogus depreciation on non-existent assets which were supposed to have been leased to M/s Castle Daughlars Ltd., M/s Gounder Rice Exports Ltd. and M/s Kedia Distilleries Ltd. For the asst. yr. 1995-96, the assessee-company withdrew the claim of depreciation of Rs. 2,04,24,112 in respect of the assets which are supposed to have been leased to Duckfin International Ltd., REPL Engineering, HM Brothers (P) Ltd., Gounder Rice Exports Ltd., Daughlars Ltd. and M/s Kedia Distilleries Ltd. for asst. yr. 1996-97, it withdrew the depreciation claim of Rs. 96,25,000 on assets which are supposed to have been leased out to M/s Miga Gases Ltd., Yoga Pharmacy and M/s Muthu Fisheries Ltd. Similarly, for the asst. yr. 1997-98, the assessee-company withdrew the depreciation amounting to Rs. 44.80 lakhs in respect of assets which are supposed to have been leased out to STI a....
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....the course of penalty proceedings, the assessee filed a reply dt. 10th March, 2006 in which the position was explained, but that was not properly considered. (III) Under a bona fide belief that the assets were supplied and put to use in the premises of STI, the claim of depreciation was made and therefore, it is not a fit case for levy of penalty. (IV) The assessee was not given opportunity to cross-examine the supplier or Sri Anil Deshpande whose statement was used against the assessee. According to the learned CIT(A) for the purpose of imposing penalty, it was necessary to give opportunity of cross-examination to ascertain the correct facts. (V) Merely because the assessee withdrew the depreciation, the penalty could not be imposed unless it was proved that the assessee colluded with the lessee for purpose of claiming depreciation on non-existing assets. (VI) The assessee had discharged the rebuttable presumption of proof and the onus shifted to the AO to prove that the explanation and evidences given by the assessee were not genuine. 4.1 The learned CIT(A) held that the assessee did not misrepresent or suppress any facts or furnished inaccurate particulars before the AO. Th....
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....as only papers and documents to support the lease transaction. There was no physical identification of assets or verification of assets carried out by the assessee-company. There was nothing on record to show that the assessee had examined the specifications of the assets. The learned AM while accepting the appeal of the Revenue further observed as under: "10. This approach of the assessee is very hard to digest. The assessee is expected to perform the normal things that any reasonable human being is supposed to do in such circumstances. The assessee has entered into a contract of big amount by way of leasing equipments to STI. The assets are sold by NPCC. The assessee-company has not examined the assets; it has not verified the specifications; it has not witnessed the movements of the goods and the assets and no iota of empirical or physical evidence is available on record. In these circumstances, we conclude that the assessee cannot be absolved from the liability of furnishing inaccurate particulars and thereby claiming of higher amount of depreciation ultimately resulting in concealment of income. The assessee cannot be exonerated from the liability only for the reason that the....
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....ness of the transaction. (III) The assessee had further ensured that the manufacturer was capable of manufacturing the assets to be leased out as per the website of the manufacturer. The above documents showed that the assessee had no inkling or doubt about the genuineness of the transaction. (IV) The assessee had agreed to withdraw the claim of depreciation in respect of leased assets only out of commercial expediency to purchase peace and avoid protracted litigation with the Department. In view of the fact that after the lapse of considerable time, the assessee would not be able to prove the existence of the assets and due to the mischief committed by the lessee. (V) The assessee also initiated criminal proceedings against the lessee and its directors by filing a complaint under s. 200 Cr.PC. After coming to know about the mischievous act of the lessee of misappropriate of the assets, the complaint was filed and permission was sought from the High Court of Madras to issue necessary instructions to the police authorities for investigation and pass appropriate orders. Based on the complaint, the Hon'ble High Court of Madras had appointed an advocate CIT to take possession of the....
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....lace between the assessee and the lessee, did not indicate that the assessee had concealed particulars of income or furnished inaccurate particulars of such income. When all relevant particulars and detailed materials were furnished before the AO during the course of assessment proceedings and penalty proceedings, the depreciation was claimed for the reasons given by the assessee and it cannot be stated that the assessee failed to tender the bona fide explanation for claiming depreciation. Merely because there is an addition due to withdrawal of claim of depreciation. It could not ipso facto warrant the levy of penalty unless the said addition is due to concealment of income or furnishing of inaccurate particulars of income. The penalty is not automatic and the burden to prove in the penalty proceedings is different from the assessment proceedings. Findings in the assessment proceedings cannot automatically be adopted in penalty proceedings. For the aforesaid reasons, the learned JM confirmed the order of the learned CIT(A) in the proposed order. 8. The case was fixed for hearing and I have heard Mr. Omkareshwar Chidra, CIT-Departmental Representative and the senior representative....
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....body's case that invoice dt. 10th July, 1997 was genuine and not fabricated or that assets ever came into existence. No assertions to the above effect were made. The plea of the assessee, at the relevant time, was "at no point of time the assessee had reasons to believe that there was no supply of assets as is now being confirmed to you by the manufacturer." Further, it was stated: "Since the transaction relates to a period which is nearly 44 months old as of today, it is very difficult for us to collect evidences relating to the supplier's existence etc. and, therefore, we have been advised to withdraw our claim for depreciation". There is no material on record to show that in February-March, 2001, NPCC was no more in existence and was not traceable. No evidence is available nor any finding recorded even by the learned CIT(A) or in the proposed order by the learned JM deciding the matter in favour of the assessee. On the contrary it is an admitted position that NPCC in March-April, 2001 was very much in existence and had categorically stated before the Revenue authorities that they did not sell assets in dispute to the assessee or STI. Therefore, having regard to the material on r....
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....rovision of s. 271(1)(c) was applicable in this case. (ii). The second reason given for cancelling penalty is that AO did not conduct enquiries relating to inspection report dt. 18th July, 1997 by the employee of the assessee together with photographs of assets installed, considered insurance certificate of M/s United Insurance Co., Indore in the assessment proceedings or in penalty proceedings. It is difficult to appreciate this submission. When invoice of purchase has been found to be fabricated and assets non-existence, there is no question of examining inspection report dt. 10th July, 1997, insurance certificate etc. which were to serve and support the wrong claim of depreciation. In the light of the reply of the assessee dt. 17th March, 2001 these documents were required to be ignored. Document cannot co-exist with the finding that assessee produced fabricated invoice and claimed depreciation on non-existing assets. Reasons and basis of above finding have already been shown in detail. If the assets were never supplied or sold, then question of taking delivery and installing them did not arise. Inspection report dt. 18th July, 1997 from its employee and other documents were pr....
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....and not STI. To obtain benefit, documents referred to in reply dt. 17th March, 2001 were procured or fabricated by the assessee. This inference is drawn from the act and conduct of the assessee which for purposes of levy of penalty is of considerable importance. 11. In the case of CRN Investments (P) Ltd. vs. Asstt. CIT (ITA Nos. 1742 and 2662/Mad/2004, before 'A' Bench, Chennai, vide order dt. 31st Aug., 2006, a similar claim of depreciation was made by the assessee relying upon the following evidence: "Regarding claim of depreciation, it was submitted that the assessee obtained delivery challan from the supplier duly acknowledged by the party for having received the steel rollers, lorry receipt from the transporter and insurance policy. These are the documents which are normally considered in a lease transaction. The lessee being a public limited company, due weightage was given for believing the documents." (From para 6 of the order) The Tribunal rejected the claim and on similar evidence produced by the assessee here held that depreciation was claimed on non-existent assets. A revision of the return, surrendering depreciation, as has been in the case in hand was treated as ....
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....scussion advanced by the learned CIT(A) or in the proposed order of the learned JM. 13. The next reason advanced by learned CIT(A) and in the proposed order by learned JM was that assessee was not given opportunity to cross-examine supplier or Shri Anil Deshpande whose statement was used against the assessee. This reason is unjustified as assessee never asked for opportunity to cross-examine Shri Deshpande or any person from NPCC. There is no rule that cross-examination of person should be allowed even if it is not asked for by the assessee before the levy of penalty. The assessee has duly put the material being used against the assessee in the show-cause notice. In reply thereto, the assessee surrendered the depreciation. The stand of the assessee in reply to show-cause notice has been stated above. On facts, principles of natural justice were fully complied with and nothing further was required to be done before imposing penalty, there is no error in the approach of the AO. 14. Further, reasons advanced in support of cancellation of penalty by learned CIT(A) are like the assessee bona fidely believed that assets were supplied and put to use in its premises by STI. Merely becaus....
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.... claim of huge depreciation on assets which were not in existence in earlier years but subsequently withdrew the claim after enquiry was conducted by the Revenue. The AO has given instances of such bogus claims on non-existing assets. For instance, for the asst. yr. 1994-95, the assessee-company claimed bogus depreciation on non-existent assets which were supposed to have been leased to M/s Castle Daughlars Ltd., M/s Gounder Rice Exports Ltd. and M/s Kedia Distilleries Ltd. For the asst. yr. 1995-96, the assessee-company withdrew the claim of depreciation of Rs. 2,04,24,112 in respect of the assets which are supposed to have been leased to Duckfin International Ltd., REPL Engineering, H.M. Brothers (P) Ltd., Gounder Rice Exports Ltd., Daughlars Ltd. and M/s Kedia Distilleries Ltd. For asst. yr. 1996-97. It has withdrawn the depreciation claim of Rs. 96,25,000 on assets which are supposed to have been leased out to M/s Miga Gases Ltd., Yoga Pharmacy and M/s Muthu Fisheries Ltd. Similarly, for the asst. yr. 1997-98, the assessee-company withdrew the depreciation amounting to Rs. 44.80 lakhs in respect of assets which are supposed to have been leased out to STI and M/s Annai Mookambik....
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....no question of STI playing any fraud on the assessee. 17. The assessee has not filed or stated as to what happened to criminal complaint filed by the assessee, copy of which is on record. It is not shown to have pursued. In the suits for injunction filed and as per copies placed in the paper book, there is no presence of the respondent STI and all the proceedings are shown to have taken ex parte against STI. 18. In reply to show-cause notice dt. 16th March, 2001, the assessee did not dispute that purchase invoice dt. 10th July, 1997 was fictitious and no supply of assets was made. Depreciation was claimed on non-existing assets. However, in the copy of complaint allegedly filed under s. 200 Cr.PC, for offences under ss. 120B, 406 and 414 of IPC. the assessee as complainant has alleged that machineries were installed at specified place and the same were examined by the complainant's agents. It is further alleged in the complaint that assessee claimed 100 per cent depreciation as the accused had made a mischievous statement that there was no proper supply and purchase of any machines before the AO who disallowed the claim of the complainant, forcing withdrawal. "These allegations a....
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....uite clear from above that assessee not having succeeded in alleged criminal proceedings, got appointed an Advocate Commr. to seize the machinery. The CIT was to make a report on or before 9th Sept., 2003. 20. Next is copy of order dt. 22nd May, 2003 in Original Appeal Nos. 388 and 389 of 2003 granting an interim injunction against STI (respondent) and its managing directors from alienating or otherwise dealing with the machinery more fully set out in the schedule hereunder till 17th June, 2003. It is also an ex parte order. 21. Next document is memorandum of compromise between the assessee and STI, according to which the respondent has agreed to pay Rs 112.82 lakhs in instalments upto March, 2003, as per following details: Settlement Terms -------------------------------------------------------------- Period Monthly instalment Amount ---------------------------------------------------....
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....fy and surrender the assets. Hence, Mr. Daga of the respondent company sought time till 15th Sept., 2003 to enable them to surrender the assets. I did not agree to this proposal of the respondent company and demanded the assets. Subsequently in view of the difficulties/inability to handover the assets, Mr. Daga of the respondent company in consultation with Mr. Dr. R.B. Baheti and chairman of the respondent company offered to settle the dues after discussion. In support of this, the respondent company has made a token payment of Rs. 1 lac today and have given a undertaking to finalise the payment schedule before 30th Sept., 2003. The respondent has further agreed to surrender the assets in the event of a settlement not being finalised by 30th Sept., 2003. The applicant company has also agreed to the above proposal. A copy of the undertaking letter given by the respondent company is enclosed. Since the respondent and applicant companies have agreed to finalise the settlement before 30th Sept., 2003. I have not taken possession of the assets today." 21.2 The aforesaid document does not show that at any stage, any machinery was seen even by the Advocate Commr. The learned CIT is st....
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....f time. Assessee need not have bothered for time barring assessment. The plea that non-claim of depreciation will have no tax effect has to be rejected outright. In other documents, assessee had clearly admitted that disallowance created demand of Rs. 1,02,36,480. Besides ITO had made his intention clear that he is going to impose penalty, which has ultimately been computed at Rs. 6,00,02,261 (as given in the penalty order) including other items of disallowance. Even 100 per cent of tax sought to be evaded work out to Rs. 2,00,00,753. Therefore, claim of the assessee that withdrawal or claim of depreciation did not have any tax effect is meaningless and is to be rejected on the basis of clear facts emerging from record. Besides that, as already noted, it is not for the first time that assessee is making such a false claim. It had done so in the earlier years, as noted above in detail. 23. On above facts and circumstances, it is not possible to accept that it was a bona fide claim. 24. I would now like to examine the legal conclusion arrived at by the learned JM. Para 13 of his proposed order is as under: "13. The decision in the cases of CIT vs. M.B. Engineering Works (P) Ltd. (....
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....rs, penalty cannot be imposed. In the case of Cement Marketing Co. of India Ltd. vs. Asstt. CIT (1980) 124 ITR 15 (SC), the Hon'ble Supreme Court has held that disallowance of bona fide claim of deduction cannot result in levy of penalty. In the case of CIT vs. Inden Bislers (2000) 158 CTR (Mad) 323 : (1999) 240 ITR 943 (Mad), the Hon'ble jurisdictional High Court has held that when the amount has been disallowed from the commercial point of view, no penalty can be levied. In the case of CIT vs. International Audio Visual (2007) 208 CTR (Del) 328 : (2007) 288 ITR 570 (Del), the Hon'ble Delhi High Court has held that when the primary facts disclosed but claim found erroneous would not be a case of concealment." On the basis of decisions which I will reproduce hereinbelow, the learned JM held that merely because claim for expenditure was disallowed and amount shown as cash credit or added, would not automatically lead to the conclusion, that there has been concealment of income, warranting penalty. In spite of taking note of decisions of Supreme Court, the learned JM held that unless the assessee is shown to have deliberately made false claim for deduction, levy of penalty is not ju....
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....he Full Bench of the Punjab & Haryana High Court where Sandhawalia, CJ speaking for the Full Bench observed that the object and intent of the legislature in omitting the word 'deliberately' from cl. (c) of s. 271(1) and adding an Explanation thereto by the Finance Act, 1964, was to bring about a change in the existing law regarding the levy of penalty so as to shift the burden of proof from the Department on to the assessee in the class of cases where the returned income of the assessee was less than 80 per cent of the assessed income. The learned Chief Justice noted that the significant thing about the change made in cl. (c) of s. 271(1) was the designed omission of the word 'deliberately' therefrom, whereby the requirement of a designed furnishing of inaccurate particulars of income was obliterated. According to the learned Chief Justice, the language of the Explanation indicated that for the purposes of levying penalty the legislature had made two clear-cut divisions. This had been done by providing a strictly objective and an almost mathematical test. According to the Chief Justice, the touchstone therefore, was the income returned by the assessee as against the income assessed....
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....thority to levy the penalty. But if the assessee establishes that his failure to return the correct income was not on account of any fraud or any gross or wilful neglect on his part, it is evident, no penalty can be levied. Even after the amendment of Finance Act 1964, penalty proceedings continue to be penal proceedings. Similarly, the question whether the assessee has concealed the particulars of his income continues to remain a question of fact. Where the Explanation has made a difference is while deciding that question the presumption created by it has to be applied, which has the effect of shifting the burden of proof. The rule regarding burden of proof enunciated in CIT vs. Anwar Ali (1970) 76 ITR 696 (SC), is no longer valid. Whether it is a case of undisclosed or unexplained cash deposit or any other concealment the standard is the same. The principle enunciated in Anwar Ali's case that mere rejection of the explanation of the assessee is not sufficient for levying penalty no longer holds good and it is no longer necessary that the Department must go further and establish that there was conscious concealment of particulars of income or a deliberate failure to furnish accur....
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....he value of such assets. The Tribunal had held that in the case of difference of opinion on merit, penalty was not leviable. The case was clearly distinguishable on facts. 27. While distinguishing case of BPL Sanyo Finance Ltd., the learned Departmental Representative submitted that it was not a case where assessee was not entitled to any depreciation. The assessee was held to be entitled to claim depreciation and, therefore, imposition of penalty was not upheld. Likewise the case of India Cements Capital and Finance Ltd. was also distinguishable as in that case, it was held that assessee had claimed depreciation on the basis of evidence available in the ordinary course of business and it was not possible to say that there was any concealment of income. 28. On careful consideration of submissions of parties, I am of the view that distinction put forward by the learned Departmental Representative is valid and require to be upheld. Question whether assessee has concealed income or furnished inaccurate particulars of income is especially one of the facts. If after examination of all facts and circumstances of the case, it is held that there is no concealment or furnishing of inaccur....