2012 (7) TMI 97 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - AO stated that assessee had claimed depreciation at 100% on special grade steel rolls purchased by it and such castings were leased by the assessee to one - the lease transactions were not genuine, but was only a sham arrangement for providing finance and claiming depreciation - Held that - As per the lease deed it was clear that the lessor was to purchase equipments selected by the lessee from the supplier chosen by the lessee. According to him, the lessees concerned selected suppliers and based on such selection, assessee had purchased items from the suppliers - The lessor is not a manufacturer nor a dealer and the equipment was to be selected and examined by lessee, the equipment was to be received by the lessee directly from the supplier. In such a situation, assessee cannot fault the assessee if it had believed the documents furnished by the lessee for receipt of the items at their premises. Assessee might have chosen to withdraw the depreciation based on subsequent developments - mere withdrawal of depreciation by the assessee at the assessment stage itself does not amount to be a valid reason for treating the transaction as non-genuine and for coming to a conclusion that it had concealed income or furnished inaccurate particulars of such income. Incorrect claim by itself will not tantamount to furnishing of inaccurate particulars - thus, levy of penalty u/s 271 (1)(c) was not warranted - decided in favour of assessee.

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income-tax Act, 1961.
2. Genuineness of lease transactions and depreciation claims.
3. Reopening of assessment.
4. Explanation and evidence provided by the assessee.
5. Applicability of precedents and judicial interpretations.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The primary issue was whether the penalty of Rs. 56,55,061 levied by the Assessing Officer (A.O.) under Section 271(1)(c) of the Income-tax Act, 1961, for furnishing inaccurate particulars and concealing income was justified. The A.O. contended that the assessee had claimed depreciation on transactions that were not genuine, thus concealing income.

2. Genuineness of Lease Transactions and Depreciation Claims:
The assessee, engaged in hire purchase finance and leasing, claimed 100% depreciation on special grade steel rolls purchased from M/s ORV Castings Pvt. Ltd. and leased to M/s Bellary Steels and Alloys Ltd., totaling Rs. 1,19,64,480/-. The A.O. concluded that the lease transactions were sham arrangements for claiming depreciation. Similarly, the assessee claimed 25% depreciation on machineries purchased from M/s Atin Industries and leased to M/s Jay Agrochem Ltd., which the A.O. also found to be non-genuine. Despite the assessee's withdrawal of the depreciation claims, the A.O. proceeded with penalty proceedings, asserting that the transactions were not genuine.

3. Reopening of Assessment:
The assessment was reopened to include the purchase of special machinery costing Rs. 50,51,515/-, leased to M/s Bellary Steels and Alloys Ltd., which was not considered in the original assessment. The A.O. disallowed the depreciation claim on these purchases as well, concluding that the transactions were financial arrangements rather than operational leases.

4. Explanation and Evidence Provided by the Assessee:
The assessee argued that it acted under a bona fide belief in the genuineness of the transactions based on documents provided by the lessees. The assessee provided detailed documentation, including purchase orders, invoices, payment details, weighment certificates, and installation certificates, to support the transactions. The assessee contended that it had no reason to doubt the records submitted by the lessees and that the transactions were conducted in the normal course of business.

5. Applicability of Precedents and Judicial Interpretations:
The assessee referenced a previous order by the Tribunal in its own case for earlier assessment years, where similar transactions were considered, and the penalty was deleted. The Tribunal had found that the documents furnished by the assessee were not false, and the mere withdrawal of depreciation did not justify penalty. The Department argued that the decision was prior to the Supreme Court's ruling in Dharmendra Textile Processors, which held that mens rea was not required for penalty under Section 271(1)(c).

Tribunal's Conclusion:
The Tribunal reviewed the detailed documentation and explanations provided by the assessee. It noted that the transactions were conducted in the normal course of business, and the assessee had relied on documents provided by the lessees. The Tribunal found that the assessee's explanation was bona fide and that the mere withdrawal of depreciation claims did not constitute concealment of income or furnishing inaccurate particulars. The Tribunal also referenced the Supreme Court's decision in Reliance Petroproducts Pvt. Ltd., which held that an incorrect claim does not automatically amount to furnishing inaccurate particulars.

Judgment:
The Tribunal concluded that the levy of penalty was not warranted and deleted the penalty. The appeal filed by the assessee was allowed.

Order Pronouncement:
The order was pronounced in the Court on Thursday, the 31st of May, 2012, at Chennai.

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