Income Tax Appellate Tribunal - Mumbai
Citurgia Biochemicals Ltd (* M/.S, ... vs Assessee on 2 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "C", MUMBAI
BEFORE SHRI B.R. MITTAL, J.M.
AND SHRI RAJENDRA SINGH, A.M.
ITA No. : 2882/M/10
Assessment Year : 1989-90
ITA No. : 2883/M/10
Assessment Year : 1990-91
ITA No. : 2884/M/10
Assessment Year : 1991-92
ITA No. : 2885/M/10
Assessment Year : 1992-93
ITA No. : 2886/M/10
Assessment Year : 1993-94
ITA No. : 2887/M/10
Assessment Year : 1994-95
ITA No. : 2888/M/10
Assessment Year : 1996-97
ITA No. : 2889/M/10
Assessment Year : 1997-98
M/s. Citurgia Biochemicals Ltd. Dy. Commissioner of Income
(M/s. Jasper Investments Ltd. tax -2(2)
merged with M/s. CBL w.e.f. Mumbai.
1.10.2002)
46, Guru Govind Singh Road
Near J.J. School, Mulund
Vs.
Colony, Mulund (W)
Mumbai-400 082.
PAN NO: AAACJ 0952 B
(Appellant) (Respondent)
Appellant by : Shri N.M. Porwal
Respondent by : Shri V.V. Shastri
2 ITA No. 2882 to 89/M/10
A.Y.89-90 to 97-98
Date of hearing : 2.3.2012
Date of Pronouncement :
ORDER
Per Bench These appeals by the assessee are directed against the different orders dated 9.2.2010, 12.2.2010, 9.2.2010, 9.2.2010, 9.2.2010, 9.2.2010, 12.2.2010, 12.2.2010 and 10.2.2010 of CIT(A) for assessment years 1989-90 to 1994-95 and 1996-97 to 1997-98. Since the dispute raised in all these appeals is common, these are being disposed of by single consolidated order for the sake of convenience. Identical dispute raised in all these appeals is regarding levy of penalty by AO for concealment of income under section 271(1)(c) of the Income tax Act, 1961(The Act).
2. The facts in brief are that the assessee during the Financial Year 1988-89 relevant to assessment year 1989-90 had purchased computers worth Rs.1,00,54,854/- from M/s. Pertech Computers Ltd. (PCL). The assessee had leased these computers to M/s. Altos India Ltd. for 24 months and the period of lease was subsequently increased by 73 months. The assessee had claimed depreciation of Rs.28,80,514/- and investment deposit allowance of Rs.19,55,153/- 3 ITA No. 2882 to 89/M/10
A.Y.89-90 to 97-98 in assessment year 1989-90. In subsequent years, depreciation had been claimed on the said computers. The details of depreciation and investment deposit allowance claimed by the assessee are given below:-
Assessment Depreciation Investment
year deposit
allowance
1989-90 28,80,854/- 19,55,153/-
1990-91 19,20,247/- -
1991-92 9,60,123/- -
1992-93 7,20,255/- -
1993-94 5,40,168/- -
1994-95 4,05,126/- -
1996-97 2,27,884/- -
1997-98 1,70,892/- -
2.1 In assessment years 1989-90 and 1990-91, claims had been allowed under section 143(3). Subsequently, there was search conducted under section 132 at the premises of M/s. PCL on 21.1.1993 on 21.1.1993. Subsequent to the search, M/s. PCL vide letter dated 18.2.1993 addressed to ADI Unit-III, Delhi stated as under :-
"We are willing to surrender lease payment charged to profit or loss account as detailed below: -
A.Y. 1990 Rs. 1,13,30,151/-
A.Y. 1991 Rs. 1,45,32,574/-
A.Y. 1992 Rs. 2,03,01,747/-"
The surrender was subject to the condition that if the department confirms the following deduction which would normally flow. If the transactions is to be treated as finance transaction.
a) The sale will be treated as reverse and consequently profit reduced from the profit of the company.4 ITA No. 2882 to 89/M/10
A.Y.89-90 to 97-98
b) Depreciation will have to be allowed on the equipment covered under the arrangement by the company, since consequent to the reversal of the sale the ownership of such computer will continue to the vest with the company.
c) The interest component with the lease rent is allowed." Subsequently, on 2.3.1993, Sri Dadanbhai who was the director of Altos India Ltd. and chairman of PCL stated as under :-
"I would like to state that physical identification in species pertaining to party to party has not been kept. As such I am not in position to identify the computers pertaining to any particular party. In view of this fact I am surrendering the lease rent charged to Profit and Loss account of M/s. Pertech Computers Ltd. as under:
A.Y. 1990 Rs. 1,13,30,151/-
A.Y. 1991 Rs. 1,45,32,574/-
A.Y. 1992 Rs. 2,03,01,747/-"
2.2 Based on the above statements and findings in the search, assessment for assessment years 1989-90 and 1990-91 were re- opened under section 147. The AO during the reassessment proceedings noted that the computers worth Rs.1,00,54,854/- purchased by the assessee on 15.3.1989 from PCL had been supplied to M/s. Altos India Ltd. who was the manufacturer of the computer and both were connected concerns. On the date of purchase on 15.3.1989, the assessee entered into lease agreement with Altos India Ltd. as per which the said computers were given on lease for 24 months to M/s. Altos India Ltd. The assessee had paid purchase price 5 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 of Rs.1,00,54,854/- to M/s. PCL on 20.3.1989. The AO also noted that on the very same date of purchase i.e. 15.3.1989, M/s. Altos India Limited made agreement of sub lease as per which the said computers were sub leased to PCL who later paid a sum of Rs.50 lacs to the assessee on 20.3.1989 as security deposit. Thus computers purchased by the assessee from PCL remained with the latter and out of the purchase price paid by the assessee, Rs.50.00 lacs was received back as security deposit and balance amount was received back in instalments as lease rent over a period of time. The AO further noted that the computers which were subject matter of lease and sub-lease were not made available for inspection to the authorized officers at the time of search and were not available even during subsequent period for a considerable length of time after the date of search. The assessee explained that the computers were sent by PCL to their Calcutta branch and from there, these may have been moved to other branches. There was no identification number of computers either in the purchase bills or insurance policy taken by M/s. PCL. The claim of return of computers long after search was not verifiable as computers were not identifiable. The assessee was aware of the sub lease as in terms of the sub lease agreement, the sub lessee, i.e. M/s. PCL was required to pay the sub lease rent to the assessee and not to the lessee i.e. M/s. Altos India Ltd. The AO therefore, concluded that the 6 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 lease transaction was not a genuine transaction and it was only a paper transaction to allow benefit to the assessee for claim of depreciation and investment allowance. The AO had therefore disallowed claim of depreciation and investment allowance. 2.3 The assessments for assessment years 1989-90 and 1990-91 had been set aside by CIT(A) on the ground that the assessee had not been given the copies of statements of Shri Dadanbhai and Shri Bharat Goenka and assessee had also not been allowed the opportunity of cross examination. During the fresh assessment proceedings, the assessee was provided copies of statements and opportunity of cross examination. The statements of Shri Bharat Goenka and Shri Dadanbhai during cross examination are reproduced below as ready reference:-
"STATEMENT OF SHRI BHARAT GOENKA Q.4 Mr. Bharat Goenka showing lease transaction documents with Jasper. Please confirm whether these transactions are genuine. Letter dtd.25.2.89 from Altos to Jasper regarding offer. Resolution passed by Altos on 10.3.89. Whether these are genuine?
A.4 I confirm that these are on the letterhead of Altos.
Q.5 Were you involved in any way in negotiating any lease transaction with Jasper?
A.5 Based on my present recollection, I do not think that I was involved with any negotiation with Jasper Investments Ltd.
Q.6 Are you aware whether the internal arrangement referred by you in answer to Q.No.4 of your statement recorded on 27.12.93 was made known to Jasper Investments Ltd.?
A.6 I am unable to comment since I was not involved.7 ITA No. 2882 to 89/M/10
A.Y.89-90 to 97-98 Q.7 I would like you to see the Equipment lease Agreement dated 15.3.89 relating to the lease of computer equipment to M/s Altos India Ltd., delivery certificate of the lease equipment which is at page 26 of the compilation and the Supplementary Lease Agreement dated 11.4.90 letter dated 16.4.90 at page 32 of the compilation and the Insurance Cover Note at page 33 and the further letter dated 7.5.90 at page 33A of the compilation, forwarding the insurance policy to Jasper Investments at page 33B. Would you say that it is clear from the documents that the equipment was leased to Altos and the Insurance policy was also obtained in respect of the equipment which policy was forwarded to Jasper Investments for their record?
A.7 In keeping with the answer given earlier and based on my present recollection, I have no further comments to make and the records speak for themselves.
The answers given by Shri Bharat Goenka speak for themselves. No where Shri Goenka has stated that equipment of Rs. 1.04 Cr. was leased by M/s Jasper Investments Ltd. to M/s Altos India Ltd. and the assets are identifiable.
The relevant questions and answers from the statement of Shri Dadanbhai are reproduced as bellows:
----- -----
STATEMENT OF SHRI DADANBHAI.
Q.3 Do you recall that there was a transaction of sale of computers with Jasper Investments Ltd.?
A.3 I do not recall offhand, any individual transactions.
Q.4 I am showing you invoice-cum-challan dt. 15.3.89 at page 6 to 8 of the compilation.
A.4 Papers appear genuine.
Q.5 From these invoices it would be seen that equipment of the value of
Rs.1,04,54,850/ was sold to Jasper?
A. 5 Yes. I confirm as per the invoice.
Q.7 I am showing you the Equipment Lease Agreement at page 10-25 of the
compilation entered into by Jasper with Altos as well as a Supplementary Lease Agreement which is at page 29 to 31 as well as the Resolution passed by the Directors of Altos at page 2 of the compilation, wherein your name is mentioned. I am also showing delivery certificate confirming that the computer equipment has been delivered by PCL to Altos. Are you, therefore, in a position to confirm that the computer equipment purchased by Jasper from PCL was leased to Altos and delivered to Altos.
A.7 As per the documents presented, the transaction is authentic.8 ITA No. 2882 to 89/M/10
A.Y.89-90 to 97-98 Q.8 I am further showing a letter written by PCL to the ACIT Investigation, New Delhi at page 34. This is in response to the summons u/s 131 of the I.T.Act, wherein it is confirmed that there were sales of computer equipment by PCL to Jasper Investments Ltd. and that on page 2 of the letter (page 35 of the compilation) information has been given to the ACIT that these computers were leased to Altos India Ltd. which were then subleased by Altos and were installed at Calcutta. Please confirm.
A.8 I have no reason to doubt the authenticity of the letter.
Q.9 Is it not therefore clear from the letter that the equipment which was sold by PCL to Jasper and installed at Calcutta was identifiable?
A.9 Yes. It was identifiable on the basis of the letter and annexures.
Q.10 I would like you to see the correspondence entered into the by Jasper Investments Ltd. with Altos regarding the return of the equipment on page 49 of the regarding the question of damages. I am showing you the demand draft at page 50 of the compilation regarding damages, which were paid by Altos for settlement.
A.10 I would go by the letter of Altos on page 49 of the compilation which confirms the return of equipment and closure of transaction.
Q.11 With this background, I would like you to go through your statement at Q.4 of 31.1.1993, where there is a question put about the transaction with Jasper Investment and the nature of transaction. You have replied that you have to ascertain the exact position of the transactions. Now that you have seen these documents referred to in the earlier question, is the trs. Now that you have seen these documents referred to in the earlier question, is the transaction with Jasper Investments Ltd. genuine?
A.1l Yes. As per the documents shown to me, the transaction is genuine."
2.4 The AO on perusal of statements recorded in the cross examination observed that Shri Dadanbhai had only answered that invoices, documents letters etc. were authentic but the entire surrounding circumstances showed that there was no substance in the transaction. The assets purchased had been leased back on the same date to M/s. PCL through M/s. Altos India Ltd. and, therefore, the ownership remained with the original seller. There was no 9 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 identification of computers either in the bills or in the insurance papers. The computers were not found on physical verification. The AO, therefore, concluded that it was only a paper arrangement to claim depreciation by the assessee. The lease was bogus and it was only a financial transaction. The AO therefore disallowed the claim of investment allowance and depreciation in assessment years 1989-90 and 1990-91 in assessments made under section 143(3)/147. In other years which are under consideration in these appeals, claim of depreciation had been disallowed in the normal assessments under section 143(3). The AO had also initiated penalty proceedings for concealment of income under section 271(1)(c) of the Act in all the years. In response to the show cause notice, the assessee submitted that the assessee had placed all facts before the AO and therefore there was no deliberate attempt to conceal particulars of income or to furnish inaccurate particulars of income. On the basis of a particular view taken by the AO, claim of depreciation and investment allowance had been disallowed which cannot be considered as concealment of income. The transactions had not been found to be bogus. It was only held to be a finance lease and therefore depreciation etc. was held not allowable. AO, however, did not accept the contentions raised. It was observed by him that the disallowance made had been confirmed by CIT(A) as well as the Tribunal. The penalty was 10 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 therefore leviable under section 271(1)(c) of the Act. The AO therefore levied penalty @ 100% of tax sought to be evaded plus surcharge in each of the years under consideration. 2.5 The assessee disputed the decision of AO and submitted before CIT(A) that the penalty levied was not valid as the AO had not recorded the satisfaction of concealment in the orders. It was argued that transactions of lease were supported by documents and all the relevant facts had been disclosed before the AO. The payment for purchase of computers had been made by cheque and purchase was supported by invoice. There was lease agreement in support of the lease duly signed by parties. The delivery of goods had taken place as per delivery certificate, and computers had been insured for a sum of Rs.1,00,59,854/-. The computers were also returned by the lessee company. The lease rent received by the assessee had been declared by the assessee as income in the returns of income. None of the parties i.e. Altos India Ltd. or PCL had stated that the agreements were not genuine. Only because, no proper records had been kept by Altos India Ltd. or PCL, no penalty should be imposed. It was also submitted that the assessee was not aware of the subsequent lease of computers by Altos India Ltd. to PCL and as soon as it came to know about this fact, it had terminated the lease agreement vide letter dated 23.8.1996 and computers were returned to the assessee. In 11 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 relation to assessment years 1989-90 and 1990-91 it was also submitted that re-opening proceedings under section 147 for that year were invalid as AO neither recorded the reasons nor a copy of the same was given to the assessee. The Tribunal in the quantum appeal had wrongly dismissed its plea on the reasons recorded on the ground that the demand made by the assessee after a lapse of 10 years could not be entertained. It was also submitted that the decision of the Tribunal in the quantum appeal had been disputed by the assessee before the Hon'ble High Court and the appeal had been admitted and therefore, no penalty should be imposed.
2.6 CIT(A) however rejected all the contentions raised. It was observed by him that in view of retrospective amendment by insertion of sub section 1(B) in section 271 w.e.f. 1.4.1989, no separate recording of satisfaction in the assessment order was required. It was clear from the findings given in the orders of CIT(A) and the Tribunal in the quantum appeals that the assessee had made fictitious claim of investment allowance and depreciation on computers which were not traceable. These computers could not be identified either in the sale bill or insurance bill. The parties i.e. Altos India Ltd. and PCL had entered into similar transaction/arrangements with many other parties including Goyal Gas Ltd. of Delhi and on similar facts, the disallowance of claim had been up held by the Tribunal and order of the Tribunal 12 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 was upheld by the Hon'ble High Court in case of Goyal Gases Pvt. Ltd. vs. CIT (227 ITR 536). CIT(A) also observed that, in quantum appeals, there was a clear finding that the assessee had entered into an arrangement in connivance with Altos India Ltd. and PCL to make claim of investment allowance and depreciation and there was no genuine business requirement for giving the computers on hire. The existence of computers was not proved. The surrounding circumstances clearly showed that it was a bogus arrangement for reducing income. Reliance was placed on the judgment of Hon'ble Supreme Court in the case of CIT vs. Durga Prasad More (82 ITR 540). 2.7 CIT(A) further observed that this was not a case of making disallowance based on a particular view. This was a case of disallowance of bogus claim and under the provisions of Explanation 1 to section 271(1)(c), the assessee is deemed to have concealed the particulars of income. CIT(A) also noted that mensrea or willful concealment was no required longer to be proved by the revenue in view of the judgment of the Hon'ble Supreme Court in the case of Union of India vs. Dharamendra Textile Processors (306 ITR 277). He also referred to the judgment of Hon'ble High Court of Kerala in the case of Kuttookaran Machine Tools vs. ACIT (313 ITR 413) and on the judgment of Hon'ble High Court of Madras in the case of CRN Investment Pvt. Ltd. vs. CIT (300 ITR 342) in which concealment 13 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 penalty levied in relation to bogus claim of allowance / depreciation had been upheld. CIT(A) also made reference to the judgment of Hon'ble High Court of Delhi in the case of CIT vs. Escort Finance Ltd. (183 Taxman 453 ) in which it was held that if claim in the return is found to be ex facie bogus, it would be a case of concealment of income or furnishing of inaccurate particulars of income. CIT(A) therefore confirmed levy of penalty in all the years aggrieved by which the assessee is in appeal before the Tribunal.
3. Before us, the ld. AR for the assessee reiterated the submissions made before lower authorities that the transactions were genuine and supported by proper documents. Though proper records of computers had not been kept by Altos India Limited and PCL, the assessee could not be penalized for their default. The computers were not required to be sub-leased by Altos India Ltd. without the consent of the assessee in view of clause 4(viii) of the lease agreement dated 15.3.1989. As soon as, the assessee came to know about sub lease, it had cancelled the lease agreement vide letter dated 23.8.1996 a copy of which was placed at page-308 of the paper book and PCL had also returned the computers which was clear from the consignment note, octroi receipt and transport bill placed at pages 313-318 of the paper book. M/s. Altos India Ltd. had also paid damages of Rs.5,000/- as was clear from the bill at page 312 of the paper book. Ld. AR also submitted that 14 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 M/s. Dadanbhai in the cross examination had stated that the transactions were genuine which was clear from the statement available at page 324 of the paper book. Assessee was not a party to the deal between Altos India Ltd. and PCL and those parties were not related to the assessee and therefore assessee could not be penalized for their default. The purchase, the lease and returns of computers were supported by documents and computers existed which was clear from the fact that the same were subsequently returned. In relation to assessment years 1989-90 and 1990-91, it was also submitted that the AO had not even given the reasons for re-opening of the assessment and therefore re-assessment proceedings were illegal. There was thus no question of levy of penalty based on addition in such assessments.
3.1 The ld. AR further argued that there was no malafide on part of the assessee in claiming investment allowance and depreciation. Fraud, if any, was done by M/s. Altos India Ltd. and PCL with which assessee was not concerned. It was also pointed out that in similar case of Goyal Gas (P.) Ltd.(Del.) (supra), on which CIT(A) has placed reliance, the Tribunal had set aside the order relating to penalty vide order dated 8.4.1996 as reported in 56 TTJ 320. It was further argued that disallowance had been made by the AO taking a particular view of the factual situation and therefore in such cases where the issue was 15 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 debatable, no penalty for concealment of income could be levied. He also placed reliance on several judgments in support of the case which are mentioned below:-
i) 322 ITR 73 (P&H) CIT vs. Shahabad Co-op. Sugar Mills Ltd.
ii) 300 ITR 308 (P&H) CIT vs. Mehta Engineers Ltd.
iii) 301 ITR 13(Del.) CIT vs. P.H.I Seeds India Ltd.
iv) 288 ITR 570 (Del.) CIT vs. International Audio Visual
v) 288 ITR 670 CIT vs. Nath Bros. Exim International Ltd.
vi) 115 ITD 467 (Pune) in case of ACIT vs. M.M. Satpal 3.2 The ld. DR appearing for the revenue on the other hand strongly supported the order of CIT(A). It was argued that all arguments given by the ld. AR had been duly considered by the Tribunal at the time of hearing of quantum appeal and additions had been confirmed. After considering the entire surrounding circumstances including purchase, lease and sub-lease of computers on the same day through circuitous transactions and the computers being not found, the Tribunal has already confirmed the addition. Similar addition made in case of Goyal Gas (P) Ltd.(supra), has been upheld not only by the Tribunal but also by the High Court. He referred to the judgment dated 14.1.2011 of the High Court of Delhi in Income Tax Appeal No. 1977/2010 in case of CIT vs. Splendor Construction in which it has been held that if the quantum has been upheld by all the authorities including the High 16 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 Court, the question could not be said to be debatable and penalty levied was thus upheld. Referring to the decision of the Tribunal in case of Goyal Gas (P.) Ltd.(supra) relating to penalty as reported in 56 TTJ 320, the ld. DR pointed out that in that case, the Tribunal had confirmed the disallowance only on the ground that ownership and user of computers was not proved. There was no finding about genuineness of transaction. The assessee had also not been given opportunity of cross examination of the parties. Further, in that case, Explanation 1 of section 271 (1)(c) had not been applied by the authorities below and penalty had been imposed under the main section under which burden was on the department to prove concealment. The Tribunal had therefore restored the matter to AO for fresh decision after necessary examination and opportunity of cross examination to the assessee. In the present case, the assessee had been given opportunity of cross examination and there was also finding of non genuinesess of transactions and Explanation 1 to section 271(1)(c) had also been invoked. Therefore, decision in case of Goyal Gas (P.) Ltd. (supra), was of no help to the assessee. The ld. DR also placed reliance on the judgment of the Hon'ble High Court of Delhi in case of CIT vs. Zoom Communication (P.) Ltd. (191 Taxmann 179) in which under similar circumstances levy of penalty has been upheld. 17 ITA No. 2882 to 89/M/10
A.Y.89-90 to 97-98
4. We have perused the records and considered the rival contentions carefully. The dispute is regarding levy of penalty under section 271(1)(c) of the Act in relation to additions made by the AO on account of disallowance of depreciation and investment allowance in the assessment years under reference. The assessee had purchased computers worth Rs.1,00,54,854/- from M/s. PCL. These computers had been leased to M/s. Altos India for 24 months in assessment year 1989-90 which was the first year. The assessee had claimed both depreciation and investment allowance on these computers and in subsequent years claim had been made on account of depreciation only. In assessment years 1989-90 and 1990-91 the claims had been allowed by the AO under section 143(3). Subsequently, during the course of search conducted on 21.1.1993, it was found that claim of purchase and lease of computers was only an arrangement to claim deduction on account of investment allowance and depreciation. It was found that the computers after purchase from PCL had been leased to Altos India Ltd. on the same day and the latter had sub- leased the computers on the same day to PCL. Thus the computers remained with PCL and the assessee was given the benefit of huge deduction on account of investment allowance and depreciation in several years. Further about 50% of the price of the computers i.e. Rs.50.00 lacs had also been given back to the assessee by PCL as 18 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 deposit. At the time of search, the computers, were not made available for verification and these could not be made available for a considerable long period of time even after search. Though PCL had issued purchase vouchers and computers were also insured but there was no identification of computers on these documents. 4.1 Soon after the search, PCL vide letter dated 18.2.1993 expressed willingness to surrender the lease payment claimed in the P&L Account subject to condition that interest component should be allowed and the sale by the assessee should be reversed. Further, Shri Dadanbhai who was director of both PCL and M/s. Altos India Ltd. admitted on 2.3.1993 that no identification of computers was kept and he was not able to identify the computers. He also surrendered lease rent charged in the P&L Account. The assessments for assessment years 1989-90 and 1990-91 were therefore re-opened and in the reassessment, the claims had been disallowed by the AO. In subsequent years, claims had been disallowed under normal assessment. Though the assessee in the assessment/reassessment proceedings claimed that computers were returned by M/s. PCL but that was only in 1996, many years after the search, and such claim was not verifiable as the computers originally purchased and leased were not identifiable. Considering the entirety of facts and circumstances and tests laid down by Hon'ble Supreme Court in case 19 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 of D.P. More (supra), both CIT(A) and ITAT have held that the transactions shown as purchase and lease and sub-lease of computers was only a paper arrangement and it was only a financial transaction and, therefore, the disallowance of investment allowance and depreciation made by the AO had been upheld. The Tribunal also noted that it did not conform to normal human reasoning that M/s. Altos India Ltd. which was the manufacturer of computers would sell the computers to its agent PCL and thereafter take back the same computers on lease and pay huge lease charges. The additions thus had been consistently upheld both by CIT(A) and the Tribunal. The AO has also levied penalty for concealment of particulars of income/furnishing inaccurate particulars of income which has also been confirmed by CIT(A).
4.2 The ld. AR for the assessee has reiterated before us the submissions made in the quantum proceedings that the transactions were genuine which were supported by documents. It has also been submitted that Shri Bharat Goenka and Shri Dadanbhai in their statements during cross examination had subsequently confirmed that the transactions of lease were genuine. These statements have been reproduced at pages 5 to 7 of this order earlier. A careful perusal of these statements shows that Shri Bharat Goenka in response to Q.No.4 as to whether the transactions were genuine, only stated that 20 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 these were on the letter head of M/s. Altos India Limited. He was thus evasive and did not confirm that transactions were genuine. Similarly, Shri Dadanbhai in response to Q.No.4 submitted that papers relating to purchase etc. appeared genuine and therefore, did not clearly confirmed the genuineness. Similarly in response to Q.No.7 he only stated that the transaction was authentic as per documents presented. Further in response to Q.No.11 regarding genuineness of transaction, Shri Dadanbhai only stated that transactions were genuine as per documents. He never stated that the transactions were real and genuine and was thus evasive. It may be noted that as pointed out earlier, both PCL and Dadanbhai had agreed to surrender the claim of deduction made and even in the cross examination they have not clearly confirmed the transactions as genuine. Therefore, in our view the statements in cross examination are of no help to the assessee. 4.3 In relation to assessment years 1989-90 and 1990-91, ld. AR has also argued that the assessee had not been given copy of reasons recorded and, therefore, reopening of the assessment was itself invalid. This aspect has also been dealt with by ITAT in the quantum appeals. The Tribunal noted that the reasons had been given in the Assessment orders and the assessee had made the claim for copy of reasons recorded after more than 10 years and therefore such claim 21 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 could not be accepted. There is nothing produced before us to counter the finding of the Tribunal.
4.4 It has also been argued by the ld. AR that there was no malafide on the part of the assessee in claiming investment allowance, and depreciation and, therefore, no penalty should be levied under section 271(1)(c). We don not find any merit in such contentions. As held by Hon'ble Supreme Court in the case of, Union of India Vs Dharamendra Textile Processors (306 ITR 277) penalty under section 271(1)(c) is only a civil liability to compensate the Govt. for loss of revenue. The Hon'ble Supreme Court have also held that willful concealment or mensrea is not required to be proved by the revenue. Therefore, penalty under section 271(1)(c) has to be levied in all cases covered by provisions of Explanation-I to section 271(1)(c) as per which there will be a case of penalty if in relation to any addition, the assessee is not able to offer any explanation or offers explanation which is found to be false or assessee is not able to substantiate the explanation and is also not able to prove that the explanation is bonafide. The assessee in this case gave the explanation that transactions of purchase and lease were genuine and supported by documents but the documents did not give identification of computers. The computers are claimed to have been purchased from PCL, who was selling agent of M/s. altos (I) Ltd., the manufacturer and leased to the manufacturer 22 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 on the same day, and manufacturer sub-leased on the same day to PCL, and thus computers remained with the seller and the assessee claimed huge benefits of investment allowance and depreciation. Further, 50% of purchase price was returned to the assessee as deposit. It was thus a financial transaction which had been given the colour of lease transaction through circuitous deals on the same day to help the assessee to evade taxes. The argument of the ld. AR that the assessee was not aware of the sub lease can not be accepted as in terms of the sub lease agreement, the sub lessee i.e., PCL was required to pay the sub lease rent to the assessee and not to M/s. Altos India Ltd.,the lessee, who had sub leased. Considering the entire surrounding circumstances including the statement of directors at the time of search and all other relevant factors as discussed earlier, it has been rightly held in the quantum appeal that the transactions were not genuine lease transactions and that it was only arrangement to claim investment allowance and depreciation to reduce tax liability. Similar addition has been upheld by Hon'ble High Court in Goyal Gases(supra). 4.5 The explanation of the assessee considering the entire material and surrounding circumstances can not thus be considered as bonafide. Moreover the assessee had not given full details relating to transactions in the return of income. No details were given that computers purchased from the selling agent had been leased to the 23 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 manufacturer who, in turn, sub-leased the same to the selling agent on the same day in a circuitous transaction. All these facts came to notice only after search. Thus, the assessee had also failed to give complete details relating to these transactions. The ld. AR for the assessee has also argued that the issue is debatable and assessee has filed appeal against quantum order of the Tribunal before Hon'ble High Court which has been admitted. Therefore, explanation of the assessee should be considered as bonafide. We do not find any substance in the argument advanced. It is not a case of allowability of a claim which is debatable and on which two views are possible. It is a case of finding about genuineness of the transaction and the entire surrounding circumstances and material on record support the finding that the transactions were not genuine lease transactions. Therefore the arguments of the assessee is rejected.
4.6 The ld. AR for the assessee has also argued that in similar case of Goyal Gases (P) Ltd.(supra), in which there was similar disallowance of depreciation, the CIT(A) had confirmed the penalty levied under section 271(1)(c) which was set aside by the Tribunal as reported in 56 TTJ 320. We have carefully perused the said order of the Tribunal in relation to section 271(1)(c) in case Goyal Gas P. Ltd.(supra). The said case is clearly distinguishable. In that case, the Tribunal noted that disallowance of depreciation had been made on the ground that 24 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 ownership and user had not been proved. There was no finding on genuineness of transaction. The assessee had also not been allowed opportunity of cross examination. Further, Explanation I to section 271(1)(c) had also been not applied in that case. Penalty had been levied under the main provisions of section 271(1)(c) under which burden was on the assessee to prove concealment. The Tribunal had therefore set aside the order and restored the matter to the file of AO for fresh order. In the present case, there is a clear finding regarding genuineness of transaction and cross examination has also been allowed. Explanation-I to section 271(1)(c) has also been applied. The case of Goyal Gas (P) Ltd. (supra), therefore, is of no help to the assessee.
4.7 Similarly, several other cases relied by the ld. AR as mentioned earlier are distinguishable. The judgments of Hon'ble High Court of Punjab and Haryana in case of CIT vs. Shahabad Co-operative Sugar Mills (supra), is clearly distinguishable. In that case, it was held that making wrong claim of depreciation could not be considered at par with concealment or furnishing inaccurate particulars of income. It may be noted that Explanation 1 to section 271(1)(c) had not been invoked in that case as per which any addition covered by the said Explanation is deemed to be concealment of particulars of income. Moreover, the judgment of Hon'ble Supreme Court in case of 25 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 Dharmendra Textiles Processors (supra), had also been not brought to the notice of the Hon'ble Court. The judgment of Hon'ble High Court of Punjab & Haryana in case of CIT vs. Mehta Engineers Ltd. (supra), is also distinguishable. In that case, addition was on account of disallowance of education expenses. The expenditure had been incurred on the basis of agreement as per which the person sent for education had to serve the assessee for at least three years on return from education. Hon'ble High Court noted that there was no finding that the agreement was false or fabricated or not genuine. All facts had been disclosed. It was therefore held that there was no concealment of income and explanation of the assessee was considered bonafide. In the present case, there is a clear finding that the transaction was not genuine and it was only an arrangement. The said case is, therefore, not applicable.
4.8 In case of CIT vs. PHS Seeds India Ltd. (supra), the assessee had earned interest of Rs.12,07,217/- on FD and had paid interest of Rs.8,89,897/- on overdraft facility (OD) opened on pledging the FD. The assessee had deducted the interest paid on the OD and offered only net interest income of Rs.3,17,319/- . The AO attributed the interest payment to the agricultural operations in which the assessee was engaged and, therefore, disallowed the same. The Tribunal observed that the assessee had opened OD only to preserve FD which 26 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 was source of income as otherwise the assessee would have to break FD and accordingly held that the Explanation that interest paid was linked to the interest recovered on the FD was bonafide and no penalty could be levied. The Hon'ble High Court of Delhi upheld the order of the Tribunal holding that when two opinions were possible and the claim had been made adopting one interpretation, no penalty should be levied. In the present case the claim has not been made adopting a possible interpretation but it is a case of bogus claim using a device of lease arrangement and, therefore, the case is different. Similarly the case of CIT vs. International Audio Visual (supra), is also distinguishable. In that case, the assessee had sold dubbing rights to a foreign company and income from the same had been claimed exempt under section 80 HHC. The AO disallowed the same holding that the sale was not of goods or merchandise covered under section 80HHC. The assessee explained that it had made claim under the bonafide belief that the same was covered under section 80HHC as proceeds were received in convertible foreign exchange. The Hon'ble Delhi High Court held that the explanation of the assessee had to be considered as bonafide and no penalty was leviable. In the present case as we have held earlier the explanation of the assessee cannot be considered as bonafide. In the case of CIT vs. Nath Bros. Exim International (supra), the assessee had treated dividend income as business income 27 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 and claimed the benefit of Explanation (baa), of section 80 HHC and AO disallowed the claim and levied penalty under section 271(1)(c). The Hon'ble High Court of Delhi held that the assessee had given full facts and only it was a case of erroneous claim and therefore no penalty was leviable. In the present case, we have held earlier that it was not a case of wrong claim but bogus claim using a device to avoid tax and, therefore, the said case is of no help to the assessee. The ld. AR has also placed reliance on the decision of the Tribunal in the case of ACIT vs. M.M. Satpal (supra). In that case penalty under section 271(1)(c) had been levied on account of addition of capital gain on sale of land. The assessee had claimed that the land was agricultural and capital gain was exempt. The Tribunal noted that in the earlier year land had been treated as agricultural land by the AO as claim under section 54B was allowed. The land had also been classified as agricultural in the revenue records and, therefore, the Tribunal held that the explanation of the assessee had to be considered as bonafide and no penalty under section 271(1)(c) could be levied. The said case is obviously different from that of the assessee and, therefore, is of no help to the assessee.
5. In view of the foregoing discussion and for the reasons given earlier, we are of the considered view that penalty under section 28 ITA No. 2882 to 89/M/10 A.Y.89-90 to 97-98 271(1)(c) has been rightly levied in this case. We, therefore, confirm the orders of the CIT(A) upholding the penalty.
6. In the result all the appeals of the assessee stand dismissed. Order pronounced in the open court on 27.3.2012.
Sd/- Sd/-
(B.R. MITTAL) (RAJENDRA SINGH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dated: 27.3.2012.
Jv.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR " " Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.