M/S PUNSUMI ENGNEERS LTD vs. C I T-I JAIPUR AND ANOTHER

These four Income Tax Appeals are directed against the common order dt.07/10/2011 passed by the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur (for short, “ITAT”) by which the ITAT, while upholding the order passed by the Commissioner of Income Tax (Appeal) (for short, “CIT(A)”), has dismissed the appeals filed by the appellant-assessee. It DB ITA-104/2012 DB ITA-101/2012 DB ITA-102/2012 DB ITA-103/2012 2 relates to Assessment Year 1994-95, 1995-96, 1996-97 & 1997-

The appellant-assessee in these appeals is aggrieved against sustenance of the penalty u/s 271(1)(c) of the Income Tax Act, 1961 (for short, “IT Act”). Since the issues involved are similar and identical for all these years, all these appeals are being decided by this common order. However, facts are being taken of DB ITA No.104/2012 for the assessment year 1995-96 as the ITAT has also chosen to take facts of assessment year 1995-96. 2. These appeals were listed on 13th August, 2014 and on the said date, one Mr. Ashvini Chaturvedi, representative of the appellant appeared in person and the matter was argued by him at some length but he sought further time to prepare the matter and considering his request, the matter was adjourned for today, however, no one appeared on behalf of the appellant.

Since, no one is putting appearance on behalf of the appellant despite being aware of the matter being listed today and the lawyer representing the appellant is also aware of listing of matter today but lawyers are also abstaining from attending the Court without any cogent reason. We have heard the Officer, appearing on behalf of the respondents and perused the impugned order so also the material available on record.

The salient features of the case are that the appellant- assessee is 100% subsidiary of M/s. Punsumi India Ltd.. The appellant-assessee was formed for manufacturing of Disc Covers which were being used in Aluminum Electrolytic Capacitors. The appellant-assessee though imported plant & machinery from Germany and such plant & machinery though reached Mumbai but was lying with the Custom Department at Mumbai and it is a finding of fact that such plant & machinery never reached the site/workshop/head office of the appellant- assessee and finding no other alternative to recover the custom duty, demurrage and other charges, the Mumbai Port Authorities sold/auctioned the plant & machinery. It was stated by the appellant-assessee that due to financial problems, it could not clear the dues of port authorities and thus the port authorities had to sell the same.

The appellant-assessee entered into a memorandum of understanding (MOU) on 05/10/1992 with the holding company (Punsumi India Ltd.) and as per this agreement, the appellant- assessee acquired technical knowhow for manufacturing of stitching and winding machines for the manufacture of Electrolytes. The consideration for acquiring technical knowhow for manufacture of stitching and winding machines was Rs.400

Consequent to order of the ITAT, the AO issued show cause notice u/s 271(1)(c) of the IT Act requiring the appellant- assessee to substantiate its claim that the depreciation was rightly claimed by it particularly on the basis of order of the CIT (A) as well as ITAT, who had sustained disallowance of depreciation and when the said issue attained finality. No adequate reply was submitted on the instant issue by the assessee and it was merely submitted that the issue may be decided after disposal of the rectification application. It has been observed by the AO that the assessee did not place any material during the course of the penalty proceedings and after considering the order of the ITAT where the disallowance of depreciation was sustained and by observing the material already placed on record, the penalty u/s 271(1)(c) of the Act was imposed for all the assessment years. The penalty so imposed had been challenged in appeal before the CIT(A). The CIT(A) also upheld the penalty and came to the conclusion that the assessee was not able to controvert the finding of fact in the assessment proceedings that the transaction was a colourable

Upon perusal of Section 271(1)(c) of the IT, it goes to show that the penalty can be imposed by the AO or the Commissioner of Appeals or the Commissioner, as the case may be, if the assessee has concealed the particulars of his income or has furnished inaccurate particulars of such income. Therefore, the AO has first to satisfy as to whether the assessee concealed the particulars of income or has furnished inaccurate particulars of such income. In so far as this fact is concerned, all the three authorities in unison have come to the conclusion that the intention of the assessee was to evade tax and it would be appropriate to quote the factual finding of ITAT while sustaining disallowance of depreciation. The ITAT, vide order dt.26/05/2005, while sustaining the disallowance of depreciation, specifically came to the conclusion that there was a colourable device in between two interconnected companies

The finding of fact arrived at by the ITAT, in quantum proceedings referred to above, attained finality. Now, on the face of it, in the assessment proceedings, the depreciation has been held to be based merely on a paper transaction in between the two inter connected parties even when the MOU having not been properly acted upon. We need not quote the language of two MOUs entered into by and between the assessee and Punsumi India Ltd. dt. 05/10/1992 and 20/04/1993 but in the quantum (regular) proceedings all the three authorities have elaborately discussed about the salient features of the MOUs and after recording finding of fact came to the conclusion that the MOUs are merely on papers and the DB ITA-104/2012 DB ITA-101/2012 DB ITA-102/2012 DB ITA-103/2012 11 entire transaction is sham and colourable one and sustained disallowance of depreciation which is based on appreciation of evidence and concurrent finding of fact not only by the AO but CIT(A) as well as ITAT in the quantum proceedings, but all the three authorities in unison in the present proceedings have again held that the MOUs were merely on papers and had not been acted upon. It is also a finding of fact that not a single amount passed in between both the parties except the book adjustments which remained on paper only.

Once the addition was sustained by the ITAT, primarily the onus shifted on the assessee to prove otherwise. We are conscious of the fact that the penalty is distinct and separate and different conclusion can be reached in the context of penalty and the finding reached in quantum proceedings may not hold good, but then, it was for the appellant-assessee to have submitted material contrary to which the ITAT placed reliance at the time of passing of the order dt.26/05/2005. We have gone through the reasoning of the AO in the penalty proceedings and the AO observes that the appellant-assessee have not filed a proper explanation/reply and merely stated to grant further time, it is observed by the AO in this regard as under:- “A show cause vide notice dated 9-11-2005 has DB ITA-104/2012 DB ITA-101/2012 DB ITA-102/2012 DB ITA-103/2012 12 been issued and duly been served. The assessee was required to file its reply by 28-12-2005. In compliance of above the assessee vide its letter dated 19-12-2005 stating therein that this issue may be decided after the disposal of rectification application on deletion of addition made by AO on protective basis in respect of job charges.”

Thus, despite of an adequate opportunity having been granted to the appellant-assessee by the AO, the appellant- assessee simply wanted to defer the matter knowing fully well that the penalty proceedings would get time barred by the end of December, 2005. Therefore, the onus and burden, which lay heavily on the appellant-assessee to place adequate material to controvert, as penalty being distinct and separate, was not availed by the appellant-assessee. The burden which shifted on the assessee was not discharged. Even before the CIT(A) and ITAT, no specific point was raised except that the AO is not right in treating the transaction as a measure of tax evasion or that the conclusion of AO is based on suspicion and surmises and that the ITAT has also decided the matter on the basis of suspicion and surmises. The ITAT, by the impugned order, has sustained the penalty as no new fact or material was brought by the appellant-assessee even before the ITAT to come to a different conclusion. Before the ITAT, one additional fact was mentioned that “claim was made on account of mistake on the DB ITA-104/2012 DB ITA-101/2012 DB ITA-102/2012 DB ITA-103/2012 13 part of the auditor and because of the mistake of the auditor, the assessee ought not to have been penalized.” However, the assessee has not been able to substantiate its claim as to how there was a mistake on the part of the auditor and there is no affidavit or explanation of the auditor that a mistake was committed by the auditor in giving an advise in the manner the depreciation was claimed. The finding of the ITAT is based on facts that there is no explanation on record to suggest that the claim of depreciation made by the assessee was bonafide. There is a difference between wrong claim and a false claim. If there is a wrong claim on the basis of a bonafile opinion, then penalty perhaps is not imposable. If the claim is debatable as per decision of different appellate authorities, then also penalty is not leviable. However, if claim is false then penalty is definitely leviable.

In the impugned order of the ITAT as well as the other authorities, in the written submissions and the present appeal, the assessee has harped that even as per AO the claim was allowable u/s 35AB of the IT Act to the extent allowable @ 1/6th for 6 years so as to justify its claim that in any case it was allowable, we are afraid the assessee has wrongly put in the said claim when a passing reference has been made by the AO. The assessee nowhere raised such a plea or claim nor any DB ITA-104/2012 DB ITA-101/2012 DB ITA-102/2012 DB ITA-103/2012 14 basis was forthcoming on the part of the assessee in any of the explanation before any of the authorities neither at the time of regular assessment nor during the penalty proceedings. The assessee appears to be taking benefit of AO's passing reference in assessment order which reads “without prejudice to the above, if at all the claim of the assessee is right, then it should have been claimed u/s 35AB to which 1/6

One more question has been framed that the order of penalty passed on 30/12/2005 was beyond 6 months and is beyond the period of limitation u/s 275(1)(a) as the order of ITAT upholding disallowance of depreciation is dated 26/05/2005. We fail to understand the ground raised for the first time before us and do not find the said claim having been ever raised before any of the three authorities and thus the claim even otherwise could not have been raised for the first time and thus deserves to be rejected. Even otherwise, penalty can be imposed in six months from the end of the month in which the order of the Commissioner (Appeals) or as the case may be the DB ITA-104/2012 DB ITA-101/2012 DB ITA-102/2012 DB ITA-103/2012 15 appellate Tribunal is received by the Chief Commissioner or Commissioner which ever period expires later, is reckoned as aforesaid from the time the order is received by the Chief Commissioner or Commissioner of Income Tax u/s 275(1)(a) and not from the date of the order of the ITAT for the purposes of penalty.

So long as the assessee has not concealed any material fact or the factual information given by him, has not been found to be incorrect, he will not be liable for imposition of penalty u/s 271(1)(c) of the Act even if the claim made by him is unsustainable in law provided that he either substantiates the explanation offered by him or the explanation is found to be bonafide. If the explanation is neither substantiated nor shown to be bonafide, the explanation u/s 271(1)(c) would come into play and the assessee would be liable for the prescribed penalty. A claim made by the assessee needs to be bonafide and if the claim, besides being incorrect in law, is malafide, explanation 1 to Sec. 271(1) would come into play and work to the disadvantage of the assessee. We have already observed herein above and the finding of the ITAT, which is a final fact finding authority that the assessee claimed depreciation which was never allowable and the assessee was aware of the true nature of the transaction despite which the claim for DB ITA-104/2012 DB ITA-101/2012 DB ITA-102/2012 DB ITA-103/2012 16 depreciation was made. Its claim was rejected by the Tribunal in the quantum proceedings and that order has attained finality. The explanation given by the assessee for the claim of depreciation is neither bonafide nor substantiated. All these are on the basis of appreciation of evidence on record found by the lower authorities and thus, the impugned order is based on appreciation of evidence and has been reached on a finding of fact.

In view of what we have observed herein above, vis-vis the finding of fact recorded by the ITAT as also the other lower authorities, which is based on appreciation of evidence and material on record, not only in the penalty proceedings but also in the regular (quantum) proceedings and no question of law much less substantial question of law can be said to arise out of the order passed by the ITAT. We do not find any perversity or illegality in the order of the ITAT.

Consequently, all the four appeals, being devoid of merits, are hereby dismissed in limine. [J.K. RANKA],J. [AJAY RASTOGI],J. Raghu/p.16/ Certificate:All corrections made in the judgment/order have been incorporated in the judgment/order being e-mailed. Raghu, Sr. PA.