2018 (8) TMI 1981

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....der dated 31.03.2006 imposed a penalty u/s 271(1)(c) of the Act amounting to Rs. 6,44,09,355/-. The said penalty has been levied on four elements of income which have been detailed by the CIT(A), and which read as under :- Sr. No. Particulars Amount Rs. Penalty Levied Rs. 1 Disallowance of depreciation on leased assets capitalized in A.Y. 1994-95 45,71,364 21,02,827 2 Disallowance of depreciation on sale and leaseback assets 4,02,71,266 1,85,24,782 3 Disallowance of depreciation on asset leased to Tata Telecom 2,08,056 95,705 4 Excess depreciation allowed in respect of vehicles 9,49,69,652 4,36,86,040 Total 14,00,20,338 6,44,09,354 4. At the time of hearing, it was a common point between the parties that so far as the penalty leviable with respect to the aforestated item nos. 1 & 2 are concerned, the same does not survive. It has been pointed out that insofar as penalty levied in respect of item (1), i.e. disallowance of depreciation on leased assets capitalised in preceding Assessment Year of 1994-95 is concerned, such disallowance amounting to Rs. 45,71,364/- has been set-aside by the Tribunal in the quantum ....

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....asset was not installed at the time of claim of depreciation, assessee did not file any further appeal on this aspect. So, however, in the penalty proceedings, assessee pointed out that it was in the business of leasing and that it claimed depreciation on the leased assets at the time of entering into the Leasing agreement and that even the Lease Management fees was also received during the year itself. Assessee had referred to the judgment of Hon'ble Madras High Court in the case of CIT vs First Leasing Co. of India, 216 ITR 455 (Mad) and Hon'ble Karnataka High Court in the case of CIT vs Shaan Finance (P). Ltd., 199 ITR 409, which was subsisting at the relevant point of time, to say that actual use of asset by lessee was not relevant so long as assessee, which was in the business of leasing, had leased the relevant asset, thus putting to use such asset for its business of leasing. On this aspect, the learned representative for the assessee also pointed out that ownership and use by the assessee are the relevant criteria for allowability of depreciation in a leasing business and not the use of asset by the lessee. In any case, it has been pointed out that at the time of fi....

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....incorrect. Furthermore, the claim was made on a bona fide ground, based on the understanding of the then subsisting judgment of the Hon'ble Madras High Court in the case of First Leasing Co. of India (supra) as well as the judgment of Hon'ble Karnataka High Court in the case of Shaan Finance (P). Ltd. (supra). Under these circumstances, in our view, the penalty u/s 271(1)(c) of the Act is not justifiable and, therefore, we hereby affirm this aspect of the decision of CIT(A) also, albeit on a different ground. 9. The last issue on which penalty has been levied is excess depreciation allowed in respect of vehicles amounting to Rs. 9,49,69,652/-. In this context, the learned representative for the assessee had explained that the dispute revolves around depreciation allowable on trucks leased out by the assessee. Assessee had claimed depreciation on trucks leased out @ 40%. The learned representative explained that the Commissioner, invoking his jurisdiction u/s 263 of the Act, had directed disallowance of depreciation allowed on trucks @ 40% and instead, restricted the same to 20%. In an appeal against the order of Commissioner u/s 263 of the Act, the Tribunal in its order ....

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....fied and it also showed that an incorrect claim was made for which penalty u/s 271(1)(c) of the Act was leviable. 11. We have carefully considered the rival submissions. On this aspect, the only dispute between the assessee and the Revenue is to the merit of depreciation claimed by the assessee @ 40% on trucks. Notably, the higher rate of depreciation @ 40% was allowable in case of vehicles which were used in the business of running them on hire. Initially, in the assessment proceedings, depreciation claimed @ 40% was allowed as such, but the Commissioner vide his order dated 06.03.2003 passed u/s 263 of the Act directed the Assessing Officer to modify the depreciation allowable on vehicles and restricted the same to 20% and not at 40%, as claimed by the assessee. This direction of the Commissioner came-up in appeal before the Tribunal and vide its order dated 31.10.2007 (supra), the Tribunal noticed the judgment of the Hon'ble Bombay High Court in the case of Kotak Mahindra Finance Ltd. (supra) wherein it has been held that where the hirer is running the vehicles on hire, higher rate of depreciation is to be allowed to the finance company who has leased the vehicles to such....