Delhi H.C : perverse inasmuch as the Income-tax Appellate Tribunal has deleted the penalty of Rs. 3,71,984 imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961

High Court Of Delhi

CIT vs. Sangeeta Leasing

Assessment Years : 1990-91 And 1991-92

Section : 271(1)(C)

Sanjiv Khanna And R.V. Easwar, JJ.

IT Appeal No. 64 Of 2004

November 29, 2011


1. By an order dated March 15, 2004, the following substantial question of law was framed :

“Whether the order made by Income-tax Appellate Tribunal is perverse inasmuch as the Income-tax Appellate Tribunal has deleted the penalty of Rs. 3,71,984 imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961 ?”

2. It is noticeable that the total penalty amount is Rs. 3,71,984 which is less than the amount stipulated in the Instructions dated February 9, 2011.

3. In the present case, the Commissioner of Income-tax (Appeals) and the Tribunal have held that the assessee was a victim and duped by third parties, namely, M/s. Modern Engineering and Fabricators and M/s. Sears Leasing Industries Limited. The Commissioner of Income-tax (Appeals) has also referred to an FIR which was registered at the instance of the respondent-assessee and the directors/officers of M/s. Sears Leasing Industries Limited were arrested. These are findings of facts. The Commissioner of Income-tax (Appeals) had held as under :

“I have considered the facts and circumstances of this case. The facts mentioned by the Assessing Officer in his order are true but they tell only the half story. It is true that in the appellate order in respect of quantum of appeal the additions have been sustained but it may be mentioned that a perusal of the order would indicate that no adverse view or conclusion was drawn in respect of the assessee’s submission that it has been cheated by other persons. The addition was retained on the ground of law that since it is matter of fact that the assessee did not own the property, the question of grant of depreciation as a less or does not arise. The observation in the appellate order No. 22/ 93-94 dated March 7, 1997, is as under :

The first issue that requires to be decided is that whether the assessee is entitled for the claim of depreciation or not. The submission made by the appellant have been corroborated by the statement of Sh. Deepti Chopra, Sh. G.P. Aggarwal and Sh. Y.P. Tara. These individuals who were involved in the lease transactions have confirmed that the assessee did not enter into lease transaction with M/s. Sears Leasing Industries and the requisite purchase money was advanced, still the fact remains that M/s. Modern Engineers and Fabricators did not manufacture or sell the gas cylinders either to the assessee, the lessor or to its nominee, the lessee, M/s. Sears Leasing Industries. In fact the facts as brought out in the assessment order show that the firm, M/s. Modern Engineers and Fabricators, did not exist. Therefore, even if the assessee’s contention that it acted in most bona fide manner is true still in terms of law, it cannot be held that the assessee is entitled for depreciation. Whenever a depreciation is granted whether to the owner and user or to a lessor on account of the passive user by the lessee, the stipulation of law permit the asset must be existed and must be used for the business must be met. The asset in question, gas cylinders did not either exist nor was it used in business by the lessor or the lessee. Therefore, the action of the Assessing Officer in granting the depreciation is justified. The same is, therefore, upheld.

In order to appreciate and understand the real nature of controversy in this case, it is necessary to reiterate the facts of the case. The facts of the case are as under :

The assessee has claimed 100 per cent. depreciation on empty gas cylinders of Rs. 7,06,860 for the assessment year 1990-91 and Rs.9,05,80 for the assessment year 1991-92. The assessee claimed that it has purchase gas cylinders from one Modern Engg. and Fabricators, Meerut, and the same were leased to a company M/s. Sears Leasing Industries. It paid the purchase price to Modern Engg. Co. by way of cheque which was duly deposited in Modern Engg. Bank account with Canara Bank, Karol Bagh, New Delhi (1990-91) and Punjab and Sind Bank, Sadar Bazar (1991-92). The goods in question gas cylinders were transported by the seller, Modern Engg. Co., to the assessee’s lessee Sears Leasing Co. The Sears Leasing Co. during the assessment year 1991-92 paid an amount of Rs. 13,70,000 to the assessee by way of advance lease rent. It was further found that M/s. Sears Leasing Co. did not have any funds of his own but it got the funds from Modern Engg. Co. The Assessing Officer has, therefore, denied the claim of depreciation to the assessee and has also added the amount of Rs. 13,70,000 (assessment year 1991-92) as the assessee’s income from undisclosed sources on the ground that receipt of money by the assessee is not proved. M/s. Modern Engineers and Fabricators and Sears Leasing Industries are non-existent parties. The assessee has submitted that although it is true that Modern Engineers and Fabricators did not exist and the transactions of purchase of gas cylinders was bogus but the assessee was in no way connected with the bogus transactions and fabrication of evidence in this regard. It is submitted that it has been cheated by an unscrupulous persons mainly one Sh. Y. P. Tara who was director, Sears Leasing Industries. The assessee has submitted that the assessee entered into a transaction of leasing. As is the market practice the entire document in respect of the lease were to be furnished by the brokers and the lessee. The documents in the form of purchase bills, excise gate pass transport receipts were sent to it by the broker and the leasing company. It has made the payment to the account of Modern Engg. Co. and it has received the payment of advance lease rent from its lessee, M/s. Sears Leasing Co. Later on it was found that Modern Engg. Co. did not exist and all these documents were fabricated and bogus and even the accounts of Modern Leasing Co. in the Canara Bank relevant for the assessment years 1992-93 and in the Punjab and Sind Bank, Sadar Bazar, Delhi were not genuine but belonged to the persons connected with the lessee company. The assessee-company was cheated by the lessee company and, therefore, it filed a FIR (No. 421/950 with the Greater Kailash Police Station. The police made enquiries and arrested Sh. Y.P. Tara, director of the lessee Co., M/s. Sears Leasing Co., for the charges introducing forged company, M/s Modern Engg. and Fabricators, through which big deals between Sangeeta Leasing and Modern Leasing were initiated. The police has also charged Sh. Tara for forging documents causing loss to Sangeeta Leasing Co. Sh. Tara has been charged under sections 421/471 and 468 of the Indian Penal Code. He has been arrested and released on bail and the matter is pending with the Magistrate. The assessee has submitted that although its claim of depreciation has been disallowed still no penalty should be levied because it has itself been cheated by certain unscrupulous persons. It has acted in the most bona fide manner. Its conduct in the whole transaction is bona fide and, therefore, no penalty should be levied.

I have considered the facts and circumstances of the case. The facts of the case bring out that the assessee did not own the alleged impugned gas cylinder, therefore, the claim of depreciations has rightly been disallowed. However, penalty in this regard can be sustained only when it is found that the assessee has not acted in a bona fide manner. The statement of the broker, Deepti Chopra and G.P. Aggarwal and brokers to the transactions corroborated the submission of the assessee that they were the brokers to the transactions and it is they who supplied all the documents in respect of purchase transfer and lease to the assessee. This action is also in consonance with the market practice. The most vital point to decide whether the assessee has acted in the conspiracy or not should be answered from the examination of the facts as to who has enjoyed the financial benefits out of the deal or transaction. The accounts of the assessee Modern Engg. in Canara Bank and Punjab and Sind Bank and that of M/s. Sears Leasing Industries were examined in detail during the appellate proceedings in respect of Appeal Nos. 22/93-94 and 171/94-95 dated March 7, 1997. It was found that the credit in the account of Modern Engg. which arose on account of the payments made by the assessee for the purchase of gas cylinder were transferred to the lessee, M/s. Sears Leasing Industries. M/s. Sears Leasing Industries used part of this money for making advance payment of rent and the balance of the amount was utilized by cash withdrawals by one G.Mathew and Sh. Y. P. Tara. It is, therefore, clear that except for receiving the advance rent the assessee did not enjoy any financial benefit out of the balance cash money. It was enjoyed by Sh. Tara with whom the assessee did not have any connection. It is further seen that the accounts of Modern Engg. Co. in Canara Bank opened under the name of one Sh. Raj Kumar was introduced by Sh. Tara who was the director of the lessee company. The evidence do not show that the assessee was in any way involved in the opening of the accounts of Modern Engg. Therefore, in all probability the accounts of Modern Engg. in Canara Bank was owned and controlled by Sh. Tara. It, therefore, proves that the assessee was not connected in the bogus transactions of creation of false documents or in enjoying the fruit of the financial gain which arose on account of this lease transaction. The assessee only made its claim of depreciation which was based on the documents supplied by the broker to the transaction and the lessee company. This conclusion has also been arrived at in the appellate order and it is for this reason that in the appellate order the addition of Rs. 13,70,000 made in the assessment year 1991-92 in respect of the money received by the assessee was deleted. At page 12 of the order it has been observed as under :

Examination of the bank account does bring to the conclusion that the amount in question have been utilized by some unscrupulous individuals for making unlawful gain by duping taxpayers eager to take the benefit of depreciation of lease and for this purpose they contrived a design to evade tax.

It is thus clear that facts found show that the assessee has been cheated for no default of her own. This conclusion is further enforced by the independent enquiries conducted by the police in respect of the assessee’s complaint of cheating. The Greater Kailash Police who enquired the complaint of the assessee examined Sh. Tara and has found that he is guilty of offences of sections 421, 471, 468 of the Indian Penal Code and the police has accordingly charge-sheeted him. Sh. Tara has been arrested and the prosecution proceedings are pending in the Court of Magistrate. This fact also clearly prove that the enquiries made by the police also show that the wrongful loss has been caused to the assessee on account of criminal action of Sh. V.P. Tara. The assessee is not guilty and cannot be said that the bogus and fabricated evidence were created with the consent of the assessee or they were within the knowledge of the assessee. The conduct of the assessee in making the claim of depreciation is bona fide and, therefore, it is held that it is not a fit case for the levy of penalty. Penalty of Rs. 3,71,984 is, therefore, deleted.”

4. The contention of the appellant is that Rs. 6 lakhs was paid to the respondent. On the said aspect the reply of the respondent in the assessment proceedings was as under :

“The lessee, M/s Sears Leasing Ind. Ltd., approached us with a proposal for leasing cylinders. Since we were interested in reducing our tax liability and this proposal enabled us to do so, we accepted the proposal and expressed readiness in finance the gas cylinders worth Rs. 7,06,860. Sears agreed to give us a deposit of Rs. 6 lakhs at the first instance saving us the future interest cost. We thus agreed to the financial lease with Sears Leasing even though involved a loss of Rs.1,06,860. We are deeply shocked to note from your office that apparently, the entire transaction is false and our firm has been completely misled by the lessee, M/s Sears Leasing Ind. Ltd. Based on your investigations a legal notice is being issued to the lessee as to why criminal proceedings may not be initiated against them.”

5. The findings recorded by the Commissioner of Income-tax (Appeals) quoted above indicate that there was evidence and material to show that the respondent-assessee was not involved and in fact had been deceived and had suffered because of malevolent acts of others. The directors of the respondent-assessee were not arrested but on complaint made by the respondent-assessee, an FIR was registered and third persons were arrested. The Assessing Officer in the assessment order did not discuss and consider the factors relied upon by the respondent. The reasoning given by the Commissioner of Income-tax (Appeals) did take into consideration relevant evidence and material. On consideration of the said material a finding of fact was recorded. The said finding of fact has been agreed and accepted by the Tribunal. We cannot reexamine the factual matrix as a first appellate forum/Tribunal. Our jurisdiction is limited and confined to whether the decision of the Tribunal is perverse. Having considered the reasoning given by the Commissioner of Income-tax (Appeals)/Tribunal, it is not possible to say that the findings recorded are perverse.

6. In view of the aforesaid position, we do not find any merit in this appeal. The question is answered in favour of the respondent. The appeal is according disposed of.

[Citation : 343 ITR 428]

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