Case Law Details

Case Name : Times Guaranty Ltd Vs ACIT (ITAT Mumbai)
Appeal Number : ITA No.1681/M/2007
Date of Judgement/Order : 10/10/2014
Related Assessment Year :
Courts : All ITAT (7317) ITAT Mumbai (2108)

We have considered the rival submissions. A perusal of the record reveals that during 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 alleged leased assets were neither installed nor put to use by the lessee and were in fact non existent. Even, the most of the assets stated in the lease agreement were not eligible for 100% depreciation. It was also found that there were huge over invoicing of the said assets. Even lot of old and discarded junk assets had been introduced in the lease transactions in the garb of sale and lease agreement.

 The AO in the assessment order has discussed in detail the lease transactions, one by one, entered by the assessee with various lessees. A categorical finding has been given by the AO that the transactions in question were in reality loan transactions which were given the colour of lease  transactions, only to avail the tax benefit of depreciation under the Income Tax Act. Even it was also agreed by the assessee with the lessees that a part of such benefit would be passed on to the borrower in the form of interest on the loan amount taken, which was agreed to be recalled in case the assessee company would not get the expected tax benefits from the Income Tax Authorities. The AO has observed that it was a case of trading in tax benefits. Even the AO in the assessment order has categorically observed that it was not only the case of transfer of tax benefits from the borrower to the assessee company, rather was a case of claim of identical benefits by the assessee company when the borrower was also in fact claiming such benefits. The borrower in this case was also claiming deduction of depreciation on the cost of new asset (though capital component of the lease rental) over the lease period at the rate of depreciation of asset at the rate of 25% whereas the lessee was availing the claim of depreciation on an accelerated rate in most of the cases. The AO had called upon the necessary explanations from the assessee on the subject matter and after duly considering the reply/explanations given by the assessee, he concluded that most of the transactions were bogus and the other were sham transactions. Explanations were not only called from the assessee but from the lessees also.

 Even the assessee itself, in the statement of facts submitted before the ld. CIT(A), 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 alleged 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. Thorough investigations were carried out by the AO including explanations called from the respective parties and even the suppliers of the equipments and in most of the cases it was found that either the alleged assets did not exist or the assets were different from that mentioned in the assessment order or the junk assets having no value were shown as the leased assets. The transactions in most of the cases were bogus in nature and in some cases bogus bills were generated. Even the department had traced the bank account of certain parties and the movement of cheques and drafts issued by the supplier and it was found that substantial amount of money deposited in these accounts of the suppliers of machinery had been immediately transferred in the accounts of lessee e.g. in the case of ‘Prakash Industries Ltd.’ In some of the cases, the so called lessee had already claimed depreciation on the assets on the old assets and the assessee again claimed depreciation at the rate of 100% on such assets in the garb of sale and lease back agreements.

After detailed investigations, AO had concluded that the transactions were bogus, sham and colourable devise to evade the tax. The transactions in question at the most could be said to be loan transactions and nothing more than that. We may further note that in appeal against the assessment order, the assessee agreed to the additions made by the AO and did not contest the findings of the AO regarding the transactions being bogus and sham in nature. The assessee, though, before us has taken a plea that there were factual discrepancies in the assessment order, but such a plea was neither taken by the assessee during the appellate proceedings against the assessment order nor in its appeal before the ITAT in the said quantum proceedings, even not during the penalty proceedings before the AO. Such a plea was taken for the first time before the ld. CIT(A) in penalty appeal only. The ld. counsel for the assessee has submitted before us that such a plea was taken before the ld. CIT(A) in quantum proceedings, but since the claim of the assessee regarding capital component was accepted, hence the assessee did not contest or agitate its point. However, we have gone through the grounds of appeal of the assessee put before the ld. CIT(A) during the appellate proceedings against the assessment order and found that no such a plea of factual discrepancies in the order of the AO was taken by the assessee. However, a perusal of the statement of facts put before the ld. CIT(A) in relation to said appeal reveals that 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 above statement of facts shows that the assessee had not agitated about the factual findings or about any major discrepancy going to be root of the case rather it was stated that the AO has mixed up certain facts. The findings arrived at by the AO after making the detailed and elaborated investigation, inquiries and due consideration of the matter were not in fact denied by the assessee. Even, the assessee in the said appellate proceedings agreed that the transactions were loan transactions and did not contest the issue. No such plea about any defect in the findings arrived at by the AO was agitated by the assessee during the penalty proceedings also. It was only for the first time that such a plea had been taken in appellate proceedings against the penalty order. Though the ld. counsel for the assessee has relied upon various case laws to stress the point that the penalty proceedings are different from the assessment proceedings and the assessee can lead further evidence to show that the penalty could not be attracted in its case, however, it is also a settled law that the evidences taken  into consideration during the assessment proceedings, though not conclusive, but have good evidentiary value. By merely pointing some discrepancies in the order of the AO that too at a belated stage during the appellate proceedings against the penalty order, which even could not be verified by the AO due to lapse of sufficient time and non traceability of the concerned folder, itself, is not sufficient to prove that the findings arrived at by the AO that the transactions in question were sham, bogus and colourable devise were not correct. The detailed findings of the AO, the assessee not agitating the findings of the AO in quantum proceedings, no plea of factual discrepancies during quantum proceedings and appeals, even no such plea before AO during penalty proceedings and no rebuttal to the findings of the AO that the transactions were bogus and sham are sufficient facts to hole that the assessee had put a false claim of depreciation during the assessment proceedings. The plea of the assessee that he did not contest the addition to avoid litigation or to buy peace etc. even does not seem plausible. The assessee during the year had claimed depreciation of huge amount of Rs.5,17,09,213/- which was not fund genuine by the AO. The Hon’ble Supreme Court, in the case of “MAK Data P. Ltd. vs. Commissioner of Income Tax-II” civil appeal No.9772 of 2013 date of decision 30.10.13, has categorically held that it is the statutory duty of the assessee to record all its transactions correctly and to clear its true income in the return of income. The AO should not be carried away by the plea of the assessee like “voluntary disclosure”, “buy peace”, “avoid litigation”, “amicable settlement”, etc. to explain away its conduct. The question is whether the assessee has offered any explanation for concealment of particulars of income or furnishing inaccurate particulars of income. Explanation to Section 27 1(1) raises a presumption of concealment, when a difference is noticed by the AO, between reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence. When the initial onus placed by the explanation, has been discharged by him, the onus shifts on the Revenue to show that the amount in question constituted the income and not otherwise. In the case in hand, the assessee has failed to discharge its burden that it has not put a false claim of depreciation and the plea that the finding was not agitated to buy peace or to avoid litigation also does not seem to be justified. The other plea taken by the assessee is that in fact there was no tax effect when the income shown by the assessee in subsequent years is taken into consideration. The assessee on this aspect of the matter has relied upon a chart at page 322 of the paper book. We may find that such a plea of the assessee is also not convincing. The assessee in the assessment year in question has claimed a huge claim of depreciation. Merely because in the subsequent years, the net tax effect would be ‘zero’ or otherwise, does not lessen the burden of the assessee to state true and correct particulars of the income for the year under consideration. In the year under consideration, the assessee had made a false claim of depreciation, is the relevant fact, which we note from the record that the same was correctly noted by the AO.

So far, the contention of the ld. counsel for the assessee that whether a transaction is a lease transaction or a finance transaction is a debatable legal issue, we are not inclined to accept this argument also. Whether a transaction is a lease transaction or a loan transaction, in our view, is a factual issue which is to be decided after appreciation of the relevant facts. If the facts show that the assessee has put a wrong claim of depreciation by showing a finance or loan transaction as a lease transaction, certainly the claim is to be disallowed. However, in cases, where from the facts and evidences on the file it can be shown that the transaction was real or genuine, the relief of claim of depreciation is to be allowed. In the case in hand, from the facts, it was clearly established that 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. It may be observed that 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.

In our view, 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 in this case. So far the reliance of the ld. counsel for the assessee on catena of judgments such as “CIT vs. Development Credit Bank Ltd.” ITA No.5409/M/10 dated 06.09.11 and other decisions as mentioned in the paper book, it can be observed that in all such decisions a categorical finding has been given that the assessee had given a bonafide explanation which was accepted by the concerned judicial authorities. However, in the case in hand, we find neither the assessee offered any explanation nor the assessee could show us that the claim of the assessee regarding the depreciation was bonafide. The various case laws relied upon by the assessee are quite distinguishable when compared to the facts of the case in hand and for the sake of brevity, we do not find it necessary to discuss the facts of each and every case relied upon by the assessee.

In view of our above observations, we do not find any merit in the appeal of the assessee and the same is accordingly hereby dismissed.

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