2013 (12) TMI 599 - AT - Income Tax

Penalty u/s 271(1)(c) due to disallowance of depreciation on account of capitalized value of steel purchased - Held that - there cannot be a straight jacket formula to apply that the assessee has furnished any inaccurate particulars of income but it depends on the facts of each case. - there were purchases and recorded in the books of accounts of the assessee and correctness of the books of accounts of the assessee have not been rejected by department on the ground that the assessee has made bogus purchases. - levy of penalty u/s 271(1)(c) of the Act on the claim of depreciation made by assessee in the assessment years under consideration is not justified. - Decided in favor of assessee.

Summary

Issues Involved:
1. Confirmation of levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Disallowance of depreciation claims for assessment years 2003-04 to 2006-07.
3. Genuineness of steel purchases from group concerns.

Detailed Analysis:

1. Confirmation of Levy of Penalty under Section 271(1)(c):
The primary issue revolves around the confirmation of penalty under section 271(1)(c) for furnishing inaccurate particulars in respect of depreciation claims. The assessee argued that penalty proceedings are separate from assessment proceedings, and mere disallowance of claims does not automatically lead to penalty. The Tribunal referred to various judicial precedents, including the Hon'ble Jurisdictional High Court's decision in CIT V/s Upenda V Mithani, which held that unproved but not disproved explanations do not justify penalty. The Tribunal concluded that the explanation provided by the assessee was unproved but not false, thus invalidating the penalty.

2. Disallowance of Depreciation Claims for Assessment Years 2003-04 to 2006-07:
The assessee's depreciation claims were disallowed due to the alleged non-genuine nature of steel purchases. The Tribunal noted that the assessee had provided invoices and payment proofs via account payee cheques. However, the department relied on the statement of Shri Kokate, who admitted to providing accommodation entries without actual business. The Tribunal observed that the department did not allow the assessee to cross-examine Shri Kokate, which was crucial for a fair assessment. The Tribunal emphasized that the burden of proof lies with the department to establish the non-genuineness of transactions, which was not satisfactorily done.

3. Genuineness of Steel Purchases from Group Concerns:
The genuineness of steel purchases from the concerns of Shri P.K.Agarwal was questioned. The Tribunal highlighted that Shri P.K.Agarwal confirmed supplying steel to the assessee and receiving payments via account payee cheques. The Tribunal also noted that the department failed to examine Shri Hiten Desai, who was allegedly involved in procuring materials. The Tribunal concluded that although the purchases remained unsubstantiated, it did not necessarily imply that they were false. The Tribunal relied on the decision of the Hon'ble Delhi High Court in CIT V/s Rampur Engg. Ltd, which held that disallowance of claims due to insufficient evidence does not automatically lead to penalty under section 271(1)(c).

Conclusion:
The Tribunal, after considering all facts and judicial precedents, held that the levy of penalty under section 271(1)(c) was not justified. The Tribunal emphasized that the explanation provided by the assessee was unproved but not false, and the department failed to provide sufficient evidence to substantiate the non-genuineness of transactions. Consequently, the Tribunal canceled the penalty for all the assessment years under consideration and allowed the appeals of the assessee.