COMMISSIONER OF INCOME-TAX Vs. SUNDARAM FINANCE LIMITED

JUDGEMENT

(1.) The assessee-company is engaged in the business of hire purchase financing and leasing and allied activities. The assessee has claimed 50 per cent. of 100 per cent. depreciation on a sum of Rs. 30,52,84,527 alleged to be the cost of solar moulds for solar heater system, venturi scrubber and wet oxidation equipment leased to EPK Softech Pvt. Ltd. The officers of the Directorate of Revenue Intelligence, on inspection of the premises of EPK Softech Ltd. found that the said machinery imported by EPK Softech Pvt. Ltd., jointly with the assessee was not a genuine transaction and the said machinery was assembled at Ranipet and exported by EPK International Ferrites to Singapore and therefrom it was imported by EPK Softech Pvt. Ltd. to Tuticorin Port and, thus, the machinery received from Singapore was of Indian origin but misdeclared as of foreign origin. On the basis of the marks and numbers found in the containers and the materials available on record, the Assessing Officer came to a conclusion that the real value of the machinery was concealed by claiming 100 per cent. depreciation and furnished inaccurate particulars and, therefore, levied penalty under section 271(1)(c)(iii) of the Income-tax Act, 1961. It was the further conclusion of the Assessing Officer that the so-called import was made by the assessee only for the purpose of availing of 100 per cent. depreciation. The order of the Assessing Officer was challenged unsuccessfully by the assessee before the Commissioner of Income-tax (Appeals). It was the contention of the assessee before the appellate authority that M/s. ETK Softech Pvt. Ltd., and ETK International Ferrities Ltd., have cheated the assessee and they came to know about the sham import only at the time of enquiry by the DRI and, thereafter, they withdrew the claim of depreciation, vide letter dated September 22, 2000, and treated the same as a loan transaction. The appellate authority rejected the aforesaid contention of the assessee and held that the appellant knew before filing of the return that the leased machinery's value was much less and yet the appellant had chosen to claim 100 per cent. depreciation on much higher price. Ultimately, by relying on the decision of the Supreme Court in K.P. Madhusudanan v. CIT, 2001 251 ITR 99 , upheld the order of the Assessing Officer. The assessee took the matter in appeal before the Income-tax Appellate Tribunal. The Tribunal reversed the findings of the authorities by holding that the documentary evidence and the sequence of events leading to the assessee's providing finance to the transaction do not prove that the assessee had colluded with the lessee to finance a sham transaction and the mens rea is not palpable in this case. Aggrieved by the order of the Tribunal, the Revenue has come forward with the present appeal. At the time of admission of this appeal the following substantial question of law have been framed for consideration:

(2.) According to the Department, the assessee has imported machinery along with ETK International Ferrites Ltd., Ranipet, and it was leased to ETK Softech (P.) Ltd., by extending lease finance to an extent of Rs. 30.53 crores. Out of the said amount, the assessee had claimed 50 per cent. as depreciation. However, on the inspection made by the Directorate of Revenue Intelligence, it was found that the machinery imported by ETK Softech (P.) Ltd. was not a genuine transaction and the machinery was assembled at Ranipet and exported by ETK International Ferrites Ltd., through Chennai Port to Singapore and that even the one time seal affixed on the counter stuffed with the goods from Chennai port was found intact at the time of import at Tuticorin Port. On the aforesaid basis, they came to a conclusion that the machinery received from Singapore was of Indian origin, but was misdeclared as foreign origin. Therefore, the authorities thought it fit to levy penalty. On the other hand, it was the case of the assessee that when the DRI had questioned about the transaction in question, the assessee without waiting for the final outcome of the enquiry, put forth all the facts before the Department and paid an ad hoc amount of Rs. 5.35 and also requested the authorities to treat the entire transaction as a loan transaction to show their bona fides and, therefore, there is no concealment or furnishing of inaccurate particulars in the return as alleged by the Department.

(3.) The Department had mainly relied on the statement of one Shri Sivasankaran of M/s. Anbu Shivam Valuers, who has inspected the machinery on behalf of the assessee and gave a statement dated March 7, 2000, recorded by the DRI to the effect that the machinery was of Indian make and would not cost much. The Tribunal has heavily come down on the statement given by the said person as the statement given by the said officer before the DRI was to safeguard his skin and the assessee genuinely believed the valuation report given by the valuer much earlier. The main reason for reversing the decision of the authorities by the Tribunal is that the import documents, clearance by the Customs Department, valuation report of the valuer, all prove that mens rea is not palpable in this case and the Departmental presumption is only based upon the statement given by the valuer to the DRI.