2018 (10) TMI 245 - HC - Income Tax

Levy of penalty u/s 271(1)(c) - claiming false depreciation - lease transaction not to be a bonafide transaction - Held that - On careful perusal of the documents, it is not in dispute that the assets claimed to have been leased to the said Mafatlal Industries limited, were an integral part of the appellant s factory at Gujarat. The Appellate Authority while confirming the order passed by the Assessing Authority, has held that the machineries being incapable of commercial purchase and sale in the open market, already being an integral part of the factory of the vendor - lessee, and further held that the assessee had earlier also indulged in similar bogus sale and lease back transaction with A.T.V.Projects India Limited, Bombay in 1993 and had subsequently availed of VDIS in 1997, by withdrawing this depreciation. This suggests that the assessees is aware of such mechanism of claiming false depreciation and thus, concealing the income. Assessee could not explain as to why they were not in possession of the original insurance policy and why only copy was obtained from Mumbai. The discrepancy in the date of stamp paper was also pointed out. Thus, in our considered view three authorities have concurrently held on facts against the assessee. While examining the correctness of the order passed by the Tribunal under Section 260A of the Act, we cannot convert ourselves as a third appellate authority over the findings rendered by the Assessing Officer. - Decided against assessee.

Issues Involved:
1. Legitimacy of the lease transaction and the claim of 100% depreciation.
2. Justification for the imposition of penalty under Section 271(1)(c) of the Income Tax Act for concealment of income.

Issue-wise Detailed Analysis:

1. Legitimacy of the Lease Transaction and the Claim of 100% Depreciation:
The appellant, a company registered under the Companies Act, 1956, claimed 100% depreciation on machinery worth ?25,00,000/- leased to Mafatlal Industries Limited. The depreciation claimed was ?12,50,000/- each for the assessment years 1996-1997 and 1997-1998. The Assessing Officer disallowed the claim, finding irregularities in the lease transaction and considering the machinery as an integral part of the factory, incapable of being sold independently. The Commissioner of Income Tax (Appeals) [CIT (A)] and the Income Tax Appellate Tribunal upheld this disallowance, concluding that the transaction was not genuine and was aimed at claiming false depreciation.

2. Justification for the Imposition of Penalty under Section 271(1)(c) of the Income Tax Act:
The Assistant Commissioner of Income Tax imposed a penalty of ?5,31,800/- under Section 271(1)(c) for concealment of income. The appellant's appeal against this penalty was dismissed by the CIT (A) and the Tribunal. The Tribunal found no satisfactory explanation for the lease transaction, deeming it a sham designed to claim undue depreciation. The Tribunal upheld the penalty, citing that the appellant had indulged in similar bogus transactions in the past, indicating a pattern of concealing income.

Appellant's Arguments:
The appellant argued that the sale and leaseback transactions were genuine, substantiated by supporting documents and invoices. They relied on various judgments to assert that mere suspicion cannot justify disallowance of depreciation or imposition of penalty. They contended that the transactions were bona fide and that penalties should not be imposed merely because the depreciation claim was disallowed.

Respondent's Arguments:
The respondent (Income Tax Department) argued that the transactions were simple financial arrangements disguised as lease transactions to claim depreciation. They emphasized that the quantum assessment cannot be challenged during penalty proceedings and that the documents provided by the appellant were created to give a false appearance of a lease transaction. They relied on several judgments to support the imposition of penalties for concealment of income.

Court's Findings:
The court found that the assets in question were integral parts of the factory and could not be sold or leased independently. The transaction was deemed a paper transaction with no real substance, aimed at claiming undue depreciation. The court upheld the findings of the Assessing Officer, CIT (A), and the Tribunal, confirming that the appellant had concealed income and furnished inaccurate particulars, justifying the imposition of penalties under Section 271(1)(c).

Conclusion:
The court dismissed the appeal, affirming the orders of the lower authorities. It held that the appellant's transactions were not genuine and were designed to evade taxes by claiming false depreciation. The penalty imposed for concealment of income was upheld, and the appeal was dismissed with no costs.

← Previous Next →