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2014 (2) TMI 476 - AT - Income TaxConfirmation of Penalty u/s 271(1)(c) of the Act Nature of Lease Whether the lease was a finance lease or it was an operating lease between the assessee and RSEB Held that - The Tribunal has not accepted that the assessee has adopted colourable device in order to reduce its tax liability and has stated that the agreement entered into between the parties, i.e assessee and RSEB were legal - The Tribunal has also held that there a sea change has taken place by delivery of the judgment of the Hon ble Apex Court in the case of Asea Brown Bovery Ltd (supra) in respect of Finance lease and to allow depreciation to the lessee and not to the lessor. The agreement between the assessee and RSEB was in the nature of finance lease - Thus the assessee is not entitled for depreciation on the lease assets - if the assessee made a claim bonafide and also offered explanation which has not been accepted but it is not false or is not of the nature that the assessee is not able to substantiate its explanation, the provisions of section 271(1)( c ) of the Act is not attracted - it cannot be said that the assessee has furnished inaccurate particulars of income and/ or the assessee has concealed its income Relying upon CIT v. Reliance Petroproducts (P.) Ltd. 2010 (3) TMI 80 - SUPREME COURT - merely because the claim of the assessee has not been accepted but the assessee has made the bonafide claim, the provisions of section 271(1)( c ) of the Act are not attracted thus, the levy of penalty in the case is not justified Decided in favour of Assessee.
Issues Involved:
1. Confirmation of levy of penalty under section 271(1)(c) of the Income Tax Act, 1961. 2. Whether the penalty order is barred by limitation under section 275(1)(a) of the Act. Issue-wise Detailed Analysis: 1. Confirmation of Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961: The assessee entered into a sale and leaseback agreement with the Rajasthan State Electricity Board (RSEB) for the purchase of Shunt Capacitors worth Rs. 3.95 crores. The Assessing Officer (AO) found that these assets were previously purchased by RSEB from Bharat Heavy Electricals Limited and M.B. between 1988 and 1993, and RSEB had already claimed 100% depreciation on them. The AO concluded that the transaction was not a true lease but a financial transaction aimed at claiming inflated depreciation to reduce tax liability. Consequently, the AO disallowed the depreciation claim of Rs. 1,97,50,000/- and initiated penalty proceedings under section 271(1)(c). The Commissioner of Income Tax (Appeals) [CIT(A)] initially allowed the depreciation claim, but the Tribunal later reversed this decision, holding that the transaction was a finance lease. The AO then levied a penalty of Rs. 1,36,27,500/- for each assessment year, which was confirmed by the CIT(A) on the grounds that the lease transaction was a finance transaction, making the depreciation claim factually wrong. The Tribunal, however, noted that the issue of whether the transaction was a lease or finance lease was debatable until the Supreme Court's decision in Asea Brown Boveri Ltd. v. Industrial Finance Corporation of India, which clarified that in finance leases, the lessee is considered the owner for depreciation purposes. The Tribunal also observed that the agreements between the assessee and RSEB were deemed legal, and there was no colorable device to reduce tax liability. Therefore, the Tribunal held that the penalty under section 271(1)(c) was not justified, as the claim was made in good faith and was debatable at the time. 2. Whether the Penalty Order is Barred by Limitation under Section 275(1)(a) of the Act:The assessee contended that the penalty proceedings were barred by limitation, arguing that the penalty order should have been passed by 30.9.2007, given that the Tribunal's order was dated 28.2.2007. However, the AO and CIT(A) held that the penalty order dated 30.6.2009 was within the limitation period, as the assessment order giving effect to the Tribunal's order was passed on 26.12.2008. The Tribunal did not delve into this issue, as no submissions were made before it regarding the limitation argument. Consequently, Ground No.1 in both appeals was rejected. Conclusion:The Tribunal allowed the appeals in part, deleting the penalties for both assessment years, as the issue of depreciation claim was debatable and made in good faith. The Tribunal rejected the ground concerning the penalty order being barred by limitation due to lack of submissions. The order was pronounced in the open court on 7th February, 2014.
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