DCIT, CHENNAI V. M/s. Goldmine Investments, CHENNAI

ITA 2040/CHNY/2007

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1213 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-01-2011
• Assessment Year: 1996-1997
• Appeal Filed On: 17-08-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: V RAMACHANDRAN
• Keywords: Depreciation; Business expenditure; Wrong claim; Sham transactions; Set aside
• Section: 271(1)(c); 143(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH A : CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.A NO.2040/MDS/2007 ASSESSMENT YEAR : 1996-97 THE DY. CIT BUSINESS CIRCLE I CHENNAI VS M/S GOLDMINE INVESTMENTS NO.3 DURAISAMY ROAD T. NAGAR CHENNAI 600 017 [PAN AAAFG4524D ] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB RESPONDENT BY : SHRI V. RAMACHANDRAN O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE, FOR ASSESSMENT YEAR 1996-97, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) VI, C HENNAI, DATED 25.04.2007, VIDE WHICH PENALTY LEVIED U/S 271(1)(C) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT) ON 28.3.2006 BY THE JT. CIT(OSD), CIRCLE-I, CHENNAI, HAS BEEN DE LETED. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: ITA 2040/07 :- 2 -: 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LAW AND FACTS OF THE CASE. 2. THE LEARNED CIT(A) ERRED IN DELETING THE PENALTY LEVIED U/S 271(1)(C) OF RS.2,08,82,818/-. 3. THE ID CIT(A) OUGHT TO HAVE APPRECIAATED THE FACT THAT THE ASSESSEE WAS NOT ENGAGED IN THE BUSINESS OF LEASING AND THE TRANSACTION WAS ENTERED INTO ONLY TO AVOID PAYMENT OF TAX. 4. THE ID CIT(A) FAILED TO APPRECIATE THE FACT THA T THE ASSESSEE NEVER PRODUCED ANY EVIDENCE IN SUPPORT OF THE EXISTENCE OF THE MACHINERY WHICH WAS CLAIMED TO HAVE BEEN PURCHASED AND LEASED BACK. 5. THE ID CIT(A) FAILED TO CONSIDER THE FACT THAT THE ASSESSEE HAD NOT RECEIVED ANY AMOUNT TOWARDS LEASE RENT. 6. THE ID CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MC DOWELL COMPANY LTD 154 ITR 148 SQUARELY APPLIES FOR THE PRESENT CASE AND THE NATURE OF TRANSACTION ENTERED INTO BY THE ASSESSEE WAS DEFINITELY DUBIOUS METHOD RESORTED TO WITH THE SINGLE MOTIVE TO AVOID PAYMENT OF TAX AND IN NO WAY CAN BE TERMED AS TAX PLANNING. 7. THE ID CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE HAD RECEIVED MAJOR PORTION OF THE AGREED AMOUNT TOWARDS SALE OF LAND TO M/S.BALAJI INDUSTRIAL CORPORATION AND DID NOT ADMIT ANY INCOME FOR THE YEAR UNDER CONSIDERATION. 8. THE ID CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE DID NOT FILE THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 1998-99 IN TIME, AND ALSO HAVE NOT PAID THE TAX ON THE ADMITTED INCOME, IN WHICH YEAR THE ASSESSEE ITA 2040/07 :- 3 -: CLAIMS TO HAVE ADMITTED THE INCOME ON THIS TRANSACTION FOLLOWING COMPLETION CONTRACT METHOD. 9. THE ID CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE FACTS AND CIRCUMSTANCES OF THE CASE CLEARLY ESTABLISHES THE INTENTION OF THE ASSESSEE TO AVOID PAYMENT OF TAX. 10. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE-FIRM IS ENGAGED IN THE BUSINESS OF REAL ESTATE BY WAY OF BUYING AND SELLING OF LANDS, PROPERTY DEVELOPMENT AND CONSTRUCTION, ET C. THE ASSESSEE FOLLOWED COMPLETED CONTRACT METHOD OF ACCOUNTING. THE ASSESSEE- FIRM ENTERED INTO AN AGREEMENT WITH ONE SHRI MANI N AGAPPA ON 18.4.1994 TO PURCHASE 8.5 GROUNDS OF LAND FOR A TOT AL CONSIDERATION OF ` 187 LAKHS. THIS AGREEMENT WAS TO DEVELOP A PIECE OF LAND INTO MULTI- STOREYED BUILDING AS A JOINT VENTURE AND FOR THAT M ATTER, THE ASSESSEE ENTERED INTO A FURTHER AGREEMENT WITH M/S ASHOK LEY LAND FINANCE LTD ON 27.11.1994 AND RECEIVED A SUM OF ` 560 LAKHS BY WAY OF AN ADVANCE. FURTHER ON 10.2.1995 THE ASSESSEE-FIRM EN TERED INTO AN AGREEMENT WITH ONE CONCERN NAMELY, M/S SOUNDARYA NU RSERY FOR PURCHASE OF 32 GROUNDS AND 1,453 SQ FT OF LAND FOR A TOTAL ITA 2040/07 :- 4 -: CONSIDERATION OF ` 1,25,00,000/-. LIKEWISE, ON 14.6.1995, ANOTHER AGREEMENT WAS ENTERED INTO WITH ONE SHRI R. KRISHNA N FOR PURCHASE OF ONE GROUND AND 1,912 SQ FT OF LAND FOR A TOTAL CONS IDERATION OF ` 1,25,00,000/- AND ANOTHER AGREEMENT ON 6.7.1995 WIT H SADAK AND OTHERS FOR PURCHASE OF 2 GROUNDS AND 1082 SQ FT LAN D FOR A TOTAL CONSIDERATION OF ` 3,70,00,000/-. ALL THESE LANDS WERE CONTIGUOUS. LATER ON, ON 144.6.1995 THE ASSESSEE ENTERED INTO T HREE SEPARATE AGREEMENTS WITH A CONCERN M/S BALAJI INDUSTRIAL COR PORATIO (BIC) FOR RESALE OF THE ABOVE THREE PIECES OF LAND FOR A TOTA L CONSIDERATION OF ` 34,47,88,000/-. BUT THESE AGREEMENTS COULD NOT BE MATERIALIZED. EVENTUALLY A DISPUTE AROSE BETWEEN THE PARTIES AND ULTIMATELY, JUSTICE SHRI G. RAMANUJAM WAS APPOINTED AS ARBITRAT OR, WHO REDUCED THE SALE CONSIDERATION TO ` 29,35,03,026/-. DURING THE FINANCIAL YEAR 1995-96, THE ASSESSEE COULD REGISTER PART OF THE AB OVE MENTIONED THREE PIECES OF LAND FOR A TOTAL CONSIDERATION OF ` 13,17,51,816/- IN FAVOUR OF M/S BIC. WITH THE REASONING THAT THE ASS ESSEE WAS FOLLOWING THE COMPLETED CONTRACT METHOD OF ACCOUNTING, THE ASSESSEE-FIRM DID NOT RECOGNIZE THE SALE CONSIDERATION OF ` 13,17,51,816/- AS THE REVENUE RECEIPT FOR THIS YEAR. ACCORDING TO IT, THE REVENUE IS TO BE RECOGNIZED ONLY WHEN THE PROJECT IS COMPLETED. THE FIRM CARRIED OVER THE FOLLOWING AMOUNTS TO ITS BALANCE SHEET AS ON 31 .3.1996: ITA 2040/07 :- 5 -: (A) PROJECT RECEIPTS - ` 15,97,50,000/- (B) PROJECT COST - ` 11,29,47,749/- (C) PROJECT EXPENSES - ` 1,38,95,418/- 3. WHILE FILING THE RETURN FOR THIS YEAR, THE ASSES SEE HAS SHOWN LOSS OF ` 1,54,37,727/-. IN THE ASSESSMENT MADE U/S 143(3) ON 15.3.1999, THE ASSESSING OFFICER REJECTED THE METHO D OF ACCOUNTING ADOPTED BY THE ASSESSEE AND CHOSE TO ADOPT PERCENT AGE COMPLETION METHOD. FINALLY, THE TOTAL INCOME WAS COMPUTED AT ` 16.17 LAKHS. WHILE DOING SO, THE ASSESSING OFFICER DISALLOWED TH E CLAIM OF THE ASSESSEE-FIRM REGARDING CERTAIN EXPENDITURE RELATIN G TO LEASE AND BUYBACK TRANSACTIONS TOTALING TO ` 1,55,81,985/-, AND OTHER EXPENSES OF ` 18,26,544/-. AGGRIEVED, THE ASSESSEE TOOK THE MATT ER BEFORE THE LD. CIT(A), WHO ALSO DID NOT AGREE WITH THE ASSESSE E FOR ADOPTION OF COMPLETED CONTRACT METHOD WHICH ACCORDING TO HIM WAS ACCEPTABLE ONLY IN CONSTRUCTION CONTRACTS, LIKE BUILDING OF BR IDGES, DAMS, SHOPS AND BUILDINGS. THUS, HE DIRECTED THE ASSESSING OFF ICER TO ADOPT NET PROFIT OF ` 4,83,27,926/- BY TAKING INTO ACCOUNT THE TOTAL CON SIDERATION TO BE RECEIVED FROM M/S BIC OF ` 34,47,88,000/-. THEREAFTER, THE LD. CIT(A) DETERMINED THE PROPORTIONATE PROFIT FOR THE YEAR BASED ON THE SALE CONSIDERATION RECEIVED DURING THE YEAR. BUT H E UPHELD THE DISALLOWANCE OF ` 18,26,544/-. BOTH THE PARTIES FELT AGGRIEVED AND W ENT ITA 2040/07 :- 6 -: BEFORE THE TRIBUNAL AND THE TRIBUNAL VIDE ITS ORDE R DATED 5.2.2003 SET ASIDE THE ASSESSMENT ORDER WITH A DIRECTION TO REF RAME THE SAME DE NOVO . AS DIRECTED BY THE TRIBUNAL, ASSESSMENT WAS C OMPLETED ON 30.3.2004 AT A TOTAL INCOME OF ` 18,85,83,100/-. THIS TIME, THE ASSESSING OFFICER TREATED THE ADVANCE RECEIVED FROM M/S ASHOK LEYLAND FINANCE LTD (ALFL) AS REVENUE RECEIPT, BUT HE AGAIN DISALLOWED THE CLAIM RELATING TO LEASE AND BUYBACK AMOUNTING TO ` 1,55,81,985/-. THE ASSESSING OFFICER ALSO DID NOT TAKE COGNIZANCE OF THE SALE CONSIDERATION FIXED BY THE ARBITRATOR AND ALSO DISALLOWED INTEREST LIABILITY ON OUTSTANDING LOAN CREDITORS AM OUNTING TO ` 70,84,354/-. CONSEQUENTLY, PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT WERE INITIATED. IN QUANTUM APPEAL, THE ASSESSE E LOST ITS CASE BEFORE THE LD. CIT(A) AS HE HAS CONFIRMED THE DISAL LOWANCE OF ` 1,55,81,985/- ON THE GROUND THAT THE SAME REPRESENT ED A CAPITAL LOSS. HE HAS HELD THAT THE TRANSACTION WITH M/S ALFL CONS TITUTED ONLY AN ADVANCE WHICH NEED NOT BE BROUGHT TO TAX AND PREFER RED THE SALES REGISTRATION METHOD FOR COMPUTING THE ASSESSEES P ROFITS. HE ARRIVED AT A PROPORTIONATE PROFIT OF ` 3,66,25,063/- AFTER ALLOWING VARIOUS EXPENSES INCURRED DURING THE YEARS AND ALSO ALLOWED INTEREST CLAIMED BY THE ASSESSEE. THE ASSESSEE DID NOT PREFER FURTH ER APPEAL BEFORE THE ITAT. A PENALTY OF ` 2,09,82,818/- WAS IMPOSED BY THE ASSESSING ITA 2040/07 :- 7 -: OFFICER U/S 271(1)(C) OF THE ACT VIDE ORDER DATED 2 8.3.2006 AS PER LAW. THE LD. CIT(A) HAS DELETED THE ENTIRE PENALTY AGAIN ST WHICH THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MA TERIAL AVAILABLE ON RECORD INCLUDING THE VOLUMINOUS PAPER BOOKS FILED BY THE LD.AR. IN EFFECT, THE IMPUGNED PENALTY RELATES TO TWO SEPARATE ADDITIONS - ONE BEING ON ACCOUNT OF LOSS CLAIMED IN RELATION TO LEASE AND BUYBACK OF ASSETS/CLAIM OF DEPRECIATION; AND TH E OTHER BEING ADDITION ON ACCOUNT OF INCOME FROM REAL ESTATE BUSI NESS IN TRANSACTIONS WITH M/S BIC. WITH REGARD TO THE SECOND ISSUE, ALT HOUGH THE LD.DR TOOK US THROUGH THE ENTIRE RECORDS, WE ARE NOT CONV INCED THAT IT IS A CASE OF EITHER CONCEALMENT OF INCOME OR OF FURNISHI NG OF INACCURATE PARTICULARS OF INCOME BECAUSE IT IS ONLY AN ESTIMAT ED ADDITION. WHEN THE ADDITION IS BASED ONLY ON ESTIMATION, NO PENALT Y U/S 271(1)(C) OF THE ACT CAN BE IMPOSED. THEREFORE, WE CONFIRM THIS PART OF DELETION OF THE PENALTY. BEFORE ADVERTING TO THE FACTS OF THE CASE, FOR DEALING WIT H THE OTHER ISSUE, WE WOULD LIKE TO DISCUSS, IN NUT S HELL, THE RELEVANT LEGAL POSITION REGARDING LEVY OF PENALTY U/S 271(1) (C) OF THE ACT AND AS TO HOW AND WHEN SUCH PENALTY CAN BE LEVIED UNDER TH IS SECTION. THERE ARE NO TWO OPINIONS ABOUT THE SETTLED POSITION OF LAW THAT REGULAR ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE TWO ENTIRELY ITA 2040/07 :- 8 -: DIFFERENT SUBJECTS WHICH OPERATE IN DISTINCT AND SEPARATE SPHERES SO MUCH SO THAT ENTIRELY DIFFERENT PARAMETERS ARE APPL ICABLE FOR MAKING QUANTUM ADDITION AND FOR LEVYING PENALTY UNDER SECT ION 271(1)(C) OF THE ACT. THERE CAN BE NO DISPUTE WITH REGARD TO TH E POSITION OF LAW THAT UNDER SECTION 271(1)(C) PENALTY CAN BE LEVIED ONLY IF EITHER THE ACT OF 'CONCEALMENT OF PARTICULARS OF INCOME' OR 'FUR NISHING OF INACCURATE PARTICULARS OF INCOME' IS FOUND TO HAVE BEEN COMMIT TED BY THE ASSESSEE. THESE ARE TWO DIFFERENT OMISSIONS OR DEFA ULTS ALBEIT THEY REFER TO DELIBERATE ACT ON THE PART OF THE ASSESSEE . A MERE OMISSION OR NEGLIGENCE WOULD NOT CONSTITUTE A DELIBERATE ACT OF EITHER SUPPRESSIO VERI OR SUGGESTIO FALSY. BY THE MERE REASON OF SU CH CONCEALMENT OR OF FURNISHING OF INACCURATE PARTICULARS ALONE, THE ASS ESSEE DOES NOT, IPSO FACTO, BECOME LIABLE TO A PENALTY. IMPOSITION OF P ENALTY IS NOT AT ALL AUTOMATIC. MEANING THEREBY, ANY ADDITION IN QUANTU M WOULD NOT LEAD TO AUTOMATIC LEVY OF PENALTY AND THIS IS ALSO TRUE IN RESPECT OF FURNISHING OF INACCURATE PARTICULARS OF INCOME. NOT ONLY IS THE LEVY OF PENALTY DISCRETIONARY IN NATURE BUT THE DISCRETION HAS TO BE EXERCISED KEEPING THE RELEVANT FACTORS IN MIND AND THE APPROA CH OF THE TAXMAN MUST BE FAIR AND OBJECTIVE. THIS SUBJECT HAS BEEN A MATTER OF GREAT CONTROVERSY. FINALLY, AFTER REFERRING TO THE DECIS IONS IN THE CASE OF DILIP N. SHROFF VS JCIT & ANOTHER, 291 ITR 519, UNION OF INDIA VS. ITA 2040/07 :- 9 -: DHARMENDRA TEXTILE PROCESSORS [2008] 13 SCC 369, AS WELL AS UNION OF INDIA VS RAJASTHAN SPG. & WVG. MILLS [2009] 13 SCC 448, THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE PETROP RODUCTS PVT. LTD, 322 ITR 158, HAS RECENTLY HELD AS UNDER: A GLANCE AT THE PROVISIONS OF SECTION 271(1)(C) OF THE INCOME- TAX ACT, 1961, SUGGESTS THAT IN ORDER TO BE COVERED BY IT, THERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISHED INACCURA TE PARTICULARS OF HIS INCOME. THE MEANING OF THE WORD 'PARTICULARS ' USED IN SECTION 271(1)(C) WOULD EMBRACE THE DETAILS OF THE CLAIM MA DE. WHERE NO INFORMATION GIVEN IN THE RETURN IS FOUND TO BE INCO RRECT OR INACCURATE, THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING IN ACCURATE PARTI- CULARS. IN ORDER TO EXPOSE THE ASSESSEE TO PENALTY , UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENALTY P ROVISION CANNOT BE INVOKED. BY NO STRETCH OF IMAGINATION CAN MAKING AN INCORRECT CLAIM TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. TH ERE CAN BE NO DISPUTE THAT EVERYTHING WOULD DEPEND UPON THE RETUR N FILED BY THE ASSESSEE, BECAUSE THAT IS THE ONLY DOCUMENT WHERE THE ASSESSEE CAN FURNISH THE PARTICULARS OF HIS INCOME. WHEN SUC H PARTICULARS ARE FOUND TO BE INACCURATE, THE LIABILITY WOULD ARISE. TO ATTRACT PENALTY, THE DETAILS SUPPLIED IN THE RETURN MUST NOT BE ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING TO THE TRUTH OR ERRONEOUS. WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FA LSE THERE IS NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271 (1)(C). A MERE MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INC OME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FU RNISHING INACCURATE PARTICULARS. 5. ADVERTING TO THE FACTS OF HE CASE, REGARDING CLAI M OF LOSS IN RELATION TO LEASE AND BUYBACK OF ASSETS, IT WAS ARG UED BY THE LD.DR THAT THE ASSESSEE-FIRM HAD ENTERED INTO SEPARATE AG REEMENTS WITH M/S ITA 2040/07 :- 10 - : ASIAN CONSOLIDATED INDUSTRIES LTD, M/S FEENA PETRO PRODUCTS LTD AND M/S RAJASTHAN BREWERIES LTD FOR THE PURCHASE, LEASE AND BUYBACK OF PLANT AND MACHINERIES AGGREGATE COST OF ` 12,98,49,875/-. THE ASSESSING OFFICER LOOKED INTO THE FACTS OF THIS ISS UE AND OPINED THAT OWING TO SUBSEQUENT DEVELOPMENTS, THE WHOLE TRANSAC TIONS WERE MERGED WITH TRANSFER OF ASSETS TO A FINANCE COMPANY WHICH TOOK OVER THE RESPONSIBILITIES OF SETTLING THE DUES WITH THE SELLERS OF THE PLANT AND MACHINERY. THE CASE OF THE ASSESSEE IS THAT IN THE COURSE OF LEASE AND BUYBACK TRANSACTIONS THE ASSESSEE WAS REQUIRED TO PAY A MINIMUM AMOUNT EQUIVALENT TO 10% OF HE AGREEMENT VALUE WHIC H WAS TO BE TREATED AS A BUSINESS EXPENDITURE. THE ASSESSEE-FI RM DID NOT CLAIM ANY DEPRECIATION ON THE LEASED ASSETS. IT WAS NOTI CED BY THE ASSESSING OFFICER THAT THE ASSESSEE-FIRM DID NOT CLAIM ANY DE PRECIATION ON THE LEASED ASSETS BECAUSE THERE WAS A SEARCH AND SEIZUR E OPERATION IN ITS GROUPS CASE AND THE LEASE TRANSACTIONS WERE SUBJEC TED TO INVESTIGATION BY THE DEPARTMENT. SINCE IT DID NOT RECEIVE FULL L EASE RENTALS, THE DEFICIENCY REPRESENTING THE EXCESS OF THE COST OF P LANT AND MACHINERY OVER THE LEASE RENTAL RECEIPTS FROM THE THREE COMPA NIES, AMOUNTING TO ` 1,55,81,985/-. WAS CLAIMED AS BUSINESS LOSS U/S 28 OF THE ACT. IN THE RE-ASSESSMENT PROCEEDINGS, THESE TRANSACTIONS RELA TING TO PURCHASE, LEASE AND BUYBACK, WERE CONSIDERED AS SHAM TRANSACT IONS. THE LD. ITA 2040/07 :- 11 - : CIT(A) ALSO CONFIRMED THE DISALLOWANCE BUT ON A DIF FERENT REASONING THAT THIS LOSS CONSTITUTED A CAPITAL LOSS BECAUSE T HE TRANSACTIONS WERE NEVER COMPLETED AND THE ASSESSEE HAD ADVANCED THE MONEY TO THREE PARTIES FOR THE PURCHASE OF PLANT AND MACHINERY. I N THE PENALTY ORDER, THE ASSESSING OFFICER HAS PROCEEDED TO HOLD THE T RANSACTIONS AS SHAM ON THE FOLLOWING REASONS: (I) NO EVIDENCE WAS ADDUCED BY THE APPELLANT REGARD ING THE COST OF THE MACHINERY AND ITS EXISTENCE. (II) THOUGH THE MACHINERY WAS CLAIMED TO HAVE BEEN LEASED OUT, THE TRANSACTION WAS NOT PROVED WITH DOCUMENTARY EVIDENCES AND THE APPELLANT DID NOT RECEIVE ANY LEASE RENT FROM THE COMMENCEMENT OF THE TRANSACTION. (III) THE DISCOUNTED VALUE OF LEASE RENTAL OVER THE PERIOD OF LEASE WAS SET OFF BY THE APPELLANT AGAINST THE PURC HASE PRICE TO WORK OUT THE LOSS WHICH ITSELF SHOWED THAT THE TRANSACTIONS WERE SHAM. 6. THEREFORE, BY HOLDING THAT THE ASSESSEE HAS FURNIS HED INACCURATE PARTICULARS OF INCOME, THE ASSESSING OFF ICER HAS LEVIED THE IMPUGNED PENALTY U/S 271(1)(C) OF THE ACT. HE HAS OBSERVED THAT THE ASSESSEE HAS SOUGHT TO EVADE TAX IN RELATION TO ALL EGED LOSS OF ` 1,55,81,985/- WHICH COMES TO ` 62,32,794/-. IT WAS ARGUED BY THE LD.DR THAT THE ASSESSEE HAS LOST ITS CLAIM EVEN UPT O THE TRIBUNAL AND IN RELATION TO THIS ISSUE, THE ASSESSEE HAD CHANGED TH E ENTIRE FACTS WHILE DEALING WITH FIRST APPEAL BEFORE THE LD. CIT(A) WHI CH IS CONTRARY TO THE ITA 2040/07 :- 12 - : CLAIM MADE ORIGINALLY BEFORE THE ASSESSING OFFICER. IT WAS FURTHER ARGUED THAT THE ASSESSEE WAS NEVER ENGAGED IN THE BUSINESS OF LEASING AND THE ALLEGED TRANSACTION WAS ENTERED INT O ONLY TO AVOID PAYMENT OF TAX. THE EXISTENCE OF PLANT AND MACHI NERY WAS NEVER PROVED ON RECORD AND ADMITTEDLY THE ASSESSEE NEVER RECEIVED ANY LEASE RENT. IT WAS ARGUED THAT THE DECISION OF HON 'BLE SUPREME COURT IN THE CASE OF MC DOWELL COMPANY LTD, 154 ITR 148, SQUARELY APPLIES TO THE FACTS OF THE PRESENT CASE AS THE ASSESSEE HA S EMPLOYED DUBIOUS METHOD SIMPLY TO EVADE PAYMENT OF TAX AND NOT WITH A VIEW TO TAX PLANNING. IT WAS ARGUED THAT DESPITE THE FACT THAT THE MAJOR PORTION OF THE SALE PROCEEDS WAS RECEIVED FROM M/S BALAJI INDU STRIAL CORPORATION BUT IT DID NOT ADMIT ANY INCOME FOR THE YEAR THEREF ROM. BY CHRISTENING THIS AS BOGUS, THE LD.DR HAS PLACED RELIANCE ON TH E DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CRN INVESTMENTS P. LTD VS CIT, 300 ITR 342, AND THE DECISION OF ITAT CHENNAI BENCH [TH IRD MEMBER] IN THE CASE OF ACIT VS TVS FINANCE & SERVICES LTD,125 ITD 241, WHICH, ACCORDING TO HIM, ARE EXACTLY APPLICABLE TO THE FAC TS OF THIS CASE. TO COUNTER THESE ARGUMENTS, THE LD.AR VEHEMENTLY ARGUE D, WITH REFERENCE TO PAGE 3 PARA IV OF THE ASSESSMENT ORDER THAT THE AGREEMENTS ENTERED INTO WITH THE THREE PARTIES HAVE BEEN DUL Y RECORDED IN THE ORDER BY THE ASSESSING OFFICER. IT WAS ARGUED BECA USE BOTH THE ITA 2040/07 :- 13 - : CONTRACTS COULD NOT BE COMPLETED I.E FOR THE ENTIRE AMOUNT WAS CLAIMED AS LOSS. THE LD.AR ALSO INVITED OUR ATTEN TION TOWARDS PAGES 53 TO 57 OF THE PAPER BOOK TO ESTABLISH THAT THESE ARE NOT SHAM TRANSACTIONS. WITH REFERENCE TO THE LD. CIT(A)S OR DER [PAGE 39 OF THE PAPER BOOK] IT WAS ARGUED THAT THE LD. CIT(A) HAS H ELD THAT THESE WERE NOT SHAM TRANSACTIONS BUT IT WAS CAPITAL LOSS. IT WAS FURTHER ARGUED THAT THE TRIBUNAL HAS ALSO HELD IT TO BE CAPITAL LO SS. RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE PETROPRODUCTS PVT. LTD, 322 ITR 158. 7. AFTER COGITATING THE ENTIRE FACTS IN THEIR CORRECT PERSPECTIVE, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE HAS BEEN TAKING CONTRARY STANDS AND HAS CHANGED FACTS. BEFORE THE ASSESSING OFFICER IT TOOK A STAND FOR THE AMOUNT OF ` 1,55,81,985/- AND IT CLAIMED THIS AMOUNT AS BUSINESS EXPENDITURE BUT BEFORE THE LD. C IT(A) IT WAS CONTENDED THAT THE AMOUNT WAS ADVANCE TO VARIOUS PA RTIES FOR THE PURCHASE OF PLANT AND MACHINERY AND HENCE, THE LD. CIT(A) TREATED IT AS CAPITAL LOSS AND NOT BUSINESS LOSS U/S 28 OF THE ACT, AND CONFIRMED THE IMPUGNED ADDITION. BUT IT IS NOTICED THAT ONE OF THE MANAGING PARTNERS OF THE FIRM VIDE HIS LETTER DATED 12.1.200 6 HAS STATED CATEGORICALLY THAT ALL THESE TRANSACTIONS WERE GENU INE BUT ON THE BASIS ITA 2040/07 :- 14 - : OF THE FOLLOWING REASONS AS CULLED OUT BY THE AS SESSING OFFICER, THE TRANSACTIONS WERE TREATED AS NOT GENUINE: (I) THE COST OF THE MACHINERIES WAS CLAIMED TO BE ` 12,98,49,875/-. NO EVIDENCE WAS ADDUCED BY THE ASSESSEE AS TO THE EXISTENCE OF THE MACHINERY AND AS TO ITS VALUE. (II) THE MACHINERY WAS CLAIMED TO BE LEASED OUT, BU T ASSESSEE HAS NOT RECEIVED A SINGLE RUPEE TOWARDS LEASE RENT AT ANY TIME SINCE THE INCEPTION OF THE LEASE. THE LEASE TRANSACTION WAS ALSO NOT PROVED. (III) THE DISCOUNTED VALUE OF LEASE RENTALS OVER T HE PERIOD OF LEASE WAS SET OFF AGAINST THE PURCHASE PRICE WHICH ITSELF SHOWS THAT THESE TRANSACTIONS WERE SHAM. (IV) THE ASSESSEE WAS NOT ENGAGED IN THE BUSINESS OF LEASING. APPARENTLY, THE PURCHASE AND LEASE BACK TRANSACTIONS WERE ENTERED INTO ONLY FOR CLAIMING 100% DEPRECIATION ON THE LEASED ASSETS. 8. THE LD.AR HAS STATED THAT THESE ARE NOT SHAM TRAN SACTION AS HELD BY THE ASSESSING OFFICER BUT IT IS A CAPITAL L OSS AS HELD BY THE LD. CIT(A). BE THAT AS IT MAY, IT IS TRUE THAT THE ASS ESSEE HAS TAKEN A DIFFERENT STORY TO SAY A VOLTE STAND BEFORE THE TWO LOWER AUTHORITIES AND BOTH STANDS WERE FOUND TO BE NOT ALLOWABLE, BEI NG NOT CORRECT AS PER LAW. THIS VERY REASON IN OUR CONSIDERED OPINIO N LEADS TO A CONCLUSIVE PROOF OF THE FACT THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME IN THIS REGARD. THE FACTS AN D THE CIRCUMSTANCES OF THE CASE INFER THAT THE ASSESSEE HAS MADE A CLAI M OF LOSS ON THE ITA 2040/07 :- 15 - : BASIS OF COLOURED TRANSACTIONS. THE DECISIONS RELI ED ON BY THE LD.DR [CITED SUPRA] DEFINITELY HELP ITS CASE AND IN SUCH CASES WHERE BOGUS CLAIMS ARE MADE WHICH ARE NOT SUBSTANTIATED EVEN TO SHOW THEIR EXISTENCE AS PER LAW AS IN THIS CASE. DUE TO THE R EASONS MENTIONED ABOVE, WE ARE CONVINCED THAT THE PENALTY ON ACCOUNT OF THIS CLAIM IS LEVIABLE ON ACCOUNT OF FURNISHING INACCURATE PARTIC ULARS OF INCOME. THEREFORE, WE MODIFY THE ORDER OF THE LD. CIT(A) IN THIS REGARD BY UPHOLDING THE ORDER OF THE ASSESSING OFFICER IN SO FAR THIS PART OF CLAIM IS CONCERNED, REGARDING THE SUSTAINED ADDITION OF ` 1,55,81,985/-. IN SO FAR AS THE ADDITION OF ` 3,66,25,063/- TOWARDS THE CLAIM OF RECOMPUTED INCOME ARISING OUT TRANSACTION BETWEEN A SSESSEE AND BIC IS CONCERNED, IT WAS REVEALED FROM THE BALANCE SHEE T AS ON 31.3.1996 THAT THE ASSESSEE HAD SHOWN PROJECT RECEIPTS OF ` 10.37 CRORES DURING THE YEAR FROM BIC. SINCE THE TRANSACTION WAS NOT C OMPLETED, THE SAID RECEIPT WAS TAKEN TO THE BALANCE SHEET AS PENDING P ROJECT RECEIPT ON THE BASIS OF COMPLETED CONTRACT METHOD OF ACCOUNT ING. IN OUR CONSIDERED OPINION, ON THIS GROUND, PENALTY CANNOT BE LEVIED WHEN THE ASSESSING OFFICER WAS NOT AGREEABLE WITH THE ASSESS EE FOR THE COMPLETED CONTRACT METHOD. THE OTHER METHOD IS A CORRECT METHOD BECAUSE IN THAT CASE THE ASSESSEE HAS NEITHER CONCE ALED INCOME NOR HAS FURNISHED INACCURATE PARTICULARS OF INCOME, BUT THIS IS A CASE OF ITA 2040/07 :- 16 - : MAKING A CLAIM ON PERMISSIBLE MODES WHICH WAS NOT A CCEPTED BY THE AUTHORITIES FOR VALID REASONS. THEREFORE, THE PENA LTY RELATING TO THIS ASPECT DELETED BY THE LD. CIT(A) IS CONFIRMED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 9.1.2010. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 19 TH JANUARY, 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR