2014 (10) TMI 392 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - Claim of depreciation on leased assets - Inaccurate particulars furnished - sham transactions - Tax avoidance - Held that - The search/survey operation on M/s. Western Pacques India Ltd., which was one of the major lessees having the transaction of lease with the assessee, it was found that the leased assets were neither installed nor put to use by the lessee and were in fact non-existent - the most of the assets stated in the lease agreement were not eligible for 100% depreciation - there were huge over invoicing of the assets - even the assessee itself, in the statement of facts has mentioned that in some cases the party (lessee) had taken the assessee for a ride by cheating the assessee with regard to the purchase of assets - The assessee had come to know about this fact only from the assessment order - This explanation given by the assessee itself proves that the assessee neither purchased/owned the alleged leased assets nor was aware as to whether the said assets were ever purchased by the lessees - Had the assessee leased the assets in question, the assessee firstly would have purchased those assets either from the manufacturer in case of simple lease transactions and/or from the lessee itself in case of sale and lease back transaction - When the assessee itself was not aware about the existence of assets, it was obvious that such a transaction could not fall in the definition of lease transactions. The assessee had mentioned that the AO in the assessment order had mixed up the facts which would be explained at the time of hearing - the assessee had put a wrongful claim of depreciation and thereby had furnished inaccurate particulars of income for the purpose of concealment of real income, hence, the penalty proceedings were correctly initiated by the AO - It was not a case of tax planning by the assessee so as to avoid or reduce its taxes by remaining within the framework of the law - The transactions entered into by the assessee were sham and bogus transactions which were intended to defeat the provisions of law - tax avoidance by way of tax planning or structuring the transactions so as to reap the largest tax benefit may be permissible under law but fraudulent transfer of assets or income or engaging in sham transactions with the object of reducing the tax liability cannot be said to be a case of tax avoidance but of tax evasion - Any act or attempt to reduce the tax liability by deceit, subterfuge or concealment is not permissible under law - It was a clear cut case of furnishing of inaccurate particulars of income and as such the penalty has been correctly levied by the lower authorities - neither the assessee offered any explanation nor the assessee could show that the claim of the assessee regarding the depreciation was bonafide thus, the order of the CIT(A) is to be upheld Decided against assessee.

Issues Involved:
1. Confirmation of levy of penalty under Section 271(1)(c) of the Income Tax Act.
2. Disallowance of depreciation on leased assets.
3. Alleged discrepancies in the assessment and penalty orders.
4. Nature of lease transactions (whether genuine or sham).
5. Applicability of penalty provisions in cases of assessed loss.
6. Consideration of mens rea (intent) in the imposition of penalty.

Detailed Analysis:

1. Confirmation of Levy of Penalty under Section 271(1)(c) of the Income Tax Act:
The assessee filed an appeal against the confirmation of a penalty of Rs. 1,44,41,888/- levied under Section 271(1)(c) for furnishing inaccurate particulars of income. The penalty was imposed due to the disallowance of depreciation on leased assets, which the Assessing Officer (AO) found to be non-genuine or sham transactions.

2. Disallowance of Depreciation on Leased Assets:
The AO reopened the assessment and disallowed the depreciation claim of Rs. 5,78,23,526/- on leased assets, treating the transactions as financial rather than genuine lease transactions. The AO's detailed investigation revealed that many transactions were bogus, with assets either non-existent, over-invoiced, or junk. The assessee did not contest these findings during the appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] and accepted the department's stand.

3. Alleged Discrepancies in the Assessment and Penalty Orders:
The assessee argued that there were factual discrepancies in the assessment and penalty orders. However, the CIT(A) found that these discrepancies were not raised during the assessment proceedings or in the appeal against the assessment order. The CIT(A) considered these submissions as belated and irrelevant to the penalty proceedings, emphasizing that the assessment and penalty proceedings are distinct and independent.

4. Nature of Lease Transactions (Genuine or Sham):
The AO's investigation revealed that the transactions were not genuine lease transactions but were financial transactions aimed at availing tax benefits. The AO found that the assets were either non-existent or highly over-invoiced, and in some cases, the lessees had already claimed depreciation on the same assets. The CIT(A) upheld the AO's findings, noting that the assessee did not discharge its onus of proving the genuineness of the transactions.

5. Applicability of Penalty Provisions in Cases of Assessed Loss:
The CIT(A) dismissed the assessee's argument that penalty provisions under Section 271(1)(c) are not attracted when the income returned is a loss. The CIT(A) referred to judicial precedents that justify the levy of penalty even in cases where assessed loss is reduced.

6. Consideration of Mens Rea (Intent) in the Imposition of Penalty:
The CIT(A) and the Tribunal both found that the assessee's actions demonstrated a clear intent to evade tax by making bogus claims of depreciation. The Tribunal noted that the assessee's claim of avoiding litigation and buying peace was not plausible, given the substantial amount involved. The Tribunal also emphasized that the assessee failed to offer any convincing explanation or evidence to rebut the findings of the AO.

Conclusion:
The Tribunal upheld the CIT(A)'s order confirming the penalty under Section 271(1)(c), finding that the assessee had willfully concealed particulars of income by making false claims of depreciation on non-genuine lease transactions. The appeal was dismissed, and the penalty of Rs. 1,44,41,888/- was confirmed.

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