S. 271(1)(c): Wrong claim for depreciation by showing a finance or loan transaction as a lease transaction attracts penalty
Times Guaranty Ltd vs. ACIT (ITAT Mumbai)
(i) 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 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 271(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;
(ii) 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 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;
(iii) The contention 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.
(iv) 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.
Article referred: http://itatonline.org/archives/times-guaranty-ltd-vs-acit-itat-mumbai/
(i) 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 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 271(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;
(ii) 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 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;
(iii) The contention 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.
(iv) 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.
Article referred: http://itatonline.org/archives/times-guaranty-ltd-vs-acit-itat-mumbai/
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