TaxTMI 
TaxTMI 
TaxTMI 
2013 (11) TMI 730
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....h September 2002. 3. This Court while admitting the appeal on 23rd August 2007, had formulated the following substantial questions of law for consideration: "whether on the facts and in the circumstances of case and in law, the Tribunal was justified in holding that there is neither concealment of income nor furnishing of inaccurate particulars for levy of penalty under Section 271 (1) (c) of the Act despite the detection in the course of survey that 100% depreciation claimed in respect of the alleged sale and lease back from M/s.Bellary Steel and alloys Limited (for short "Bellary Steel") was held to be false claim by the assessing authority?" 4. Having regard to the order of the Tribunal and the contentions urged by learned counsel for the parties, in the present appeal, we will have to examine whether levy of penalty under Section 271(1) (c) of the Act is legally sustainable in the light of the fact, which surfaced in the survey under Section 133-A of Act, that claim of 100% depreciation made by the respondent-assessee was not only false but was made in respect of non-existent goods, and that penalty is liable to be levied not only for concealing the income but a....
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....tiated proceedings under Section 147 by issuing notice under Section 148 on 11th January 2001 to the assessee, recording reasons inter-alia that income chargeable to tax had escaped assessment. In response to the notice, the assessee filed return on 28th March 2001. The return filed by the assessee had further been taken up for scrutiny and accordingly notice was issued on 30th August 2001. In response to the notice, one Mr.H.V.Gowthama-CA and AR appeared and filed detailed reply. The MD of the assessee, Mr.M.A.Uppal, was also summoned on 11th October 2001 and his statement on oath was recorded. A report of the supplementary survey dated 14th July 2000 received by the office of the AO on 5th December 2012 was also placed on record. 7. It was brought to the notice of the assessee that in the course of survey conducted at the premises of Bellary Steel, it was found that the said company was engaged in bogus lease transactions enabling the finance/leasing companies to claim 100% depreciation in respect of non-existent assets. It was also brought to their notice that supplier of rolls B.M.Steel from Chennai was neither capable of manufacturing the rolls nor had supplied any rolls to B....
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....n programme of Bellary Steel. Accordingly they agreed for entering into a lease transaction with Bellary Steel since they were eligible for 100% depreciation on the assets (rolls) to be leased. The assessee claim that they believed that the entire transaction was bonafide and accordingly entered into lease agreement to support the purchase of rolls. The rolls, according to the asssessee were procured by Bellary Steel directly from B.M.Steel and they were also transported to their factory at Bellary by Sri Balaji Roadway. The assessee in support of the entire transaction placed on record the necessary documents like sale deed, lorry receipt, installation certificate, board resolution, project report, personal guarantee of M.D., etc. They also placed on record that initially lease rent was paid by Bellary Steel regularly and as their cheques of the lease rent started bouncing they filed criminal case against them. 10. It is in this backdrop and having regard to the report of survey, a request was made by the assessee to allow them to withdraw their claim of 100% depreciation on the rolls and as a result thereof, the assessment order was passed by the AO on 15th March 2002. 11. Simu....
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....rial and also selects the specification for the same. What type of equipment is required is determined by lessee. Similarly the manufacturer who can produce such made to order equipment is also selected by lessee. Thus, the lessor is neither to verify what type of equipment is required nor to verify the capacity of the manufacturer. When the lessee himself has produced the proforma invoice, transporter receipts, installation certificate and accepted all the terms of lease, there is no reason with the lessor to doubt the genuineness of transaction. The lessor is to ensure that his money is safe. For this purpose, the lessor insisted for post dated cheques, obtained collateral security by way of shares valuing more than lease transaction, and obtained other documents like lease deed, guarantee from Managing Director etc. In absence of any reason to doubt the transaction and in view of categorical statement by lessee, particularly when nine quarterly installments of lease rentals were received on due dates, the assessee never gets a whisper about anything wrong in such lease transaction. Even if assessee was to claim 100% depreciation on such assets leased, the tax thereon would be me....
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....essor was not suppose to verify what were the goods purportedly leased by them and to find capacity of its manufacturer. If such view is taken, we are afraid, that would encourage the instances, such as the present case, to claim 100% depreciation in respect of non-existent goods. The lessor in such cases, is not only expected to ensure that his monies are safe but he should also ensure that he is getting involved in a genuine transaction of lease. 15. The conduct of, the assessee/lessor, in the present case, to get his monies secured by taking all care on paper including taking post dated cheques, would show that he was either negligent in participating in this transaction or he was aware that the entire transaction was on paper only to gain tax benefits. The conduct of the lessor/assessee is relevant to draw either of the inferences. If the assessee was held to be negligent, perhaps the order of levy of penalty will have to be set aside and if, on the facts and circumstances of the case, if it is found that the transaction was bogus and was only on paper and that the assessee was aware about it, the order of levy of penalty will have to be confirmed. When the cheques started bou....
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....e, earning lease rentals and securing its interest. This was done by receiving proper invoices, transport receipts, post dated cheques, entering into lease deed, obtained guarantees from Directors, availing collateral security in the form of shares of listed companies, the value of which is exceeding the leased assets. When the lease proposal was moved by Kotak Mahindra Group, a well renowned finance advisor in India and the company is promoted by eminent personalities, the appellant has no reason to doubt. Till the survey was conducted at the premises of BSAL and the result of such enquiry was confronted to the appellant on 30.8.2001, the appellant was never aware that either the assets are not existing or that the assets are not used by lessee. We accordingly hold that the conduct of assessee was bonafide not only at the time when it has filed the original return of income but also when it filed the return pursuant to notice u/s 148." 17. From the aforesaid observations, it is clear while dealing with the case of revenue, the Tribunal has assumed everything in favour of the assessee/lessor. For instance, while dealing with the submission that the conduct of the assessee was unbe....
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....under Section 148 of the Act. 19. We have perused the orders of the assessing officer and the first appellate authority and we find that the Tribunal lost sight of the relevant material on record and has simply referred to the defence/case made out by the assessee. The material on record clearly shows that the assessee was aware that they were claiming 100% depreciation on non-existing assets. In this connection, we refer to the statement of R.Balathandayudam, Vice President of the assessee. He was the Managing Director of the assessee at the relevant time. He stated that he was with the assessee for about 23 years. Before taking over as Vice President he was General Manager (Finance) of the assessee. In the statement of Mr.R.Balathandayudam, recorded on 20-10-1998, he stated that they make verification of assets as and when they are purchased with an intention to give it on lease. They also make physical verification of the assets when they are leased and that they verify and ensure that the leased assets are put to business use. It is clear from the statement of Mr. R.Balathandayudam, that the assessee had a mechanism/system of verification of assets leased by them to different ....
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....urchase or sale invoice for any reference. Their bank account bearing account No.CD753 was examined and it revealed that a large amounts were received from the assessee and then paid/forwarded to Bellary Steel on the very same day or the next day by retaining 2% commission thereon. The bank account of Bellary Steel also revealed that they received monies through B.M.Steel. The transaction between B.M.Steel and Bellary Steel was pure and simple financial transaction intended to claim 100% depreciation of assets which never existed. 21. The transporter of the rolls, as claimed by the assessee, was also interrogated and it revealed that he did not supply any material or equipment other than transporting scrap of Bellary Steel from Chennai during 1996-97. The transporter, as a matter of fact, disowned the photo copies of the invoices relied upon by the Assessee in support of their claim. Thus, the material that was placed on record clearly show that the whole transaction of purchasing and leasing of rolls to Bellary Steel was sham and bogus and intended purely to claim depreciation on the assets which never existed. 22. Learned counsel for the assessee in the course of arguments took....
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....ht in holding that penalty cannot be levied as the Assessing officer in the proposal under Section 271 (1) (c) of the Act had not referred to explanation-I (B) to Section 271 (1) (c) of the Act. The Supreme Court after dealing with the judgments of the High Court at Mumbai in CIT vs. P.M.Shah [1993] 203 ITR 792 and CIT vs. Dharamchand L Shah [1993] 204 ITR 462 (Bom.) in concluding paragraph observed thus : "................in the absence of invoking the Explanation specifically, the burden would remain on the Revenue to bring the assessee's case within the mischief of the main provisions of section 271(1)(c) of the Act." We find it difficult to accept as correct the two judgments aforementioned. The Explanation to section 271(1)(c) is a part of section 271. When the Income-tax Officer or the Appellate Assistant Commissioner issues to an assessee a notice under section 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By reason of the Explanation, where the total income returned by the assessee is less than 80 per cent of the total income assessed under section 143 or 144 or 147, reduced t....
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....he return filed because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise." The Supreme Court, then, in the judgment, proceeded to observe that merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not attract the penalty under Section 271(1)(c) of the Act. Further, the Supreme Court observed that "if we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the AO for any reason, the assessee will invite penalty under Section 271(1)(c) of the Act. That is clearly not intendment of the Legislature". In short, the Supreme Court holds that whether to levy penalty or not when the power of the AO is discretionary in nature, that has to be decided on the facts and circumstances of the case. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. Further, the Supreme Court observed in the report, that by any stretch imagination, making an incorrect c....
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....ld have been found as of fact that he has not disclosed all the facts which were material to the computation of his income. The explanation having regard to the decisions of this court, must be preceded by a finding as to how and in what manner he furnished the particulars of his income. It is beyond any doubt or dispute that for the said purpose the Income-tax Officer must arrive at his satisfaction in this behalf. (See CIT v. Ram Commercial Enterprises (2000) 246 ITR 568 (Delhi) and Diwan Enterprises v. CIT (2000) 246 ITR 571 (Delhi). The order imposing penalty is quasicriminal in nature and, thus, the burden lies on the Department to establish that the assessee had concealed his income. Since the burden of proof in penalty proceedings varies from that in the assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceeding constitutes good evidence in the penalty proceeding. In the penalty proceedings, thus, the authorities must consider the matter afresh as the question has to be considered from a different angle. It is now a well-settled principle of law that the more ....