M/s. Sterling Holiday Financial Services Limited, CHENNAI vs ACIT, CHENNAI

आयकर अपील य अ धकरण, ‘ए’ यायपीठ, चेनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : CHENNAI ी एन.आर.एस. गणेशन, यायक सद य एवं ी अ ाहम पी. जॉज$, लेखा सद य के सम& । [BEFORE SHRI N.R.S.

GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P.

GEORGE, ACCOUNTANT MEMBER] आयकर अपील सं./I.T.A.

Nos.565, 566 & 567/CHNY/2012 नधारण वष /Assessment years : 1995-96, 1995-96 and 1996-97 M/s.

Sterling Holiday Financial Services Limited, Padma Complex, 3rd floor, 320, Anna Salai, Nandanam, Chennai 600 035. [PAN AAACS 4955K] Vs.

The Assistant Commissioner of Income Tax, Company Circle VI(4) Chennai 600 034. (अपीलाथ)/Appellant) (*+यथ)/Respondent) अपीलाथ क ओर से/ Appellant by : Shri.

G.

Baskar, Advocate यथ क ओर से /Respondent by : Shri.

ARV.

Sreenivasan, IRS, JCIT. सुनवाई क तार ख/Date of Hearing : 08-03-2018 घोषणा क तार ख /Date of Pronouncement : 15-03-2018 आदेश / O R D E R PER ABRAHAM P.

GEORGE, ACCOUNTANT MEMBER These are appeals filed by the assessee directed against orders dated 16.12.2011 of ld.

Commissioner of Income Tax (Appeals)- VI, Chennai.

2.

Assessee in the appeals numbered as ITA 565/CHNY/2012 and ITA 567/CHNY/2012 is aggrieved on disallowance of depreciation ITA No.

565 to 567/12. :- 2 -: claimed by it on Special Grade Cast Iron (SGCI) rolls alleged to be purchased and leased to M/s.

Bellary Steels & Alloys Ltd.

In its appeal number 566/CHNY/2012, also for assessment year 1995-96, it assails levy of penalty u/s.271(1) (c) of the Income Tax Act, 1961 (in short ‘’the Act’’) arising from the very same disallowance.

3.

Facts apropos are that assessee had filed its return of income for the impugned assessment years claiming depreciation on SGCI.

Such claim for both assessment years were to E75,27,457/-.

Assessee had claimed the depreciation at the rate of 100% but curtailed such claim to 50% of the eligible amount for assessment year 1995-96.

Balance 50% was claimed for assessment year 1996- 97.

As per the assessee the SGCI rolls were supplied by one M/s. y one M/s.BH Enterprise, Mumbai and leased out to one M/s.

Bellary Steels & Alloys Ltd, Bellary in the month of March, 1995.

Ld.

Assessing Officer was having documents which proved that the claim of transportation of SGCI rolls through on M/s.Noble Road Lines was bogus.

The weight of the smallest and lightest SGCI rolls came to 1800 kg and one truck could not carry more than five such rolls, considering its nine tonne capacity.

Assessing Officer verified the two transportation invoices produced by the assessee and found them to be bogus, since the lorries were shown to have carried much more than their capacity.

It ITA No.

565 to 567/12. :- 3 -: also seems that the concerned transporter denied transporting any SGCI rolls but only scraps.

M/s.

B.H Enterprises also confirmed that they had never supplied any SGCI rolls to M/s.

Thus, the claim of the assessee that it had purchased and leased out SGCI rolls to M/s.

Bellary Steels & Alloys Ltd were found to be bogus.

Claim of depreciation were accordingly disallowed for both assessment years 1995-96 and 1996-97.

Assessee was also visited with penalty u/s.271 (1) (c) of the Act for making above bogus claim.

4.

Aggrieved, assessee moved in appeal before ld.

Commissioner of Income Tax (Appeals).

Commissioner of Income Tax (Appeals) upheld the order of the ld.

Assessing Officer, both with regard to disallowance of claim of depreciation as well as levy of penalty.

Though the assessee argued that it had proof for delivery of goods to M/s.

Bellary Steels & Alloys Ltd, installation certificate issued by M/s.

Bellary Steels & Alloys Ltd, and insurance cover taken with Oriental Insurance, ld.

Commissioner of Income Tax (Appeals) did not accept such arguments.

Commissioner of Income Tax (Appeals) noted that there were statements recorded from one Shri.

J.

Jayaprakash Gupta, Chartered Accountant one Shri.

S.

Madhava, Managing Director of M/s.

Bellary Steels & Alloys Ltd and one Shri. one Shri.

Himanshu R.

Metha, partner of M/s.

BH Enterprises, all of which clearly ITA No.

565 to 567/12. :- 4 -: demonstrated that there were no purchase of any SGCI rolls nor any leasing of any such rolls to M/s.

He held that it was impossible to transport twenty six SGCI rolls in one lorry.

According to him, the depositions and the unrealistic claim of transportation when considered together, bogus nature of the transactions was apodictically proved.

He thus confirmed the disallowance as well as levy of penalty.

5.

Now before us, the ld.

Authorised Representative strongly assailing the orders of the lower authorities submitted that there was a disallowance of lease rental for SGCI rolls claimed by M/s.

Bellary Steels & Alloys Ltd, in the hands of the said party for the very same reason.

As per the ld.

Authorised Representative, the issue had come up before the Bangalore Bench of this Tribunal in the case of M/s.

Bellary Steels & Alloys Ltd in ITA Nos.711 & 1154/Bang/2003 and 45/Bang/2004.

Contention of the ld.

Authorised Representative, was that Bangalore Bench in its order dated 10.02.2010 held the transactions to be financial lease, even if there were no underlying goods which were leased.

Thus, according to him, though depreciation was disallowed, part of the financial charges having been allowed in the hands M/s.

Bellary Steels & Alloys Ltd, the transactions could not be treated as bogus.

In any case according to him, the ITA No.

565 to 567/12. :- 5 -: Tribunal having given a clear finding in the case of Bellary Steels & Alloys Ltd (supra) that there was a financial lease, atleast the levy of penalty had to be deleted.

6.

Per contra, ld.

DR strongly supporting the order of the ld.

Commissioner of Income Tax (Appeals) submitted that Hon’ble Karnataka High Court in the case of CIT vs.

Bellary Steels and Alloys Ltd, 370 ITR 226 clearly held that there was no purchase or lease of SGCI rolls to M/s. ls to M/s.

Bellary Steels & Alloys Ltd, nor any payment of lease rent.

The claim according to him was clearly bogus.

Departmental Representative their lordships had clearly held that there was no financial lease, since entire transaction was bogus.

Thus according to him, the claim of depreciation was rightly disallowed and levy of penalty rightly done.

7.

We have considered the rival contentions and perused the orders of the authorities below.

While verifying the issue of depreciation on SGCI rolls, claimed to have been purchased by the assessee from one M/s.

B.H.

Enterprises, Mumbai and leased out to M/s.

Bellary Steels & Alloys Ltd, ld.

Assessing Officer had found that entire transaction was bogus.

Invoice of transportation indicated transportation of scrap instead of SGCI rolls.

The claim of transportation was of weights much higher than lorry capacity.

That ITA No.

565 to 567/12. :- 6 -: apart, Shri.

Jayaprakash Gupta, Chartered Accountant as well as Shri.

Mehta, partner of M/s.

BH Enterprises had clearly stated that there was no purchase of any SGCI rolls ever done by the assessee.

In the face of this, reliance placed by the assessee on proof of delivery of goods, acknowledgment of goods and insurance taken from Oriental Insurance Company fall flat.

The claim of purchase as well as lease to M/s.

Bellary Steels & Alloys Ltd were all bogus.

No doubt, Bangalore Bench of the Tribunal in the case of M/s.

Bellary Steels & Alloys Ltd (supra) had held that the claim of purchase and lease, though bogus, could still be considered as a transaction of financial lease.

However, when the matter reached the Hon’ble Karnataka High Court, their lordship held as under at para 10 of its judgment. ‘’10.

From the aforesaid material on record, it is clear that the lessor has not purchased any machinery.

When no machineries were purchased, the question of leasing non- existence machinery would not arise. not arise.

Therefore, the payment of rent for a property, which is not leased would not arise.

That is why the assessing authority and the lower appellate authority rightly and concurrently held that the lease in question is a sham and it is not real.

The Tribunal has not disturbed this finding that there was no purchase of machinery, there was no lease of machinery and there was no payment of lease rentals.

But strangely, it recorded a finding that unless the Revenue has disputed the assessee's claim with documentary evidence, it cannot be termed as a sham or a device.

When once the managing director admits in his affidavit that there was no purchase of materials/machinery, there was no lease of machinery and, therefore, the amounts paid is not lease rentals, we fail to understand what more evidence was required to establish that the case of lease rentals pleaded by the ITA No.

565 to 567/12. :- 7 -: assessee is a sham transaction or unreal transaction.

Therefore, the Tribunal without any justification erred in setting aside the concurrent findings recorded by the two courts below, which is based on legal evidence.

However, after holding that the assessee is not entitled to a claim of depreciation on the lease rentals it holds that the said amount is to be treated as financial transactions and treated as interest paid for the financial loans availed of by the assessee, a finding, which is without any basis, without any legal evidence on record.

When once the case pleaded by the assessee was found to be without basis and the transaction, on which reliance is placed was found to be bogus, sham and unreal, the assessee's claim is to be negatived.

In the absence of legal evidence to substantiate the claim under different heads, the Tribunal without properly appreciating the material on record to find out whether such a claim has any legal basis could not have granted the relief, which it has granted. s granted.

The said finding is not only contrary to law but is contrary to the material on record.

In that view of the matter, the said substantial question of law is answered in favour of the Revenue and against the assessee’’.

Thus, in our opinion entire transaction was bogus and assessee claimed depreciation on a lease to M/s.

Bellary Steels & Alloys Ltd which were all bogus.

Intention of the assessee was clearly malafide from the beginning.

It manufactured evidence which fell flat in the face of deposition of related parties and other evidence brought in by the ld.

Assessing Officer.

In taking this view we are fortified by the judgment of Hon’ble Jurisdictional High Court in the case of CRN Investments (P) Ltd vs.

CIT, (2008) 300 ITR 342, where a penalty levied on a similar claim of depreciation on bogus lease of SGCI rolls to the very same M/s.

Bellary Steels & Alloys Ltd was confirmed.

In the circumstances, we are of the opinion that disallowance of ITA No.

565 to 567/12. :- 8 -: depreciation as well as levy of penalty were all in accordance with law.

We do not find any reason to interfere with the order of the ld.

8.

In the result, the appeals of the assessee are dismissed.

Order pronounced on Thursday, the 15th day of March, 2018, at Chennai.

Sd/- Sd/- (एन.आर.एस. गणेशन)) (N.R.S.

GANESAN) यायक सद य/JUDICIAL MEMBER (अ ाहम पी. जॉज$) (ABRAHAM P.

GEORGE) लेखा सद य/ACCOUNTANT MEMBER चे$नई/Chennai %दनांक/Dated: 15th March, 2018 KV आदेश क  त(ल)प अ*े)षत/Copy to: 1. अपीलाथ/Appellant 3. आयकर आयु+त (अपील)/CIT(A) 5. )वभागीय  त न/ध/DR 2. यथ/Respondent 4. आयकर आयु+त/CIT 6. गाड फाईल/GF