2009 (8) TMI 799 - AT - Income Tax

Mandatory Penalty - Disallowance u/s 35D - Concealment of income - 100% depreciation on leased assets - genuineness of the transaction - Held that - It is evident as to how assessee is changing its stand from time to time. The assessee could take a correct stand and it was headache of the AO to verify it before the assessment got out of 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 ₹ 1,02,36,480. - 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. - Penalty to be levied u/s 271(1)(c)

Issues Involved:
1. Penalty under Section 271(1)(c) of the IT Act, 1961.
2. Claim of 100% depreciation on leased assets.
3. Genuineness of the lease transaction.
4. Burden of proof and mens rea in penalty proceedings.
5. Judicial precedents and their applicability.

Issue-wise Detailed Analysis:

1. Penalty under Section 271(1)(c) of the IT Act, 1961:
The primary issue in this case is whether the penalty under Section 271(1)(c) of the IT Act, 1961, is applicable. The assessing authority had levied a penalty of Rs. 4,00,01,506 for different items of concealment, including the claim of 100% depreciation on leased assets. The CIT(A) deleted the penalty, but the Revenue appealed against this decision.

2. Claim of 100% depreciation on leased assets:
The assessee claimed 100% depreciation on leased assets worth Rs. 1,24,80,000 leased to M/s Steel Tubes of India Ltd. The assets were purportedly purchased from M/s Nagpur Pollution Control Co. (P) Ltd. However, upon inquiry, it was revealed that no such transaction occurred, and the invoices were fabricated. The assessee withdrew the claim of depreciation when confronted with these findings.

3. Genuineness of the lease transaction:
The CIT(A) held that there was no concealment of income or furnishing of inaccurate particulars as far as the claim of 100% depreciation on leased assets was concerned. The CIT(A) reasoned that the AO did not conduct further inquiry during the assessment proceedings and accepted the assessee's contention that there was no reason to doubt the genuineness of the transaction initially. However, the Tribunal found that the assessee failed to provide empirical or physical evidence to support the lease transaction, relying solely on documents.

4. Burden of proof and mens rea in penalty proceedings:
The Tribunal emphasized that the recent judgment of the Supreme Court in Union of India & Ors. vs. Dharamendra Textile Processors & Ors. clarified that mens rea is not an essential element for imposing a penalty under Section 271(1)(c), as it is a civil liability. The focus should be on whether there were any inaccurate particulars or concealment of income while filing the return. The Tribunal concluded that the assessee furnished inaccurate particulars by claiming depreciation on non-existent assets.

5. Judicial precedents and their applicability:
The Tribunal referred to several judicial precedents, including the Supreme Court's decision in K.P. Madhusudhanan vs. CIT, which held that the Explanation to Section 271(1)(c) is part of the section and does not require express invocation. The Tribunal also considered the decision in CRN Investments (P) Ltd. vs. CIT, where the penalty was upheld for claiming depreciation on non-existent assets. The Tribunal distinguished this case from others cited by the assessee, noting that in those cases, the claims were bona fide and based on valid documentation.

Conclusion:
The Tribunal concluded that the assessee's claim of 100% depreciation on leased assets was not bona fide and was made with a mala fide intention. The assessee failed to provide sufficient evidence to support the lease transaction and relied on fabricated documents. The penalty under Section 271(1)(c) was upheld, and the order of the CIT(A) deleting the penalty was set aside. The appeal filed by the Revenue was allowed.

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