TaxTMI 
TaxTMI 
2014 (10) TMI 392
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.... addition was made by the Assessing Officer (hereinafter referred to as the AO) was with regard to the claim of depreciation on leased assets. The AO after thorough discussion of the matter disallowed the claim of depreciation of Rs. 5,78,23,526/-. The AO also initiated penalty proceedings u/s. 271(1)(c) of the Act for furnishing inaccurate particulars of income. Aggrieved by the order of the AO, the assessee went in appeal before the CIT(A). 3. The Ld. CIT(A) disposed off the assessee's appeal vide his order dated 4.9.2000 with the following observations: "The first ground of appeal common for both the year under consideration is regarding disallowance of depreciation on assets relating to lease transactions. It was held by the AO that these lease transactions were in the nature of financial transactions and accordingly depreciation was not allowable. The AO further incorporated in the order that out of the disallowance of depreciation, only finance components of lease rentals received in the year should be brought to tax leaving the capital components i.e. principle amount, which would not come within the ambit of income for the year. The appellant subsequently accepted....
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....entered into by the assessee company and Western Pacques India Ltd. The survey team in most of the cases did not find the assets to have been installed. Besides where the assets were found from the physical condition of the assets. It is found that the value of the assets has been highly over invoiced and most of the assets are not eligible for 100% depreciation as the nature is more that of an experimental equipment rather than commercial bio-gas plant. Besides it is also found that the "sale and lease back" transaction is a sham transaction. The Department has recorded the statement of the Managing Director, Nandan Gadgil and the statement of the parties where these assets were supposed to have been installed have been recorded" The AO carried out further enquiries regarding so-called suppliers of the equipments and finally concluded that the assets were never existed and the claim of the assessee proved to be wrong. Hence, he disallowed depreciation on the nonexisting lease assets at Rs. 50,00,000/-. Similarly, the AO has given a finding in the case of Prakash Industries Ltd. the lessee to whom the assessee company allegedly given assets worth Rs. 97,58,981/- on lease and ....
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....nce in the case of assets leased to M/s. Prakash Inds. Ltd. based on an investigation carried out by the Department. Similarly in the case of M/s. ATV Projects, the AO gave a finding that the assets were not existing. The AO at page 28 of the assessment order stated as under:- "In this case the assessee is claiming depreciation on lease assets worth Rs. 49,50,000/- @25% amounting to Rs. 12,37,500/-. To verify the genuineness of the transaction, summons was issued to the lessee vide summons dated 8.2.1999. In response to the same vide letter dated 6.3.1999 of this party has stated that, it cannot handed over any material or details to the department as all its material have been taken over by the Sales Tax Officer during the survey conducted on them. In this case, M/s. Larson Tourbo was a supplier of lease assets to this party. MIs. Larson Tourbo has also issued a summon on 8.2.1999. In response to the same M/s. Larson Tourbo has filed a letter dated 15.3.1999 in which the have stated categorically that they have not sold any asset to TGFL any time during the relevant F.Y. from 1992-93 to 95-96. Thus, in this case, it will be seen that, there is no supply of the alleged lease ....
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....was disallowed, the capital component included in the lease rentals was reduced and finally the net disallowance on account of depreciation was arrived at Rs. 2,79,07,031/-. The assessee has not controverted the findings of the AO neither before him nor before the CIT(A). 11. Regarding the A.R.'s request to keep the proceedings pending till disposal of the appeal by the ITAT is not tenable. Perusal of Form -36 filed by the assessee before ITAT shows that the assessee has taken only one ground on account of disallowance of depreciation on assets given on lease prior to A.Y. 93-94. This relief was already granted by the Ld. CIT(A)XXXIII, Mumbai vide his order dated 4.9.2000 at para 5 of his order and accordingly the assessee was granted relief to that extent by passing order u/s. 250 of the Act. Hence, the ground taken before the ITAT in this regard does not survive. Moreover, it is the discretion of the Department to keep the matters pending or not till the disposal of the appeal before the ITAT depending upon the facts of each case. In this case, the assessee filed a loss return of Rs. 1,15,55,000/- and the same was finally assessed at an income of Rs. 1,66,91,410/- as per o....
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.... in the said folder containing the assessment order. On going through the assessment order, it is seen that there could be or there could not be another folder, containing the relevant details from which, the facts stated by the assessee can be verified". 7. The ld. CIT(A) after considering the submissions of the assessee and going through the report of the AO observed as under: "22. I have gone though the submissions made by the appellant vide letter dt.11.01.2003 wherein objection has been raised saying that there are discrepancies in respect of leased out assets considered in the assessment order and also saying that ITA No.1681/M/2007 M/s. Times Guaranty Ltd. 8 the assets involved are different than those mentioned in the assessment order and subsequently in the penalty order. 23. The appellant has furnished details in respect of M/s. Western Pacque India Ltd., M/s. Prakash Industries Ltd., ATV Projects Ltd., Mohan Meakins Ltd., DCM Sriram Consolidated Ltd., NIIT Ltd., Gilt Pack Ltd. and M/s. Padodia Syntex. 23. In the said submissions and statement furnished vide letter dt.11.01.2003, the appellant through ld. A.R. has reiterated the replies and explanations furnis....
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....etter dated 16th March, 1999 has been used by the Officer without giving an opportunity to the assessee to meet the same. We do not know what the party has written in that letter. It is accepted by the Officer that 261 chlorine gas cylinders are the assets involved in the lease and it is a sale and lease back transaction and that it is sold for Rs. 1,14,84,000 per invoice dated 19th September, 1992. The Officer accepts that the sale is as per invoice dated 19th September, 1992. A copy of the same is enclosed as Annexure 21. It can be noticed that cylinder numbers for 261 cylinders are mentioned in the invoice. The Officer draws an inference that just because the cylinders are old, the entire depreciation on these cylinders must have already been availed of by DCM Sriram. We do not know whether the party stated so in its reply dated 16th Mach, 1999. 28. Similarly, in the case of the remaining other parties, the appellant has submitted the statements and replies which relate to the points in the assessment order or which were alternatively considered during the course of assessment proceedings. 29. In light of the above facts and circumstances of the case, it is seen that th....
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....R. vide letter dt.11.01.2003 saying that there is factual discrepancy in the assessment order and subsequently in the penalty order cannot be entertained, because if there was any such discrepancy, same could have been agitated in the appeal against the assessment order, which has not been done in this case. The appellate proceedings against the order u/s. 271(1)(c) cannot be used as a window to re-examine/reopen the factual finding of the assessment order, which has already attained a finality as such by virtue of appellate proceedings on the said order. Considering this position, I find that the argument of the appellant for reconsidering the alleged factual discrepancy of the assessment order in the appellate proceedings of the penalty order u/s.271(1)(c) is misplaced, unjustified and not permissible under law. 32. It is also pertinent to note that this issue of factual discrepancy is not taken in the grounds of appeal of the penalty order u/s. 271(1)(c). It is only through the letter dt. 11.012003 that such an argument has been placed possibly as an afterthought, which in any case is irrelevant to the issues involved in the context of penalty order u/s. 271(1)(c). 33. The....
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....d assets were not leased, that such assets were already sold and so on, are the arguments, which are contrary to the facts of the alleged leasing transaction based on which the appellant had claimed the depreciation. In any case, it is the wrong claim of depreciation of the appellant made in the original return of income/revised return of income, which is the subject matter of penalty. The various arguments forwarded by the appellant through letter dt.11.01.2003 merely point out that some assets may have been sold out or that some assets may not have been actually leased, but at the same time these arguments do not support the wrong claim of depreciation made by the appellant, which was disallowed by the A.O. Vide the original assessment order, whether the assets were sold or such assets were not leased or for any other reason, the claim of depreciation of the appellant remained unsubstantiated as per the assessment order u/s.143(3)/147. Therefore, merely pointing out discrepancies without establishing the claim that the depreciation claimed by the appellant was correct and same could have been allowed, does not change the facts of the case. The fact remains that the assessee had c....
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....he supplier of the assets L&T has denied the sale of such equipment to the appellant. The totality of facts and circumstances emerging from the details as noted in the assessment order in detail and also as noted in the penalty order u/s.27 l(l)(c) show that it is not a case of difference of opinion or different interpretation of a legal provision or bonafide claim. The disallowance has been made on the specific fact finding that leased assets were not in existence or that the transaction of leasing as shown by the appellant for the purpose of claiming depreciation was not leasing transaction, contrarily it was a finance transaction. There cannot be two divergent facts on the same thing. The factual misrepresentation on the existence of assets and also on the nature of transaction, as pointed out in the assessment order, which has stood the test of appeal, go on to show that there was misrepresentation of the facts and transactions both in the books of account of the assessee which could be possibly only with full intention and conscious preparation of books of account/final accounts contrary to the factual position. This proves the mens rea that is the conscious and deliberate act....
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....at the penalty levied is more 100% of the tax on total income and it is in excess and same may be cancelled. After considering the facts and circumstances of the case, I find that the penalty levied by the A.O. is within the given percentage of levy of penalty as per the law, hence no interference is called for. As a result this ground is dismissed. 40. Ground no.5 of appeal is that when the income returned is a loss, the provisions of Section 271 (1) (c) are not attracted. 41. This ground of appeal is contrary to the legal position and settled law. Tax on income sought to be evaded is clearly defined in the Income tax Act and as per the same, the appellant fails on this ground, which is contrary to the legal position and facts of the case. The explanation clauses of section 271(1)(c) are integral part of the section, hence this ground of appeal is dismissed as per section 271(1)(c) read with explanations to the said section. 42. Thus, in the result, the appeal is dismissed. The penalty of Rs. 1,44,41,888/- levied on the appellant u/s.271(1)(c) vide order dated 30.03.2001 is confirmed." 8. Aggrieved from the order of the ld. CIT(A), the assessee has preferred the presen....
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....lessee and were in fact non existent. Even, the most of the assets stated in the lease agreement were not eligible for 100% depreciation. It was also found that there were huge over invoicing of the said assets. Even lot of old and discarded junk assets had been introduced in the lease transactions in the garb of sale and lease agreement. 10.1 The AO in the assessment order has discussed in detail the lease transactions, one by one, entered by the assessee with various lessees. A categorical finding has been given by the AO that the transactions in question were in reality loan transactions which were given the colour of lease transactions, only to avail the tax benefit of depreciation under the Income Tax Act. Even it was also agreed by the assessee with the lessees that a part of such benefit would be passed on to the borrower in the form of interest on the loan amount taken, which was agreed to be recalled in case the assessee company would not get the expected tax benefits from the Income Tax Authorities. The AO has observed that it was a case of trading in tax benefits. Even the AO in the assessment order has categorically observed that it was not only the case of transfer ....
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....it was found that substantial amount of money deposited in these accounts of the suppliers of machinery had been immediately transferred in the accounts of lessee e.g. in the case of 'Prakash Industries Ltd.' In some of the cases, the so called lessee had already claimed depreciation on the assets on the old assets and the assessee again claimed depreciation at the rate of 100% on such assets in the garb of sale and lease back agreements. 10.3 After detailed investigations, AO had concluded that the transactions were bogus, sham and colourable devise to evade the tax. The transactions in question at the most could be said to be loan transactions and nothing more than that. We may further note that in appeal against the assessment order, the assessee agreed to the additions made by the AO and did not contest the findings of the AO regarding the transactions being bogus and sham in nature. The assessee, though, before us has taken a plea that there were factual discrepancies in the assessment order, but such a plea was neither taken by the assessee during the appellate proceedings against the assessment order nor in its appeal before the ITAT in the said quantum proceedings, even ....
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....itself, is not sufficient to prove that the findings arrived at by the AO that the transactions in question were sham, bogus and colourable devise were not correct. The detailed findings of the AO, the assessee not agitating the findings of the AO in quantum proceedings, no plea of factual discrepancies during quantum proceedings and appeals, even no such plea before AO during penalty proceedings and no rebuttal to the findings of the AO that the transactions were bogus and sham are sufficient facts to hole that the assessee had put a false claim of depreciation during the assessment proceedings. The plea of the assessee that he did not contest the addition to avoid litigation or to buy peace etc. even does not seem plausible. The assessee during the year had claimed depreciation of huge amount of Rs. 5,17,09,213/- which was not fund genuine by the AO. The Hon'ble Supreme Court, in the case of "MAK Data P. Ltd. vs. Commissioner of Income Tax-II" civil appeal No.9772 of 2013 date of decision 30.10.13, has categorically held that it is the statutory duty of the assessee to record all its transactions correctly and to clear its true income in the return of income. The AO should not be....
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....evidences on the file it can be shown that the transaction was real or genuine, the relief of claim of depreciation is to be allowed. In the case in hand, from the facts, it was clearly established that the assessee had put a wrongful claim of depreciation and thereby had furnished inaccurate particulars of income for the purpose of concealment of real income, hence, the penalty proceedings were correctly initiated by the AO. It was not a case of tax planning by the assessee so as to avoid or reduce its taxes by remaining within the framework of the law. The transactions entered into by the assessee were sham and bogus transactions which were intended to defeat the provisions of law. It may be observed that tax avoidance by way of tax planning or structuring the transactions so as to reap the largest tax benefit may be permissible under law but fraudulent transfer of assets or income or engaging in sham transactions with the object of reducing the tax liability cannot be said to be a case of tax avoidance but of tax evasion. Any act or attempt to reduce the tax liability by deceit, subterfuge or concealment is not permissible under law. 12. In our view, it was a clear cut case o....