2012 (6) TMI 352 - HC - Income Tax

Penalty under section 271(1)(c) of the Income-tax Act - Whether order made by Tribunal is perverse inasmuch as the Tribunal has deleted the penalty - Tribunal have held that the assessee was a victim and duped by third parties Held that - there was evidence and material to show that the respondent-assessee was not involved and in fact had been deceived and had suffered because of malevolent acts of others. The directors of the respondent-assessee were not arrested but on complaint made by the respondent-assessee, an FIR was registered and third persons were arrested. It is not possible to say that the findings recorded are perverse. Decided in favour assessee.

Issues:
1. Whether the Income-tax Appellate Tribunal's order deleting the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 is perverse?
2. Whether the assessee is entitled to claim depreciation on gas cylinders?
3. Whether penalty imposition is justified in a case where the assessee was a victim of deception by third parties?

Issue 1:
The High Court examined whether the Income-tax Appellate Tribunal's decision to delete the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 was perverse. The Tribunal had held that the assessee was duped by third parties, M/s. Modern Engineering and Fabricators and M/s. Sears Leasing Industries, and therefore, the penalty was unjustified. The Commissioner of Income-tax (Appeals) and the Tribunal found that the assessee was a victim and not involved in any wrongdoing. The High Court upheld this finding, emphasizing that the assessee acted in good faith and was cheated by unscrupulous individuals, leading to the deletion of the penalty.

Issue 2:
The Court analyzed whether the assessee was entitled to claim depreciation on gas cylinders. The assessee had claimed 100% depreciation on gas cylinders purchased from Modern Engg. and Fabricators and leased to Sears Leasing Industries. However, investigations revealed that the transactions were bogus, and the parties involved were non-existent. The Assessing Officer denied the depreciation claim, citing lack of ownership of the gas cylinders. The Court agreed with this decision, stating that depreciation cannot be granted when the asset does not exist or is not used for business purposes.

Issue 3:
The Court considered whether penalty imposition was justified in a scenario where the assessee was a victim of deception by third parties. The assessee contended that it had been cheated by individuals involved in the transactions, and it had filed a police complaint against them. The Court noted that the assessee did not benefit financially from the transactions and had acted in good faith. The police investigation corroborated the assessee's claim of being deceived. Consequently, the Court held that no penalty should be levied on the assessee, amounting to Rs. 3,71,984, as the assessee was not complicit in the fraudulent activities.

In conclusion, the High Court upheld the Tribunal's decision to delete the penalty imposed on the assessee under section 271(1)(c) of the Income-tax Act, 1961. The Court found that the assessee was a victim of deception by third parties and had not acted fraudulently. Additionally, the Court agreed that the assessee was not entitled to claim depreciation on gas cylinders due to the lack of ownership and the non-existence of the assets in question. The judgment favored the respondent-assessee, emphasizing their innocence in the fraudulent transactions and the lack of grounds for penalty imposition.

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