MEECON P.LTD, MUMBAI V. DCIT CIR 3(2), MUMBAI

ITA 1736/MUM/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3459 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 1997-1998
• Appeal Filed On: 23-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI; RAJEEV GUBGOTRA
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Depreciation; Additional evidence; Question of law; Difference of opinion; Valuation report; Set aside
• Section: 271(1)(c); 143(3); 14A; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI G.S. PANNU, VICE PRESIDENT AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO. 1736/MUM/2016 : A.Y : 1997-98 M/S. MEECON PRIVATE LIMITED C/O. N. VARMA & ASSOCIATES UNIT NO. 118, KAKAD INDL. ESTATE SITARAM KEER ROAD, MAHIM, MUMBAI 400 016. PAN : AAACM2676F (APPELLANT) VS. DCIT, CIRCLE-3(2), MUMBAI. (RESPONDENT) APPELLANT BY : DR. K. SHIVARAM RESPONDENT BY : SHRI RAM TIWARI & SHRI RAJEEV GUBGOTRA DATE OF HEARING : 05/04/2019 DATE OF PRONOUNCEMENT : 30/04/2019 O R D E R PER G.S. PANNU, VICE PRESIDENT : THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AG AINST THE ORDER OF THE CIT(A)-8, MUMBAI DATED 28.12.2015 PERTAINING TO THE ASSESSMENT YEAR 1997-98, WHICH IN TURN, HAS ARISEN FROM AN ORDER PA SSED BY THE ASSESSING OFFICER DATED 29.04.2014 UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT'). 2. IN THIS APPEAL, THE SOLITARY GRIEVANCE OF THE AS SESSEE IS AGAINST THE ACTION OF THE INCOME TAX AUTHORITIES IN IMPOSING PENALTY U NDER SECTION 271(1)(C) OF THE ACT AMOUNTING TO ` 1,27,71,000/-. THE PENALTY HAS BEEN IMPOSED WITH 2 ITA NO. 1736/MUM/2016 M/S. MEECON LTD. RESPECT TO THE TAX SOUGHT TO THE EVADED QUA THE DEP RECIATION CLAIM OF ` 1,06,42,500/- ON LEASED ASSET WHICH WAS DISALLOWED DURING THE ASSESSMENT PROCEEDINGS. THE MANNER IN WHICH THE DISALLOWANCE WAS MADE IS QUITE RELEVANT AND CAN BE SUMMARISED AS FOLLOWS. 3. BRIEFLY PUT, THE RELEVANT FACTS ARE THAT THE ASS ESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS ENGAGED IN THE BUSINESS OF BARGE OPERATIONS, CONSULTANCY AN D HIRING AND LEASE OF ASSETS. IT FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 1 997-98 ON 28.11.1997 DECLARING AN INCOME OF ` 1,16,41,500/-, WHICH WAS REVISED TO ` 1,17,83,040/- ON 17.07.1998. THE ASSESSEE CLAIMED DEPRECIATION OF ` 1,06,42,500/- AT THE RATE OF 100% ON 3 STEAM BOILERS STATED TO HAVE BEEN LEASED BY IT TO ONE, M/S. SOL LTD., NEW DELHI. IN THE COURSE OF ASSESSMENT PROCEEDINGS FINALISED U/S 143(3) OF THE ACT ON 01.02.2000, THE ASSESSEE FILED THE LEASE AGREEMENT, INVOICES FOR PURCHASE OF STEAM BOILERS FROM M/S. CHEMCOM INDUSTR IES WHICH IS A PROPRIETARY CONCERN OF ONE MR. RAJESH GROVER AND DE TAILS OF PAYMENTS MADE TO M/S. CHEMCOM INDUSTRIES AND DEPOSIT RECEIVED FROM M /S. SOL LTD. IN SUPPORT, ASSESSEE ALSO FILED LEDGER COPIES OF M/S. CHEMCOM I NDUSTRIES, M/S. SOL LTD. AND LEASE HIRE CHARGES RECEIVED FROM M/S. SOL LTD. THE ASSESSING OFFICER ISSUED SUMMONS TO ENQUIRE THE GENUINENESS OF PURCHA SE AND LEASE OF EQUIPMENT (3 BOILERS), WHICH WERE RETURNED UNSERVED AS THE SAID PARTIES WERE NOT AVAILABLE. ASSESSEE SENT ITS INTERNAL AUDITOR MR. CHETAN C. SHAH, CHARTERED ACCOUNTANT WHO VISITED FACTORY OF M/S. SO L LTD. TO VERIFY THE EXISTENCE OF THE LEASED ASSET AND GENUINENESS OF TH E LEASE TRANSACTION. THE FACTORY WAS LOCKED AS THE OFFICIAL LIQUIDATOR, DELH I HAD TAKEN THE POSSESSION OF THE ASSETS OF THE COMPANY. ON ENQUIRY, THE ASSISTA NT LIQUIDATOR PRODUCED FOR INSPECTION, A VALUATION REPORT DATED 31.12.1996 PRE PARED BY M/S. POTDAR 3 ITA NO. 1736/MUM/2016 M/S. MEECON LTD. CONSULTANTS WHEREIN THE EQUIPMENT WAS MENTIONED AT ITEM NO.1 (OF THE GHEE SECTION) OF THE SAID REPORT AND ALSO VALUATION REPO RT OF M/S. CHOPRA & CHOPRA DATED 24.06.1999 WHEREIN EQUIPMENT WAS AT ITEM NO.5 (OF GHEE SECTION) OF THE REPORT. ON BASIS OF DOCUMENTS PRODUCED BY THE OFFICIAL LIQUIDATOR, MR. CHETAN C. SHAH PREPARED AN AFFIDAVIT DATED 04.01.20 00 RECORDING ALL THE ABOVE, WHICH WAS SUBMITTED TO THE ASSESSING OFFICER, WHICH WAS NOT ACCEPTED BY THE ASSESSING OFFICER, AS ACCORDING TO HIM, MR. CHETAN C SHAH HAD NO LOCUS STANDI . THE ASSESSING OFFICER VIDE HIS ORDER U/S. 143(3) DA TED 01.02.2000 HELD THE LEASE TRANSACTION TO BE NOT GENUINE PRIMARILY ON TH E GROUND THAT THE MANUFACTURER OF THE EQUIPMENT AND LESSEE WERE NON- EXISTENT. ACCORDINGLY, HE DISALLOWED DEPRECIATION OF ` 1,06,42,500/- CLAIMED ON SUCH LEASED ASSETS. NOTABLY, WHILE COMPLETING THE ASSESSMENT, THE ASSES SING OFFICER ALSO NOTED THAT IF HIS STAND OF TREATING THE LEASE ARRANGEMENT AS NON-GENUINE IS NOT UPHELD, EVEN THEN THE DEPRECIATION DESERVES TO BE D ISALLOWED AS THE LEASE ARRANGEMENT WAS IN THE NATURE OF A FINANCE LEASE. BEFORE THE CIT(A), THE ASSESSEE FILED THE LETTER ADDRESSED TO OFFICIAL LIQ UIDATOR AND MARKET QUOTATION OF M/S. SOL LTD. IT ALSO RELIED ON CIVIL APPLICATI ON NO. 1273/2000 BEFORE HIGH COURT OF DELHI MADE BY ASSESSEE-COMPANY SEEKING DIR ECTION TO THE OFFICIAL LIQUIDATOR OF M/S. SOL LTD. TO CONFIRM THAT THE BOI LERS MENTIONED IN THE LEASE AGREEMENT ARE IN HIS POSSESSION. THE CIT(A), HOWEVE R, NOTICING CERTAIN DISCREPANCIES, REJECTED THE SUBMISSIONS AND CONFIRM ED THE ACTION OF ASSESSING OFFICER. 4. BEFORE THE ITAT, ASSESSEE FILED ADDITIONAL EVIDE NCE AND THE ITAT VIDE ORDER DATED 11.04.2005 ADMITTED THE SAME AND THE MA TTER WAS RESTORED TO THE FILE OF ASSESSING OFFICER FOR FRESH CONSIDERATION. ASSESSING OFFICER BY HIS ORDER U/S. 143(3) R.W.S. 254 RELIED ON THE FINDINGS OF EA RLIER ORDER OF CIT(A) (WHICH 4 ITA NO. 1736/MUM/2016 M/S. MEECON LTD. WAS SET ASIDE IN FIRST ROUND) AND AGAIN CONFIRMED T HE ADDITION WITHOUT GIVING ANY SPECIFIC FINDING ON THE FRESH EVIDENCE AND RATH ER STATING THAT FRESH EVIDENCE ALSO GOES AGAINST THE ASSESSEE. THE LD.CIT (A), HOWEVER, AFTER EXAMINING THE REPORTS RELIED ON BY ASSESSEE, GAVE A FINDING THAT THE ASSETS STATED IN VALUATION REPORT OF M/S. POTDAR CONSULTAN TS ARE NOT SAME AS SPECIFIED IN PURCHASE INVOICES AND LEASE DEED. HE, THUS, CONF IRMED THE ORDER OF ASSESSING OFFICER. ON FURTHER APPEAL BY THE ASSESS EE BEFORE THE HONBLE ITAT, THE HONBLE ITAT RELYING ON THE DECISION OF SPECIAL BENCH OF ITAT MUMBAI IN THE CASE OF INDUS IND BANK 135 ITD 165 (MUMBAI) UPHELD THE DISALLOWANCE OF DEPRECIATION ON BOILERS. THE RELEVANT PARA OF THE I TAT ORDER IN QUANTUM PROCEEDINGS IS REPRODUCED HEREUNDER: 6.5 ALL THIS INDICATE THAT THE ASSESSEE HAS NOT EN TERED INTO EITHER FINANCIAL LEASE OR OPERATING LEASE AND THE ENTIRE TRAN SACTION IN MARCH 1997 WAS ONLY TO CLAIM DEPRECIATION ON BOILERS AT 100%, WH ICH MAY BE EXISTING OLD/RENOVATED ASSETS OF M/S. SOL LTD. IN THE SCHEDUL E OF PLANT AND MACHINERY, WHICH WERE NOT ISSUED FOR ANY PRODUCTION ( AS PER THE REPORT). SINCE THE GENUINENESS OF LEASE TRANSACTION WAS NOT E STABLISHED THE CLAIM OF DEPRECIATION CANNOT BE ALLOWED. 6.6 THE SPECIAL BENCH OF ITAT IN THE CASE OF INDUS IND BANK 135 ITD165 (MUMBAI) HAS CONSIDERED SIMILAR FACTS AND HELD AS UN DER: 7.10 THE LAW PERMITS TAX PLANNING AND NOT TAX AV OIDANCE. IF WITHIN THE FOUR CORNERS OF LAW A PERSON ARRANGES ITS AFFAIR IN SU CH A WAY THAT HIS OVERALL TAX LIABILITY IS REDUCED, THERE CANNOT BE ANY EMBARGO ON SUCH TAX PLANNING. IF HOWEVER DUBIOUS MEANS ARE ADOPTED TO REDUCE THE INCIDENCE OF TAX BY ARTIFICIALLY INFLATING EXPENSES OR REDUCING INCOME, IT CANNOT BE DESCRIBED AS ANYTHING OTHER THAN TAX AVOIDA NCE. THE LAW PERMITS ONLY TAX PLANNING AND NOT TAX AVOIDANCE. WHE N WE CONSIDER THE REALITY OF THE SITUATION IN THE PRESENT CASE, IT BECO MES ABUNDANTLY MANIFEST THAT A SIMPLE LOAN TRANSACTION WAS MADE TO ADORN THE GARB OF LEASE TO AVOID THE RIGHTFUL TAX DUE TO THE EXPLORER. W E, THEREFORE, REFUSE TO ACCEPT THE VERY GENUINENESS OF THE SO CALLED LEAS E AGREEMENT ITSELF AND HOLD THAT IT IS NOT EVEN A CASE OF FINANCE LEAS E. IN OUR CONSIDERED 5 ITA NO. 1736/MUM/2016 M/S. MEECON LTD. OPINION, THE AUTHORITIES BELOW WERE FULLY JUSTIFIED I N REFUSING TO GRANT DEPRECIATION TO THE ASSESSEE IN BOTH THE YEARS UNDER C ONSIDERATION. 8. IN VIEW OF THE ABOVE DISCUSSION, WE ANSWER QUESTI ON NO.1 IN NEGATIVE BY HOLDING THAT THE AGREEMENT IN QUESTION C ANNOT BE CALLED AS A FINANCIAL LEASE AGREEMENT. IT IS SO FOR THE REASONS DISCUSSED ABOVE THAT IT IS A SIMPLE CASE OF ADVANCING OF LOAN BY TH E ASSESSEE TO THE LEASE AND THE SO CALLED LEASE AGREEMENT, IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, HAS BEEN ATTEMPTED TO BE USED AS A DEV ICE TO REDUCE TAX LIABILITY OF ASSESSEE. ACCORDINGLY, THE SECOND QUEST ION IS ALSO ANSWERED IN NEGATIVE BY HOLDING THAT THE ASSESSEE LESSOR IS N OT ENTITLED TO DEPRECIATION. 9. WE, THEREFORE, SUM UP OUR CONCLUSION AS UNDER:- (I) IF THE CONDITIONS AS LAID DOWN IN THE JUDGMENTS OF ASEA BROWN BOVERI LIMITED (SUPRA) AND ASSOCIATION OF LEASING & F INANCIAL SERVICES COMPANIES (SUPRA) ARE SATISFIED IN A LEASE AG REEMENT, IT WILL BE A CASE OF FINANCE LEASE AND NOT OPERATING LEASE. (II) ONLY THE LESSEE CAN BE TREATED AS OWNER OF THE A SSET IN CASE OF A FINANCE LEASE. IT IS HE WHO IS ENTITLED TO CLAIM DE PRECIATION AS PER LAW. NO DEPRECIATION CAN BE ALLOWED TO THE LESSOR IN SUCH A CASE OF A GENUINE FINANCE LEASE. (III) THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE SHOW THAT IT WAS A CASE OF MERE ADVANCING OF LOAN BY THE ASSESSEE TO IN DO GULF FERTILIZERS. THERE WAS, IN FACT, NO GENUINE LEASING OF BOILER, N EITHER OPERATING NOR FINANCE. IN THAT VIEW OF THE MATTER ALSO NO DEPRE CIATION IS ADMISSIBLE TO THE ASSESSEE-LESSOR. 6.7 RESPECTFULLY, FOLLOWING THE SAME, WE HOLD THAT THE TRANSACTION IS NEITHER OPERATING LEASE NOT FINANCIAL LEASE. THEREFORE, THE CLAIM OF DEPRECIATION CANNOT BE ALLOWED. IN THE COURSE OF ARGUM ENTS WHEN QUESTIONED WHY ONLY SIX DAYS LEASE WAS OFFERED, LD. COUNSEL FAIRLY ADMITTED THAT ASSESSEE MAY BE ENTITLED FOR 50% OF THE DEPRECIA TION CLAIM AS PER THE PROVISIONS. IN CASE, AT ANY POINT OF TIME, THE FINDI NGS GIVEN BY US IN THIS ORDER ARE TO BE MODIFIED, AS THE CLAIM BEFORE HONBLE DELHI HIGH COURT IN 6 ITA NO. 1736/MUM/2016 M/S. MEECON LTD. LIQUIDATION PROCEEDINGS SEEMS PENDING, THEN ASSESSEE IS ENTITLED FOR ONLY 50% OF THE DEPRECIATION CLAIM AND NOT FULL, AS THE A SSETS ARE USED FOR LESS THAN 180 DAYS DURING THE YEAR. IN FACT, THE USAGE OF ASSET ADMITTEDLY BY LESSOR IS ITSELF DOUBTFUL, BUT AS ASSESSEE OFFERED LESSEE RENT TO THAT EXTENT USAGE ISSUE IS NOT MATERIAL AS PER THE JUDICIAL PRONOU NCEMENTS ON THE ISSUE OF USE. WITH THESE OBSERVATIONS, THE GROUND 1 IS A CCORDINGLY REJECTED. THE ORDER OF THE HONBLE ITAT HAS BECOME FINAL, AS STATED BY THE LEARNED REPRESENTATIVE BEFORE US. SUBSEQUENTLY, THE ASSESS ING OFFICER VIDE AN ORDER DATED 29.04.2014 (SUPRA) HELD THE ASSESSEE GUILTY O F DEFAULT UNDER SECTION 271(1)(C) OF THE ACT AS HE TREATED THE ASSESSEE OF HAVING FURNISHED INACCURATE PARTICULARS OF INCOME QUA THE DISALLOWANCE OF DEPRE CIATION CLAIMED AT ` 1,06,42,500/-. ACCORDINGLY, THE ASSESSING OFFICER I MPOSED PENALTY UNDER SECTION 271(1)(C) OF THE ACT OF ` 1,27,71,000/-, WHICH WAS EQUIVALENT TO 300% OF THE TAX SOUGHT TO BE EVADED ON THE ADDITION OF ` 1,06,42,500/- MADE TO THE RETURNED INCOME. THIS ACTION OF THE ASSESSING OFFIC ER HAS SINCE BEEN AFFIRMED BY THE CIT(A) ALSO AND, ACCORDINGLY, THE ASSESSEE I S IN FURTHER APPEAL BEFORE US. 5. BEFORE US, THE PRIMARY ARGUMENT OF THE LD. COUNS EL FOR THE ASSESSEE IS THAT THE LOWER AUTHORITIES HAVE ERRED IN IMPOSING A PENALTY UNDER SECTION 271(1)(C) OF THE ACT BECAUSE THE ASSESSEE HAS MADE COMPLETE DISCLOSURE OF FACTS AND SUBMITTED ALL SUPPORTING MATERIAL IN THE FORM OF LEASE AGREEMENT, INVOICES FOR PURCHASE OF STEAM BOILERS, INSTALLATIO N CERTIFICATE, AFFIDAVIT OF CHARTERED ACCOUNTANT TO SUBSTANTIATE THE CLAIM OF D EPRECIATION, ETC. FURTHER, THE CLAIM OF DEPRECIATION WAS DULY REFLECTED IN THE RETURN OF INCOME AND THE BOILERS WERE ALSO REFLECTED IN THE FINANCIAL STATEM ENTS OF THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE CO ULD NOT ESTABLISH THE PHYSICAL EXISTENCE OF THE BOILERS, WHICH IS THE MAI N GRIEVANCE OF THE ASSESSING OFFICER, DUE TO THE FACT THAT M/S. SOL LTD. IS UNDE R LIQUIDATION AND THE BOILERS 7 ITA NO. 1736/MUM/2016 M/S. MEECON LTD. WERE UNDER THE POSSESSION OF OFFICIAL LIQUIDATOR. H OWEVER, ASSESSEE HAS MADE VARIOUS COMMUNICATIONS TO OFFICIAL LIQUIDATOR, SENT LEGAL NOTICES AND ALSO FILED PETITION IN HONBLE DELHI HIGH COURT SEEKING PHYSIC AL VERIFICATION OF THE BOILERS OR ALTERNATIVELY CONFIRM THAT THE BOILERS ARE IN TH E POSSESSION OF THE LEASEE OR THE OFFICIAL LIQUIDATOR. IF THE CLAIM OF THE ASSES SEE WAS NOT GENUINE, THE ASSESSEE WOULD NOT HAVE APPROACHED THE HONBLE HIGH COURT TO DIRECT THE OFFICIAL LIQUIDATOR TO CONFIRM THE FACT THAT BOILER S ARE IN HIS POSSESSION. THIS PROVES THE BONA FIDE OF THE CLAIM MADE BY THE ASSESSEE. THUS, ASSESSEE HAS MADE SUFFICIENT EFFORTS TO SUBSTANTIATE ITS CLAIM O F DEPRECIATION. MERELY BECAUSE, ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM DUE TO LIQUIDATION OF THE LESSEE, IT CANNOT BE SAID THAT THE ASSESSEE HAS FUR NISHED INACCURATE PARTICULARS OF INCOME. IT WAS FURTHER CONTESTED THAT EVEN ASSES SING OFFICER WAS NOT SURE OF THE ADDITION MADE IN THE QUANTUM PROCEEDINGS AND TH US HELD THAT IN CASE THE LEASE IS HELD TO BE GENUINE, THE SAME SHOULD BE TRE ATED AS FINANCE LEASE WHICH FURTHER PROVES THE BONA FIDE OF THE ASSESSEE. IT WAS FURTHER ARGUED BY THE LD. COUNSEL FOR THE ASSESSEE THAT MERELY BECAUSE CLAIM OF THE ASSESSEE IS NOT ACCEPTED IN QUANTUM PROCEEDINGS, THE PENALTY CANNOT BE IMPOSED. DISALLOWANCE OF CLAIM MADE BY THE ASSESSEE DOES NOT TANTAMOUNT TO FURNISHING OF INACCURATE PARTICULARS OF INCOME. IN THIS REGAR DS, RELIANCE WAS PLACED ON THE DECISION OF APEX COURT IN THE CASE OF CIT VS. RELIANCE PETRO-PRODUCTS LTD. (2010) 322 ITR 158 (SC) . THE LD. COUNSEL FOR THE ASSESSEE PLACED RELIED UP ON THE FOLLOWING DECISION WHEREIN THE ADDITION IN QUAN TUM PROCEEDING WAS CONFIRMED BY THE TRIBUNAL AND IT WAS HELD BY THE JU RISDICTIONAL HIGH COURT THAT LEVY OF PENALTY IS NOT JUSTIFIED: A) CIT VS. PETALS ENGINEERS P. LTD. (2014) 223 TAXMAN 15 (BOM.)(HC) B) CIT VS. S. M. CONSTRUCTION (2015) 233 TAXMAN 263 (B OM.)(HC) 8 ITA NO. 1736/MUM/2016 M/S. MEECON LTD. IT WAS FURTHER CONTENDED THAT PENALTY PROCEEDINGS A RE INDEPENDENT OF ASSESSMENT PROCEEDINGS AND MERELY BECAUSE THE APPEL LANT FAILED TO ESTABLISH ITS CLAIM IN QUANTUM PROCEEDINGS, IT WOULD NOT AUTO MATICALLY BECOME A CASE FOR LEVYING PENALTY. IN THIS REGARDS, RELIANCE WAS PLAC ED ON THE DECISION OF UOI VS. RAJASTHAN SPINNING & WEAVING MILLS (SC) 317 ITR 1 . 6. THE LD. COUNSEL FOR THE ASSESSEE ALSO DREW OUR A TTENTION TO THE FACT THAT THE APPEAL AGAINST THE DECISION OF THE SPECIAL BENC H OF TRIBUNAL IN CASE OF INDUS IND BANK (SUPRA) , WHICH WAS OUR CO-ORDINATE BENCH WHILE DECIDING TH E QUANTUM PROCEEDING IN THE PRESENT CASE, HAS BEEN AD MITTED BY THE HIGH COURT ON A SUBSTANTIAL QUESTION OF LAW. THUS, THE ISSUE I NVOLVED IN THE PRESENT CASE INVOLVES SUBSTANTIAL QUESTION OF LAW; AND, WHEREVER , INTERPRETATION OF SUBSTANTIAL QUESTION OF LAW IS INVOLVED, PENALTY CA NNOT BE LEVIED. 7. THE LD. COUNSEL FOR THE ASSESSEE ALSO POINTED OU T THAT THERE WAS NO FURNISHING OF INACCURATE PARTICULARS OF INCOME INAS MUCH AS NONE OF THE PARTICULARS OF THE TRANSACTION HAVE BEEN FOUND TO B E INCORRECT OR FALSE AND THAT IT WAS ONLY A DIFFERENCE OF OPINION WITH REGARD TO ALLOWANCE OF DEPRECIATION WHICH HAS FORMED THE BASIS FOR THE ASSESSING OFFICE R TO DISALLOW THE DEPRECIATION ON BOILERS. ON THIS ASPECT, IT HAS BEE N ARGUED THAT A DIFFERENCE OF OPINION ON THE ISSUE OF ALLOWANCE OF DEPRECIATION I S A DEBATABLE ISSUE, AS DISCUSSED ABOVE, AND WOULD NOT JUSTIFY LEVY OF PENA LTY U/S 271(1)(C) OF THE ACT; 8. WITHOUT PREJUDICE TO THE ABOVE SUBMISSION, THE L D. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PENALTY, IF LEVIED, MAY BE REDUCED FROM 300% TO 100%. 9 ITA NO. 1736/MUM/2016 M/S. MEECON LTD. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE FACTS LEADING UP TO THE PRESENT PROCEEDINGS HAVE BEEN SUFFICIENTLY N OTED IN THE EARLIER PARAGRAPHS. SECTION 271(1)(C) OF THE ACT PRESCRIBE S FOR LEVY OF PENALTY IN A CASE WHERE IT IS FOUND THAT ASSESSEE HAS CONCEALED THE PARTICULARS OF HIS INCOME OR THAT ASSESSEE HAS FURNISHED INACCURATE PA RTICULARS OF SUCH INCOME. COMING TO THE SPECIFIC CASE ON HAND, PENALTY UNDER SECTION 271(1)(C) OF THE ACT HAS BEEN IMPOSED FOR FURNISHING OF INACCURATE PARTI CULARS OF INCOME IN THE CONTEXT OF DISALLOWANCE OF DEPRECIATION CLAIMED BY THE ASSESSEE ON BOILERS LEASED TO M/S SOL LTD. THE ASSESSEE HAD CLAIMED DE PRECIATION ON THE BOILERS IN ITS RETURN OF INCOME OF ` 1,06,42,500/-. THE BOILERS WERE DULY REFLECTED IN THE FINANCIAL STATEMENTS OF THE ASSESSEE AND DEPREC IATION ON THE SAME WAS ALSO REFLECTED IN THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE. IN THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE WAS ASKED TO SUBST ANTIATE ITS CLAIM FOR DEPRECIATION ON THE BOILERS. TO ESTABLISH ITS CLAIM , ASSESSEE SUBMITTED THE LEASE AGREEMENT, INVOICES FOR PURCHASE OF STEAM BOILERS F ROM M/S. CHEMCOM INDUSTRIES, DETAILS OF PAYMENTS MADE TO M/S. CHEMCO M INDUSTRIES, DEMAND DRAFT OF DEPOSIT RECEIVED FROM M/S. SOL LTD., LEDGE R COPIES OF M/S. CHEMCOM INDUSTRIES AND M/S. SOL LTD. REFLECTING LEASE HIRE CHARGES RECEIVED FROM M/S. SOL LTD., VARIOUS LETTERS ADDRESSED TO THE OFFICIAL LIQUIDATOR OF SOL LTD., VALUATION REPORT OF POTDAR CONSULTANTS FURNISHED BY OFFICIAL LIQUIDATOR, VALUATION REPORT OF CHOPRA & CHOPRA OBTAINED BY OFF ICIAL LIQUIDATOR, VARIOUS LETTERS ADDRESSED TO THE OFFICIAL LIQUIDATOR OF SOL LTD., CIVIL APPLICATION NO. 1273 OF 2000 TAKEN OUT BY ASSESSEE IN COMPANY PETIT ION NO. 152 OF 1998 PRAYING FOR CONFIRMATION THAT THE BOILERS ARE IN PO SSESSION OF OFFICIAL LIQUIDATOR. THE ASSESSING OFFICER ISSUED SUMMONS T O ENQUIRE THE GENUINENESS OF LEASE AND PURCHASE OF EQUIPMENT. SIN CE THE SUMMONS RETURNED UNSERVED, THE ASSESSING OFFICER DOUBTED THE GENUINE NESS OF THE TRANSACTION 10 ITA NO. 1736/MUM/2016 M/S. MEECON LTD. AND DISALLOWED DEPRECIATION CLAIMED BY THE ASSESSEE . HE, FURTHER, INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT FOR FU RNISHING OF INACCURATE PARTICULARS OF INCOME. HOWEVER, IT IS CONSPICUOUS T HAT THE ORDER OF THE ASSESSING OFFICER DOES NOT PIN-POINT AS TO WHICH PA RTICULAR(S) OF INCOME FURNISHED BY THE ASSESSEE IS FOUND TO BE INACCURATE . IN FACT, IN THE FIRST ROUND OF LITIGATION IN QUANTUM PROCEEDINGS, WHEN THE MATT ER REACHED THE TRIBUNAL, BASED ON THE ADDITIONAL EVIDENCE FILED BY THE ASSES SEE, MATTER WAS REMANDED TO THE FILE OF ASSESSING OFFICER. HOWEVER, IN THE REMAND PROCEEDINGS ALSO ASSESSING OFFICER CONFIRMED THE DISALLOWANCE, WHICH HAS SINCE BEEN UPHELD BY THE TRIBUNAL RELYING ON THE DECISION OF INDUS IND BANK (SUPRA) . IN THIS BACKGROUND, THE ASSESSING OFFICER LEVIED PENALTY U/ S 271(1)(C) OF THE ACT FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME AT T HE MAXIMUM PERMISSIBLE @ OF 300% OF TAX SOUGHT TO BE EVADED ON DEPRECIATION CLAIMED BY THE ASSESSEE. 10. THE ORDERS OF THE AUTHORITIES BELOW IN THE QUAN TUM ASSESSMENT PROCEEDINGS REVEAL THAT ALL INFORMATION AND DOCUMEN TS TO ESTABLISH THE GENUINENESS OF CLAIM OF DEPRECIATION ON BOILERS WER E FURNISHED BY THE ASSESSEE. MOREOVER, THE ADDITION DETERMINED BY THE INCOME-TAX AUTHORITIES IS NOT ON ACCOUNT OF ANY INACCURACY, FALSITY OR DIS CREPANCY FOUND IN THE INFORMATION AND DOCUMENTS FURNISHED BY THE ASSESSEE FOR ITS CLAIM OF DEPRECIATION. THE ADDITION IS DUE TO THE LACK OF SU BSTANTIATION ON THE PART OF ASSESSEE AND DUE TO THE FACT THAT SUMMONS ISSUED U/ S 131 OF THE ACT COULD NOT BE SERVED ON THE MANUFACTURER AND LESSEE. IN FACT, WE FIND THAT WHILE MAKING ADDITION EVEN THE ASSESSING OFFICER WAS NOT COMPLET ELY SURE THAT THE LEASE TRANSACTION WAS NOT GENUINE INASMUCH AS IN THE ASSE SSMENT ORDER ITSELF, HE HAS TAKEN AN ALTERNATIVE PLEA THAT IN CASE THE SAME IS HELD TO BE GENUINE, IT SHOULD BE TREATED AS FINANCE LEASE AND THE DEPRECIATION DI SALLOWANCE BE UPHELD. 11 ITA NO. 1736/MUM/2016 M/S. MEECON LTD. 11. IN FACT, THE INQUIRY AND/OR VERIFICATION EXERCI SE CARRIED OUT IN THE ASSESSMENT PROCEEDINGS CANNOT BE SAID TO HAVE FRUCT IFIED TO ITS LOGICAL END INASMUCH AS THE LESSEE WAS FOUND TO HAVE GONE INTO LIQUIDATION. THEREFORE, IT IS NOT A CASE WHERE THE FACT-POSITION CANVASSED BY THE ASSESSEE WAS FOUND TO BE FALSE, BUT IS A CASE WHERE THE POSITION COULD NO T BE SUBSTANTIATED DUE TO THE CIRCUMSTANCES PREVAILING. MOREOVER, THE BONA FIDES OF THE ASSESSEE IN MAKING EFFORTS TO APPROACH THE OFFICIAL LIQUIDATOR AND EVE N THE HIGH COURT TO OBTAIN CONFIRMATION ABOUT THE EXISTENCE OF THE LEASED ASSE T, REPORT AND AFFIDAVIT OF CHARTERED ACCOUNTANT DEPUTED BY THE ASSESSEE, ETC. DEMONSTRATE THAT THE ASSESSEE MADE A CLAIM IN GOOD FAITH; THAT THE CLAIM WAS NOT ULTIMATELY UPHELD IN ASSESSMENT, CANNOT IPSO FACTO BE A GROUND TO LEVY PENALTY UNDER SECTION 271(1)(C) OF THE ACT. AT THIS STAGE, WE MAY ALSO S AY THAT THE MATERIAL ON RECORD MAY BE ENOUGH TO DENY THE CLAIM OF DEPRECIAT ION IN THE QUANTUM PROCEEDINGS, BUT SO FAR AS LEVY OF PENALTY UNDER SE CTION 271(1)(C) OF THE ACT IS CONCERNED, WHAT IS OF PARAMOUNT IMPORTANCE IS TO EV ALUATE THE BONA FIDES OF THE CLAIM MADE AND NOT MERELY THE MERIT OF THE CLAI M. IT IS A WELL-SETTLED PROPOSITION THAT THE PENALTY PROCEEDINGS AND QUANTU M ASSESSMENT PROCEEDINGS ARE INDEPENDENT PROCEEDINGS AND ALTHOUG H THE FINDINGS IN THE ASSESSMENT PROCEEDINGS ARE RELEVANT, BUT THE SAME A RE NOT CONCLUSIVE SO FAR AS PENALTY PROCEEDINGS ARE CONCERNED. CONSIDERED IN T HE AFORESAID LIGHT, IN OUR VIEW, THE LEVY OF PENALTY IN THIS CASE IS QUITE UNT ENABLE. 12. THE TRIBUNAL IN QUANTUM PROCEEDINGS UPHELD THE ORDER OF CIT(A) FOLLOWING THE DECISION OF INDUS IND BANK (SUPRA) , WHICH DECISION IS CHALLENGED BEFORE THE HIGH COURT AND THE APPEAL OF THE ASSESSE E HAS BEEN ADMITTED BY THE JURISDICTIONAL HIGH COURT ON SUBSTANTIAL QUESTION O F LAW. 12 ITA NO. 1736/MUM/2016 M/S. MEECON LTD. 13. WE NOW REFER TO THE JUDGEMENT OF THE APEX COURT IN THE CASE OF CIT VS. RELIANCE PETRO-PRODUCTS LTD. (SUPRA) , RELIED UPON BY THE ASSESSEE, WHEREIN THE APEX COURT HELD THAT MERELY BECAUSE ASSESSEE HAD CL AIMED EXPENDITURE, WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO REV ENUE, THAT BY ITSELF WOULD NOT ATTRACT PENALTY UNDER SECTION 271(1)(C) OF THE ACT. THE RELEVANT EXTRACT OF THE SAID JUDGMENT IS REPRODUCED HEREUNDER: 10. IT WAS TRIED TO BE SUGGESTED THAT SECTION 14A O F THE ACT SPECIFICALLY EXCLUDED THE DEDUCTIONS IN RESPECT OF THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM P ART OF THE TOTAL INCOME UNDER THE ACT. IT WAS FURTHER POINTED OUT THAT THE DIVIDENDS FROM THE SHARES DID NOT FORM THE PART OF THE TOTAL INCOME. IT WAS, THEREFORE, REITERATED BEFORE US THAT THE ASSESSING OFFICER HAD CORRE CTLY REACHED THE CONCLUSION THAT SINCE THE ASSESSEE HAD CLAIMED EXCE SSIVE DEDUCTIONS KNOWING THAT THEY ARE INCORRECT; IT AMOUNTED TO CONCEA LMENT OF INCOME. IT WAS TRIED TO BE ARGUED THAT THE FALSEHOOD IN ACCOU NTS CAN TAKE EITHER OF THE TWO FORMS; (I) AN ITEM OF RECEIPT MAY BE SUPP RESSED FRAUDULENTLY; (II) AN ITEM OF EXPENDITURE MAY BE FALSELY (OR IN AN EXAGGERATED AMOUNT) CLAIMED, AND BOTH TYPES ATTEMPT TO REDUCE THE TAXABL E INCOME AND, THEREFORE, BOTH TYPES AMOUNT TO CONCEALMENT OF PARTICU LARS OF ONE'S INCOME AS WELL AS FURNISHING OF INACCURATE PARTICULARS OF INCOME. WE DO NOT AGREE, AS THE ASSESSEE HAD FURNISHED ALL THE DET AILS OF ITS EXPENDITURE AS WELL AS INCOME IN ITS RETURN, WHICH DE TAILS, IN THEMSELVES, WERE NOT FOUND TO BE INACCURATE NOR COULD BE VIEWED AS THE CONCEALMENT OF INCOME ON ITS PART. IT WAS UP TO THE AUTHORITIES TO ACCEPT ITS CLAIM IN THE RETURN OR NOT. MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDITURE, WHICH CLAIM WAS NOT ACCEPTE D OR WAS NOT ACCEPTABLE TO THE REVENUE, THAT BY ITSELF WOULD NOT, IN OUR OPINION, ATTRACT THE PENALTY UNDER SECTION 271(1)(C). IF WE A CCEPT THE CONTENTION OF THE REVENUE THEN IN CASE OF EVERY RETURN WHERE THE CLAIM MADE IS NOT ACCEPTED BY ASSESSING OFFICER FOR ANY REASON, THE ASSESSEE WILL INVITE PENALTY UNDER SECTION 271(1)(C). THAT IS CLE ARLY NOT THE INTENDMENT OF THE LEGISLATURE . (EMPHASIS SUPPLIED) 13 ITA NO. 1736/MUM/2016 M/S. MEECON LTD. IN THE PRESENT CASE ALSO NO FAULT HAS BEEN FOUND WI TH THE DETAILS FURNISHED AND DOCUMENTS FURNISHED THE ASSESSEE. THE ASSESSING OFF ICER IN HIS ORDER HAS NOT POINTED OUT AS TO WHICH PARTICULARS OF THE RETURN, DETAILS FURNISHED BY THE ASSESSEE ARE INACCURATE. THE DISALLOWANCE OF THE CL AIM OF THE ASSESSEE IS BASED ON THE OTHER FACTORS AND NOT ON ACCOUNT OF ANY FAUL T OF THE ASSESSEE IN FURNISHING RETURN OR DETAILS. THEREFORE, IN OUR VIE W, THE FACT-SITUATION IN THE PRESENT CASE DOES NOT SUGGEST THAT THE CLAIM OF THE ASSESSEE IS LACKING IN GOOD FAITH OR DUE DILIGENCE, SO AS TO RENDER THE ASSESSE E LIABLE FOR PENALTY UNDER SECTION 271(1)(C) OF THE ACT FOR FURNISHING OF INAC CURATE PARTICULARS OF INCOME. 14. IN OUR CONSIDERED OPINION, THE FACTS IN THE INS TANT CASE ALSO ARE GOOD ENOUGH TO APPLY THE RATIO OF THE JUDGMENT OF THE HO N'BLE SUPREME COURT IN THE CASE OF RELIANCE PETRO-PRODUCTS LTD. (SUPRA) REFERRED ABOVE, WHEREIN ALSO THE CLAIM OF THE ASSESSEE WAS NOT ACCEPTED BY THE ASSES SING OFFICER AND PENALTY WAS IMPOSED BY THE ASSESSING OFFICER. WE, THUS, RE SPECTFULLY FOLLOWING THE DECISION OF APEX COURT, WHICH IS SQUARELY APPLICABL E TO THE FACT OF THE PRESENT CASE, DELETE THE PENALTY IMPOSED U/S 271(1)(C) OF T HE ACT. 15. BEFORE PARTING, WE MAY ALSO MAKE A REFERENCE TO THE DECISION OF THE TRIBUNAL IN THE CASE OF MS. LAUDRES AUSTIN VS. ITO, ITA NO. 1683/MUM/2009 WHICH HAS BEEN RELIED UPON BY THE REVENUE. IN THIS CASE THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT HAS BEEN UPHELD BY THE TRIBUNAL IN THE BACKGROUND OF A FACTUAL FINDING THAT THE ASSESSEE DELIBERATELY AND INTENTIONALLY CONCEALED HER INCOME. SUCH A FACTUAL POSITION, AS OUR ABOVE D ISCUSSION SHOWS, DOES NOT EMERGE IN THE PRESENT CASE. THEREFORE THE SAID PREC EDENT DOES NOT HELP THE CASE OF THE REVENUE HEREIN. 14 ITA NO. 1736/MUM/2016 M/S. MEECON LTD. 16. AS A CONSEQUENCE, WE SET-ASIDE THE ORDER OF CIT (A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE PENALTY IMPOSED UND ER SECTION 271(1)(C) OF THE ACT OF ` 1,27,71,000/-, HAVING REGARD TO THE AFORESAID DISCU SSION. 17. NOW COMING TO THE ADDITIONAL GROUND RAISED BY T HE ASSESSEE WHEREIN ASSESSEE HAS CHALLENGED THE VALIDITY OF THE NOTICE U/S 271(1)(C) OF THE ACT ISSUED BY THE ASSESSING OFFICER. THE LD. COUNSEL FO R THE ASSESSEE POINTED OUT THAT THE NOTICE ISSUED U/S 274 R.W.S. 271 OF THE AC T DATED 16.10.2006, A COPY OF WHICH HAS BEEN PLACED ON RECORD AT PAGE 64-65 OF TH E PAPER BOOK, REVEALS NON-APPLICATION OF MIND BY THE ASSESSING OFFICER IN ASMUCH AS THE IRRELEVANT PORTION OF THE NOTICE HAS NOT BEEN STRUCK OFF. IT W AS, THEREFORE, CONTENDED THAT THE LEVY OF PENALTY IS ILLEGAL AND DESERVES TO BE S ET-ASIDE. 18. SINCE THE ASSESSEE HAS SUCCEEDED ON THE MERIT, AND WE HAVE DELETED THE PENALTY, THE AFORESAID GROUND BECOMES ACADEMIC AND IS NOT BEING ADJUDICATED FOR THE PRESENT. 19. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH APRIL, 2019. SD/- SD/- (AMARJIT SINGH) JUDICIAL MEMBER (G.S. PANNU) VICE PRESIDENT MUMBAI, DATE : 30 TH APRIL, 2019 *SSL* 15 ITA NO. 1736/MUM/2016 M/S. MEECON LTD. COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, D BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI