Marg Limited, CHENNAI V. DCIT, CHENNAI

ITA 820/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6353 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-06-2017
• Assessment Year: 2002-2003
• Appeal Filed On: 01-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AV R SREENIVASAN
• Assessee Lawyers: D ANAND
• Keywords: Depreciation; Sham transactions

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: CHENNAI , ! . , ' BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER , AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NOS.819 & 820/MDS/2016 /ASSESSMENT YEARS: 2001-02 & 2002-03 M/S.MARG LIMITED (FORMERLY MARG CONSTRUCTION LTD.), MARG AXIS, NO.4/318, RAJIV GANDHI SALAI, KOTTIVAKKAM, CHENNAI-600 041. VS. THE DY. COMMISSIONER OF INCOME TAX, COMPANY RANGE IV (1), CHENNAI. [PAN: AACCM 8770 G ] ( & /APPELLANT) ( '(& /RESPONDENT) & ) / APPELLANT BY : MR.D.ANAND, ADV. '(& ) /RESPONDENT BY : MR.AV.R.SREENIVASAN, JCIT ) /DATE OF HEARING : 14.08.2017 ) /DATE OF PRONOUNCEMENT : 14.08.2017 / O R D E R PER GEORGE MATHAN , JUDICIAL MEMBER : ITA NO.819/MDS/2016 IS AN APPEAL FILED BY THE ASSE SSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-8, CH ENNAI, IN ITA NO.107/2014-15 DATED 31.12.2015 FOR THE AY 2001-02. ITA NO.820/MDS/2016 IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF ITA NOS.819 & 820/MDS/2016 :- 2 -: COMMISSIONER OF INCOME TAX (APPEALS)-8, CHENNAI, IN ITA NO.01/2005-06 DATED 31.12.2015 FOR THE AY 2002-03. 2. MR.AV.R.SREENIVASAN, JCIT REPRESENTED ON BEHALF OF THE REVENUE AND MR.D.ANAND, ADV. REPRESENTED ON BEHALF OF THE A SSESSEE. 3. AS BOTH THE APPEALS ARE RELATED TO THE SAME ASSE SSEE AND BEING INTER-CONNECTED, BOTH THE APPEALS ARE DISPOSED OF B Y THIS COMMON ORDER. ITA NO.819/MDS/2016 FOR THE AY 2001-02 4. IT WAS SUBMITTED BY THE LD.AR THAT THE ASSESSEE IS A COMPANY, WHICH WAS DOING CONSTRUCTION BUSINESS. DURING THE RELEVANT AY, THE ASSESSEE HAD PURCHASED 5000 SOLAR LANTERNS AND HAD LEASED THE SAME TO FIVE DIFFERENT PERSONS. IT WAS A SUBMISSION THAT T HE ASSESSEE HAD CLAIMED DEPRECIATION IN RESPECT OF THE SAID SOLAR LANTERNS PURCHASED BY THE ASSESSEE AND GIVEN ON LEASE. IT WAS A SUBMISSION T HAT IN THE COURSE OF THE ASSESSMENT, THE AO HELD THAT THE PURCHASE OF SO LAR LANTERNS BY THE ASSESSEE AND THE SAME BEING LEASED OUT WAS A SHAM T RANSACTION. IT WAS A SUBMISSION THAT THE SAME HAD BEEN UPHELD, ON APPEAL BY THE ITAT AND BY THE HONBLE JURISDICTIONAL HIGH COURT OF MADRAS. I T WAS A SUBMISSION THAT THOUGH THE TRANSACTION HAS BEEN TREATED AS A SHAM T RANSACTION, THE LEASE RENTALS RECEIVED BY THE ASSESSEE HAS BEEN TAXED. T HE LD.AR PLACED BEFORE US COPY OF THE BALANCE SHEET AND P&L ACCOUNT, WHER EIN FOR THE RELEVANT ITA NOS.819 & 820/MDS/2016 :- 3 -: AY UNDER THE SCHEDULE-J, THE LEASE RENTALS FROM THE SOLAR LANTERNS IS SHOWN AT RS.57,534/-. IT WAS A SUBMISSION THAT THE TRANSACTION WAS NOT A SHAM TRANSACTION. IT WAS A FURTHER SUBMISSION THAT THE WHOLE ASSESSMENT IS BASED ON A STATEMENT RECORDED FROM THE SELLER WH OSE STATEMENT NOT BEEN PUT THE ASSESSEE FOR CROSS-EXAMINATION. IT WA S A FURTHER SUBMISSION THAT FOR THE AY 2002-03, THE ASSESSEE HAS SHOWN LEA SE RENTALS OF RS.30.60 LAKHS. IT WAS A SUBMISSION THAT JUST BECAUSE, THE ASSESSEE WAS UNABLE TO PROVE THE TRANSACTION, THAT WOULD NOT MAKE THE TRAN SACTION OR THE CLAIM OF THE ASSESSEES DEPRECIATION, CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. IT WAS A FURTHER SUBMISSION THAT THE LOAN WHICH HAD BEEN GIVEN BY IREDA FOR THE PURCHASE OF T HE SOLAR LANTERNS WAS ALSO NOT CONSIDERED BY THE AO. IT WAS A SUBMISSION THAT THE IREDA WAS A GOVERNMENT OF INDIA ENTERPRISE WHICH PROVIDED LOANS ONLY FOR PROCURING RENEWABLE ENERGY EQUIPMENT. IT WAS A SUBMISSION TH AT THE PENALTY U/S.271(1)(C) WAS NOT LEVIABLE ON THE SAID TRANSAC TION. IT WAS A FURTHER SUBMISSION THAT IN THE COURSE OF THE ASSESSMENT, TH E AO HAD DISALLOWED AND ADVANCE SHOWN UNDER THE NAME OF M/S.DAS LARGERW AY WINDFARM LIMITED. IT WAS A SUBMISSION THAT THE ASSESSEE HAD ENTERED INTO CONTRACT WITH M/S.DAS LARGERWAY WINDTURBINES LIMITED AND HAD SHOWN AMOUNTS RECEIVED FROM THE SAID CONCERNED AS ADVANCES, AS TH ERE WAS A LITIGATION BETWEEN THE ASSESSEE AND THE SAID FIRM. IT WAS A S UBMISSION THAT AFTER THE LITIGATION WAS SETTLED, THE ASSESSEE HAD OFFERE D THE INCOME FOR THE AY 2006-07. IT WAS A SUBMISSION THAT THE AO HAD OBTAI NED A LETTER FROM M/S.DAS LARGERWAY WIND WINDTURBINES LIMITED WHEREIN THE SAID ITA NOS.819 & 820/MDS/2016 :- 4 -: CONCERNED HAD CONFIRMED THAT THERE WAS NO MONEY OR MATERIAL DUE TO THE ASSESSEE. THIS WAS DURING THE PENDENCY OF LITIGATI ON. IT WAS A SUBMISSION THAT INCOME HAVING BEEN OFFERED DURING THE ASSESSME NT YEAR 2006-07 AND THE AMOUNT RECEIVED BY THE ASSESSEE HAVING BEEN SHO WN AS ADVANCE DURING THE RELEVANT AYS, THERE WAS NO CONCEALMENT O F INCOME OR FURNISHING OF INACCURATE PARTICULARS. IT WAS A SUBMISSION THA T NO PENALTY WAS LEVIABLE ON THIS COUNT. IT WAS A FURTHER SUBMISSION THAT IN THE COURSE OF THE ASSESSMENT PROCEEDINGS IN RESPECT OF BOTH THE ADDIT IONS, THERE IS NO SATISFACTION RECORD AS TO WHETHER THE ASSESSEE HAS CONCEALED HIS INCOME OR HAS FURNISHED INACCURATE PARTICULARS OF HIS INCO ME. IT WAS A SUBMISSION THAT ON THE LAST PAGE OF THE ASSESSMENT ORDER, IT I S MENTIONED THAT PENALTY HAS BEEN INITIATED SEPARATELY. THE LD.AR P LACED BEFORE US A COPY OF THE NOTICE U/S.271 R/W 274 DATED 31.03.2004. IT WAS A SUBMISSION THAT EVEN IN THE SHOW CAUSE NOTICE, IT HAS NOT BEEN MENT IONED AS TO WHETHER THE PENALTY IS BEING LEVIED FOR CONCEALMENT OF PART ICULARS OF INCOME OR FOR FURNISHING OF INACCURATE PARTICULARS OF HIS INCOME. THE LD.AR FURTHER DREW OUR ATTENTION TO THE PENALTY ORDER AT PARA NO.6.5 T O SUBMIT THAT IN THE SAID PARAGRAPH, THE AO SUBMITS THAT THE ASSESSEE HA S FURNISHED INACCURATE PARTICULARS OF INCOME AND IN PARA NO.7, THE AO TALKS OF CONCEALMENT OF INCOME. THE LD.AR PLACED BEFORE US A COPY OF THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S.SSAS EMERALD MEADOWS IN ITA NO.380/2015 WHEREIN THE HONBLE KARN ATAKA HIGH COURT VIDE ORDER DATED 23.11.2015, WHEREIN PARA NO.3, THE HONBLE HIGH COURT HAS HELD AS FOLLOWS: ITA NOS.819 & 820/MDS/2016 :- 5 -: 3. THE TRIBUNAL HAS ALLOWED THE APPEAL FILED BY THE ASSESSEE HOLDING THE NOTICE ISSUED BY THE ASSESSING OFFICER UNDER SECTION 274 READ WITH SE CTION 271(1)(C) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) TO BE BAD IN LAW AS IT D ID NOT SPECIFY WHICH LIMB OF SECTION 271(1)(C) OF THE ACT, THE PENALTY PROCEEDINGS HAD BEE N INITIATED I.E., WHETHER FOR CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE TRIBUNAL, WHILE ALLOWING THE APPEAL OF THE ASSESSEE , HAS RELIED ON THE DECISION OF THE DIVISION BENCH OF THIS COURT RENDERED IN THE CASE O F COMMISIONER OF INCOME TAX VS- MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565. 5. THE LD.AR FURTHER PLACED BEFORE US A COPY OF THE ORDER OF THE HONBLE SUPREME COURT IN RESPECT OF SLP IN CC NO.11 485/2016 DATED 05.08.2016 WHEREIN THE SLP AGAINST THE SAID ORDER O F THE HONBLE HIGH COURT HAS ALSO BEEN DISMISSED. IT WAS A SUBMISSION THAT ON MERITS AND ON TECHNICALITY, NO PENALTY WAS LEVIABLE WITH ASSESSEE U/S.271(1)(C). 6. IN REPLY, THE LD.DR SUBMITTED THAT IN RESPECT OF THE CLAIM OF THE DEPRECIATION, THE TRANSACTION WAS A SHAM TRANSACTIO N AND THE SAME HAS ALSO BEEN UPHELD BY THE HONBLE HIGH COURT. IT WAS A FURTHER SUBMISSION THAT IN RESPECT OF THE CREDIT SHOWN IN THE NAME OF M/S.DAS LARGERWAY WINDFARM LIMITED, THE LETTER OF DAS LARGERWAY ITSEL F SHOWS THAT THE CONTRACT WAS COMPLETED AND NO AMOUNT WAS DUE TO THE ASSESSEE OR FROM THE ASSESSEE. IT WAS A FURTHER SUBMISSION THAT THE ASSESSEE WAS A SHELL COMPANY AND THE PENALTY WAS LIABLE TO BE CONFIRMED. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE F ACT THAT THE LEASE RENTALS HAVE BEEN OFFERED BY THE ASSESSEE IN RESPEC T OF THE LEASE TRANSACTION OF THE ASSESSEE IN RESPECT OF THE SOLAR LANTERNS IS A FACT IN ITA NOS.819 & 820/MDS/2016 :- 6 -: SUPPORT OF THE ASSESSEE. IT IS FURTHER NOTICED THA T IN THE TRANSACTION OF THE ASSESSEE, ALL THE PURCHASE AND LEASE OF THE SOLAR L ANTERNS IS FINANCED BY IREDA WHICH IS A GOVERNMENT OF INDIA ENTERPRISE. IR EDA, WE ARE SURE WOULD NOT INVOLVED ITSELF IN SUCH A SHAM TRANSACTIO N. EVEN ASSUMING THAT THE LEASE TRANSACTION WAS A PAPER TRANSACTION STILL THE SAME WOULD HAVE TO BE CONSIDERED AS A FINANCIAL TRANSACTION. HOWEVER, WE WOULD NOT LIKE TO DWELL ON THIS MERITS OF THIS ISSUE IN SO FAR AS THE CO-ORDINATE BENCH OF THIS TRIBUNAL HAS ALREADY UPHELD THE TRANSACTION TO BE A SHAM ONE WHICH HAS ALSO FOUND FAVOUR WITH THE HONBLE JURISDICTIONAL H IGH COURT. IN RESPECT OF THE ISSUE OF CREDIT STANDING IN THE NAME OF M/S.DAS LARGERWAY WINDFARM LIMITED, IT IS NOTICED THAT THIS IS NOT A CASE OF C ONCEALMENT OF INCOME IN SO FAR AS THE ASSESSEE HAS DISCLOSED THE TRANSACTION I N ITS RETURN AND IT IS ONLY THE NATURE OF THE TRANSACTION WHICH HAS BEEN ALTERE D TO TREAT THE SAME AS INCOME. WE MUST MENTION HERE THAT THE INCOME FROM THE SAID TRANSACTION HAS BEEN OFFERED BY THE ASSESSEE IN HIS RETURN FOR THE AY 2006-07. THE RETURN FOR THE AY 2006-07 HAS BEEN ACCEPTED BY THE REVENUE, THOUGH ADMITTEDLY, U/S.143(I). THE TIME LIMIT FOR RE-OPENI NG OF THE SAID ASSESSMENT IS LONG OVER AND CONSEQUENTLY THE RETURN ED INCOME WOULD BE CONSIDERED AS FINAL. THUS, BY THE SAID ADDITION TH E REVENUE HAS TAXED THE SAME INCOME TWICE, ONE IN THE FORM OF DISALLOWANCE DURING THE IMPUGNED AY AND SECOND TIME ON ACCOUNT OF THE INCOME BEING O FFERED BY THE ASSESSEE FOR THE AY 2006-07. THUS, IT CANNOT BE SA ID THAT THE ASSESSEE HAS CONCEALED ITS PARTICULARS OF HIS INCOME OR HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME. HOWEVER, EVEN ON THIS I SSUE WE WOULD NOT LIKE ITA NOS.819 & 820/MDS/2016 :- 7 -: TO GO INTO ON MERITS IN SO FAR AS THE CO-ORDINATE B ENCH OF THIS TRIBUNAL HAS UPHELD THE ADDITION AND THE SAID ORDER HAS ALSO BEE N CONFIRMED BY THE HONBLE JURISDICTIONAL HIGH COURT OF MADRAS. 8. A PERUSAL OF THE SHOW CAUSE NOTICE U/S.271 R/W 2 74 CLEARLY SHOWS THAT THE AO HAS NOT SPECIFIED AS TO WHICH LIMB OF S EC.271(1)(C), THE PENALTY PROCEEDINGS HAS BEEN INITIATED. THIS BEING SO, IN VIEW OF THE PRINCIPLES LAID DOWN BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S.SSAS EMERALD MEADOWS REFERRED TO SUPRA APPROVE D BY THE HONBLE SUPREME COURT BY DISMISSAL OF THE SLP REFERRED TO S UPRA, WE ARE OF THE VIEW THAT THE PENALTY U/S.271(1)(C) OF THE ACT CANN OT BE LEVIED IN THE CASE OF THE ASSESSEE. IN THESE CIRCUMSTANCES, THE PENAL TY AS LEVIED BY THE AO AND CONFIRMED BY THE LD.CIT(A) STANDS DELETED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS STANDS ALLOWED . ITA NO.819/MDS/2016 FOR THE AY 2001-02 10. IT WAS SUBMITTED BY THE LD.AR THAT THE ISSUES I N THE ASSESSMENT WERE IN RESPECT OF THE DISALLOWANCE OF THE DEPRECIA TION CLAIMED IN RESPECT OF THE LEASED SOLAR LANTERNS WHICH HAD BEEN DISALLO WED BY THE AO FOR THE AY 2001-02 HOLDING THE SAME TO BE A SHAM TRANSACTIO N AND IN RESPECT OF ADVANCE SHOWN IN THE NAME OF M/S.DAS LARGERWAY WIND WINDTURBINES LIMITED WHICH HAD ALSO BEEN DISALLOWED FOR THE IMME DIATELY PRECEDING AY ITA NOS.819 & 820/MDS/2016 :- 8 -: 2001-02. IT WAS SUBMITTED BY THE LD.AR THAT DURING THE RELEVANT AY THE ASSESSEE HAD OFFERED AN AMOUNT OF RS.30.60 LAKHS AS ITS LEASE RENTALS AND THE SAME HAS ALSO BEEN ACCEPTED BY THE AO. IT WAS A SUBMISSION THAT 50% DEPRECIATION IN RESPECT OF THE LEASED SOLAR LAN TERNS HAD BEEN DISALLOWED BY THE AO FOLLOWING THE ASSESSMENT ORDER FOR THE IMMEDIATELY PRECEDING AY. IT WAS A FURTHER SUBMISSION THAT IN R ESPECT OF THE RECEIPTS FROM M/S.DAS LARGERWAY WINDFARM LIMITED THE INCOME FROM THE SAID TRANSACTION HAD BEEN OFFERED IN THE RETURN FOR THE AY 2006-07. IT WAS A SUBMISSION THAT THE ASSESSEE HAD NO OBJECTION, IF T HE ISSUES WERE RESTORED TO THE FILE OF THE AO FOR RE-EXAMINATION. 11. IN REPLY, THE LD.DR SUBMITTED THAT IN RESPECT O F THE DEPRECIATION ON THE SOLAR LANTERNS THE HONBLE JURISDICTIONAL HIGH COURT HAS ALREADY CONFIRMED THE STAND OF THE AO THAT THE TRANSACTIONS WERE SHAM TRANSACTIONS. IT WAS A FURTHER SUBMISSION THAT IN RESPECT OF THE ADVANCE SHOWN FROM M/S.DAS LARGERWAY WIND WINDTURBINES LIMI TED, IT WAS A SUBMISSION THAT THE ASSESSMENT FOR THE IMMEDIATELY PRECEDING YEAR HAD ALSO BEEN CONFIRMED BY THE CO-ORDINATE BENCH OF THI S TRIBUNAL. IT WAS A SUBMISSION THAT THE ORDER OF THE LD.CIT(A) WAS LIAB LE TO BE CONFIRMED. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT I S AN ADMITTED FACT THAT THE HONBLE JURISDICTIONAL HIGH COURT HAS UPHE LD THE FINDING OF THE AO THAT THE TRANSACTION OF PURCHASE AND LEASE OF THE S OLAR LANTERNS IS A SHAM ITA NOS.819 & 820/MDS/2016 :- 9 -: TRANSACTION. HOWEVER, A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE AO HAS BROUGHT TO TAX, THE LEASE RENTALS RECEIVED B Y THE ASSESSEE IN RESPECT OF THE BUSINESS OF PURCHASE AND LEASE OF TH E SOLAR LANTERNS. IF THE TRANSACTION ITSELF IS DISBELIEVED AND TREATED AS A SHAM TRANSACTION ADMITTEDLY THE INCOME OFFERED BY THE ASSESSEE IN RE SPECT OF THE SAID TRANSACTION CANNOT BE TREATED AS INCOME OF THE ASSE SSEE. THIS HAS NOT BEEN CONSIDERED OR VERIFIED BY THE AO. IN RESPECT OF THE ISSUE OF ADVANCE RECEIVED FROM M/S.DAS LARGERWAY WIND WINDTURBINES L IMITED, IT IS STATED BY THE ASSESSEE THAT THE INCOME FROM THE SAID TRANS ACTION HAS BEEN OFFERED DURING THE AY 2006-07. FURTHER, THE AO HAS BROUGHT TO TAX THE AMOUNTS STANDING IN THE NAME OF THE SAID CREDITOR I N THE AY 2001-02 HOLDING THAT THE TRANSACTION IS COMPLETE. IF THIS I S SO, THEN HOW WAS ADDITIONAL ADVANCE GIVEN DURING THE IMPUGNED ASSESS MENT YEAR? THIS HAS ALSO NOT BEEN EXAMINED BY THE AO. IN THESE CIRCUMS TANCES, WE ARE OF THE VIEW THAT THE ISSUES MUST BE RESTORED TO THE FILE O F THE AO FOR RE- ADJUDICATION AND WE DO SO. IN RESPECT OF THE TRANS ACTION OF THE PURCHASE AND LEASE OF THE SOLAR LANTERNS, THE AO HAS TO VERI FY AS TO WHETHER THE ASSESSEE HAS OFFERED THE LEASE RENTALS IN RESPECT O F THE SAID SOLAR LANTERNS AND HAS TO ADJUDICATE ON THIS ISSUE AFTER SUCH VERI FICATION. IN RESPECT OF THE ISSUE OF THE ADVANCE SHOWN FROM M/S.DAS LARGERW AY WINDFARM LIMITED, THE AO IS TO EXAMINE AS TO WHETHER THE ASS ESSEE HAS OFFERED THE INCOME FROM THE SAID TRANSACTION FOR THE AY 2006-07 . IF THE INCOME HAS BEEN OFFERED DURING THE AY 2006-07, THEN NO ADDITIO N IS CALLED FOR IN THE HANDS OF THE ASSESSEE IN THE IMPUGNED ASSESSMENT OR DER. WITH THESE ITA NOS.819 & 820/MDS/2016 :- 10 -: DIRECTIONS, THE ISSUES ARE RESTORED TO THE FILE OF THE AO FOR RE-ADJUDICATION AFTER GRANTING THE ASSESSEE ADEQUATE OPPORTUNITY TO SUBSTANTIATE HIS CASE. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON AUGUST 14, 2 017, AT CHENNAI. SD/- SD/- ( . ) ( A. MOHAN ALANKAMONY ) ! /ACCOUNTANT MEMBER ( ) (GEORGE MATHAN) ! /JUDICIAL MEMBER /CHENNAI, 1 /DATED: AUGUST 14, 2017. TLN ) '23 43 /COPY TO: 1. & /APPELLANT 4. 5 /CIT 2. '(& /RESPONDENT 5. 3 ' /DR 3. 5 ( ) /CIT(A) 6. /GF