I.T.A. No. 1681/M/2007, (Assessment Year: 1993-1994). Case: Times Guaranty Ltd. Vs Asstt. Commissioner of Income Tax Circle-1(3). ITAT (Income Tax Appellate Tribunal)
| Case Number | I.T.A. No. 1681/M/2007, (Assessment Year: 1993-1994) |
| Counsel | For Appellant: K. Shivaram and Rahul K. Hakani, ARs and For Respondents: M. Murali, DR |
| Judges | N.K. Billaiya, Member (A) and Sanjay Garg, Member (J) |
| Issue | Income Tax Act, 1961 - Sections 133A, 143(3), 147, 154, 250, 271(1), 271(1)(c), 275, 32 |
| Judgement Date | December 10, 2014 |
| Court | ITAT (Income Tax Appellate Tribunal) |
Order:
Sanjay Garg, Member (J), (ITAT Mumbai 'E' Bench)
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The present appeal has been filed by the assessee against the order of the Commissioner of Income Tax (Appeals) [(hereinafter referred to as CIT(A)] dated 05.12.2006 relevant to assessment year 1993-94. The assessee through its grounds of appeal has agitated the confirmation of levy of penalty of Rs. 1,44,41,888/- u/s. 271(1)(c) of the Income Tax Act (hereinafter referred to as 'the Act').
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The brief facts of the case are that for the Assessment Year under consideration, the assessee filed return of income declaring loss of Rs. 1,15,55,000/-. Thereafter, the assessment was reopened u/s. 147 of the Act and an order u/s. 143(3) r.w.s. 147 of the Act was passed on 30.03.1999 assessing the income at Rs. 4,66,13,960/-. The main issue on which the 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).
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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 the stand of the department and accordingly, this ground for both the years under consideration is not pressed stands dismissed.
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In penalty proceedings initiated u/s. 271(1)(c) of the Act, the assessee made the following submissions:
The assessee has filed an appeal to the I.T.A.T. on 23rd November 2000 against the order of the CIT(A), which is pending. Since the order of the CIT(A) is the subject matter of appeal to the ITAT, the limitation period u/s. 275 of the I.T. Act, 61 for completion of the penalty proceedings is extended and does not get time barred by 31st March, 2001.
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The ld. AO however found that the contention of the assessee was not tenable. He observed that in the assessment proceedings the AO had made an elaborate finding regarding disallowance of depreciation on leased assets, treating many of the transactions as not genuine and therefore holding it a case of furnishing of inaccurate particulars of income levied penalty @100% of the amount of tax sought to be evaded. The relevant part of the said penalty order, for the sake of convenience, is reproduced as under:
"7. The relevant observations of the AO in the assessment order at page 18 which is as under: -
"Western Pacques India Ltd.:- The assessee company vide lease agreement dated 7.7.92 has entered into a lease agreement with Western Pacques India Ltd., and the assets worth of Rs. 50,00,000/- has been leased out to this party. These assets are Bio-gas Pilot Plant on which the assessee company is claiming depreciation @ 100%. This is a sale and lease back transaction. To verify the genuineness of the lease transaction, the Intelligence Wing of the Department at Pune has carried out the survey u/s. 133A of the act on the various sites where the alleged leased assets were installed. Survey is carried out on 2/01/1996 and the Department is completed his enquiry by mid Feb. 1996. The Department has also taken photographs of this assets at the installation site. The findings of the Department of that these assets are either non-existent nor discussed and junk assets having no value. As per the TGFL, the assets were supposed to have been installed by Western pacques India Ltd. at the following places:
(1) Sankeshwar SSK Ltd. A/P. Sankeshwar, Karnataka.
The Investigation Team has found that there has been gross violation of the terms of the lease agreement 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 non-existing 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 claimed 100% depreciation thereon as bogus. At page 22 of the assessment order, the AO brought out further details regarding the investigations conducted in the case of the suppliers of the above equipments and the enquiries and the surveys conducted revealed that the suppliers denied to have manufactured the above equipment. The AO further brought out his findings at page 23 of the order which is as under:-
It is noticed that the name and style M/s. A.S. Mechanical Works is being used ingenerating bogus 100% depreciation for its business houses. In the investigations, it was found that there is an existing firm in the name and style of M/s. A.S. Mechanical Works at G.T. Road, Near Gol Chhakkar, Mandi Gobindgarh-147301, which is a partnership firm of Sh. Amarjit Singh and Smt. Mohinder Kaur. The modus operandi of generating 100% depreciation is that the various equipments like air pollution control equipment, flameless furnaces, rough forged rolls for Rolling Mills etc. are the assets which attract 100% depreciation in the year in which they are put to use. A.S. Mechanical Works is shown to have sold these kind of assets to various business house who are desirous of obtaining benefit of 100%. Thus business house in turn lease these assets out to some other concern and in most of the cases it is M/s. Prakash Inds. Ltd. In this process, the method is being used for creating a transaction resulting in claim of 100% in the hands of the business house who alleged to have brought such asset from M/s. A.S. Mechanical Works.
It is also seen that various bogus bills has been generated from M/s. A.S. Mechanical Works. A.S. Forgin, Ashish Engg. Works and in the same, it has been shown that machineries were supplied to M/s. Prakash Inds. Ltd. on behalf of M/s. City Crop Securities & Investments Ltd. It is further more important to mention here that all the three parties have stated that the sale transaction has already been disclosed to CIT, Ludhiana under VDIS-1997 Scheme. The Department has traced the bank account of these parties and the movement of the cheques and drafts issued by M/s. City Crop Securities & Invst. Ltd., and it was found that substantial amount of money which has been deposited in these accounts have been immediately transferred to the account of Prakash Inds. Ltd.
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Thus the AO gave a categorical finding that the assets were not in existence 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. M/s. 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 assets. Thus in the absence of the supply of the leased assets, the lease transaction cannot be taken as a genuine lease transaction and accordingly, the entire depreciation claimed on the alleged asset to ATB Project are hereby disallowed."
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Similarly in the case of Mohan Meaking Ltd. the assessee is stated to have leased out boiler to the above party and further investigation revealed that the assessee only part financed the above assets and the supplier of the assets M/s. Cethar Vessels Ltd. confirmed that the assets were sold only to Mohan Meaking Ltd. and to the assessee. Taking into account all the facts, AO treated the above transaction is not a genuine one. Similar finding is given in the case of DCM Shreeram Consolidated for assets worth Rs. 1,14,84,000/- (Chlorine Gas Cylinders) which were more than 10...
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