2016 (1) TMI 129 - AT - Income Tax

Penalty u/s 271(1)(c) - Reopening of assessment - lower appellate order deleting depreciation disallowance - Held that - A perusal of the case file reveals that the installation report of this asset. Page 41 of the paper book reveals lease rent income therefrom in assessee s P & L account. Page 43 is sales tax challan of the asset. It transpires from the case file that this Kanpur entity went into liquidation. The assessee filed company application before hon ble Allahbad high court for inspection and possession of its lease asset. More particular, the air pollution control equipment in question by specifically stating value thereof as per lease agreement dated 18-03- 1996. Their lordships passed order 11-12-2002 issuing necessary directions to the official liquidator. He issued intimation to assessee on 08-01-2003 appointing a valuer for inspecting the factory site. This valuer visited the factory site. We confronted ld. department representative with all these overwhelming evidence. He sought time to produce the search inventory. The same stands submitted in the courses of hearing. Page 53 thereof reveals that the very air pollution control equipment was found during the course of search. We observe on the basis of these facts and evidence that the assessee has been able to prove genuineness of its depreciation claim qua the air pollution control equipment in question leased out to M/s Rajendra Steels Ltd, Kanpur. The Revenue s argument accordingly are declined. We affirm the CIT(A) s findings extracted hereinabove granting depreciation relief to assessee. The Revenue s second substantive ground fails. This failure of Revenue s second substantive ground renders entire reassessment unsustainable in law. All other disallowances/additions of loss on shares and investments and that of depreciation are deleted as a necessary corollary. Section 271(1)(c) penalty relating to depreciation claim hereinabove is allowed since the main disallowance/addition does not survive. - Decided in favour of assessee.

Summary

Issues Involved:

1. Depreciation claim on assets sold and leased back.
2. Disallowance of business loss on sale of investments.
3. Reopening of assessment under Section 148.
4. Penalty proceedings under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Depreciation Claim on Assets Sold and Leased Back:

The assessee claimed depreciation of Rs. 1,71,92,701 on assets sold and leased back. The CIT(A) relied on the tribunal's special bench decision in ICICI Ltd vs. DCIT to reject this claim. The Revenue's cross appeal sought to restore the disallowance of Rs. 38,24,344 on assets leased to M/s Rajendra Steels Ltd., Kanpur. The Tribunal upheld the CIT(A)'s decision, noting that the assessee provided sufficient evidence, including purchase invoices, delivery challans, and lease agreements, to substantiate the asset's existence and installation. Additionally, the asset was found during a search at Rajendra Steels Ltd., further supporting the assessee's claim. Consequently, the Tribunal affirmed the CIT(A)'s findings and granted the depreciation relief to the assessee.

2. Disallowance of Business Loss on Sale of Investments:

The Revenue's appeal contested the CIT(A)'s decision to treat the loss on the sale of investments amounting to Rs. 74,78,000 as a business loss instead of a capital loss. The Tribunal noted that the CIT(A) had allowed the depreciation claim and treated the loss on sale of investments appropriately. Since the reopening of assessment was based solely on the depreciation issue, and the Tribunal upheld the CIT(A)'s decision on that matter, the disallowance of the business loss on the sale of investments was also deemed unsustainable. Thus, the Tribunal deleted the disallowance of Rs. 74,78,000.

3. Reopening of Assessment under Section 148:

The assessee challenged the validity of the reopening of assessment, arguing that the sole reason for reopening (depreciation disallowance of Rs. 38,24,244) stood deleted. The Tribunal referred to various case laws, including CIT vs. Mohmed Juned Dudani and CIT vs. Living Media India Ltd, which supported the view that if the sole reason for reopening is deleted, the entire reassessment becomes unsustainable. The Tribunal observed that the Revenue's appeal against the deletion of the depreciation disallowance was already decided in the assessee's favor. Therefore, the reassessment itself was quashed, rendering all other additions and disallowances unsustainable.

4. Penalty Proceedings under Section 271(1)(c):

The assessee's appeal against the CIT(A)'s order in penalty proceedings under Section 271(1)(c) was also considered. Since the main disallowance/addition did not survive, the penalty of Rs. 67,73,023 relating to the depreciation claim of Rs. 1,71,92,701 was deemed unsustainable. Consequently, the Tribunal allowed the assessee's appeal and deleted the penalty.

Conclusion:

The Tribunal dismissed the Revenue's appeals for assessment years 1996-97 and 1997-98, and allowed the assessee's appeals, quashing the reassessment and deleting the disallowances and penalty. The order was pronounced in the open court on 30.11.2015.